Written by Joseph White
DETROIT (Reuters) – Hometown Services, a heating and cooling repair company in Tulsa, Oklahoma, is preparing to install driver-monitoring cameras on some of its trucks and is already using streaming data to monitor idle vehicles for long periods of time. Drivers are being warned not to sit too much. Waste of gasoline.
“People will be sitting in the vehicle for an hour or two,” said Del Underwood, the company's vice president of purchasing and fleet. Now, the technician receives a text from her telling him to stop the truck or move on to the next mission.
While this may frustrate some employees, it's good news for Ford Motor Co.'s commercial vehicle division, Ford Pro, which is betting big on software-related services. Ford Pro expects to generate up to $1.8 billion in annual profits within two years by selling connected vehicle services such as driver monitoring systems to small and medium-sized fleet operators.
Ford CEO Jim Farley urged investors to think of Ford Pro's software and vehicle sales bundle, not Tesla, as “the future of the auto industry.”
Mike Ramsey, a vice president at technology consultancy Gartner, said the market for telematics services for heavy-duty vehicles is dominated by companies like Geotab and Verizon.
But Ford “can get all the companies that buy Ford Transit for the plumbing business,” Ramsey said.
Small and medium-sized commercial vehicles in North America and Europe constitute a large enough market that Farley told investors that Ford Pro could generate 20% of its pre-tax profits from software and services sales within two years. He said he could get it.
Mr. Farley expects Ford Pro to make pretax profits of $8 billion to $9 billion this year. He promised investors that professionals will reap greater profits than the consumer business thanks to the service and maintenance business, which is driven by telematics connectivity to vehicles and data.
In 2023, Ford Pro had 500,000 paid subscriptions to software services. “We're up 46% and our margins are over 50%,” Farley told analysts in January. He said 12% of the vehicles Ford Pro sells come with a software subscription, and he wants to triple that.
Last May, Ford Pro head Ted Kannis told investors that software subscriptions could generate $2,000 in revenue per vehicle annually, and that by adding services such as insurance, Ford could He said he could increase the revenue per vehicle to $4,000 to $5,000.
Ford uses telematics connectivity to encourage commercial vehicle owners to replace parts before they break. Navin Kumar, Ford Pro's chief financial officer, said last month that increasing the subscription rate by 1 percentage point “could add approximately $30 million in EBIT accretion to the business.”
Ford also sells its vehicle data to large fleets that subscribe to competing telematics services.
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Farley expects big profits, but investors have so far not valued Ford stock anywhere near Tesla's level. The Silicon Valley electric car company is worth more than 10 times Ford's market capitalization.
Morgan Stanley analyst Adam Jonas called Ford Pro “Ford's Ferrari,” but also questioned, “How much will Ford Pro be able to offset the losses in its vertically integrated EV strategy?” did.
In 2023, Ford Pro earned $7.2 billion in pre-tax profit, with a pre-tax profit margin of 12.4%. By comparison, Ford's overall pretax profit margin was just 5.9%, which was offset by the cost of strikes at major U.S. factories by the United Auto Workers union and a $4.7 billion pretax loss in its electric vehicle business. is reflected.
Ford Pro's above-average profit margins are encouraging rivals to compete.
Last year, Stellantis grouped its commercial vehicle business under a new name, Stellantis Pro One. As well as imitating Ford's use of the word “pro”, Stellantis said it aims to generate €5 billion a year from connected services sales.
General Motors last year reorganized its North American commercial vehicle business to increase competition with Ford Pro.
Another challenge for Ford Pro is converting customers who currently use the software and telematics services for free into paid subscribers.
Fize Electrique, an electrical contractor in Quebec, is using Ford Pro software to monitor battery charge levels in 12 Ford EVs it has purchased during a one-year free trial period. This is very important because in Quebec's cold winter climate, EV batteries lose range faster.
“When we introduced the first E-Transits, I was always looking at the numbers,” said Alan Fisset, who oversees the company's fleet. The data obtained from the vehicle “helped us understand the health of the battery.”
This convinced Fize to take advantage of Quebec's relatively stable electricity prices to accelerate its transition to fully electric vehicles.
Ford Pro is experimenting with new ideas for software services, but not all projects work, Dave Prusinski, chief revenue officer of Ford Pro's software business, said in an interview.
In 2021, Ford and business software company Salesforce announced plans to develop a subscription software service called VIIZR that automates work instructions to contractors. But that project has ended, Prusinski said.
“Realistically, that wasn't our core,” he said. “There were some great solutions on the market. We were seeing traction, but we just couldn't catch up fast enough.”
(Reporting by Joe White; Editing by Ben Klayman and David Gregorio)
