It’s more about building a more competitive vehicle than supplying Intel with chips.
Ford announced Tuesday it plans to make its own high-performance computer chips. This doesn’t mean the automotive giant is abandoning a longstanding relationship with Intel, which has provided processors for decades. Rather, the new chips will go into Ford vehicles, starting with the 2018 Ford Mustang. Ford says it plans to offer several other models in the future.
Mark Fields, Ford’s CEO, said he wouldn’t have made this announcement if there weren’t a strong business case. “We’re making these chips to make our vehicles faster, better and safer,” Fields said. “This partnership will enable us to accelerate innovation and market new features with the speed of which our customers want to buy our vehicles.”
The move is intended to build Ford into a more profitable vehicle manufacturer. Currently, the automaker reports losses in its vehicle division due to the heavy investment required to build cars based on highly complex computer chips. Ford has also been criticized for using technologies that don’t really help improve driving—such as lane-keeping assistance systems that rely on cameras, radar and ultrasonic sensors—in the vehicles it builds. At the same time, the high-end vehicles that best serve Ford’s ambitions are noncomputing products such as in-car entertainment systems.
By building the components itself, Ford is able to recoup more of the upfront costs of the development of products that don’t require building cars. That saves Ford time, and money, as it reduces the investment needed in testing new technologies, and the need to undertake other costly development steps along the way.
Fields said the investment in the computer chips is the most significant among the hundreds of moves Ford has made to reduce costs and boost margins over the past few years. He said Ford now expects the new car segments where it will build the processors to generate as much as 30 percent greater profit margins than Ford’s passenger cars. The company expects the new car segments to generate more than $2 billion in additional revenue by 2022.
It was clear that Fields is driven to improve profits. Ford’s stock prices has been struggling lately, and that struggle has spilled over into Fields’s relationship with the two major banks that hold Ford’s debt.
In his most recent investor meeting on Tuesday, Fields said the 2014 financial crisis revealed two lessons about the car business: It’s not just about the cars. It’s also about “the networked car,” Fields said. “We must create a car that can integrate seamlessly with mobility technologies and help provide a radically transformed connected experience for our customers.”