How Ford’s Valuation Depends Upon Different R&D Projections
The auto industry is on the cusp of experiencing rapid technological changes. In recent times, industry leaders such as Ford Motor (NYSE: F) have come under pressure to respond to the many currents of change impacting the transportation business. Some of these include:
- Acquisitions and partnerships with ride sharing or on-demand service providers to compete with companies like Uber. General Motors has invested in Lyft, purchased the assets of SideCar; Toyota has partnered with Uber; Volkswagen with Gett.
- The growing popularity of hybrid electric vehicles, plug-in electric vehicles and battery electric vehicles.
- The introduction of new production processes to reduce the product-to-market time of newer models, such as BMW using carbon fibers for the body of the BMW i3 electric car.
- Investments in improvement of fuel efficiency as a result of increased pressure from regulators to meet stricter emission standards worldwide.
- Changes to assembly lines and moves toward a common architectures, such as Volkswagen’s DBQ architecture and Toyota’s TNGA, after multiple and costly recall scandals faced by auto companies.
- Growing need for augmentation of the driving experience with artificially intelligent services, such as Cruise Control, Auto Pilot mode, Valet mode etc.
As a result, investments in research and development for many auto companies are likely to rise in the near future. Below, we present three scenarios for Ford which assess the impact of each of these scenarios on Trefis’ valuation for Ford. Each of these scenarios projections a different R&D expense as a percentage of overall gross profits to retain the market share and average unit prices for the calendar year 2015.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Ford Motor
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