With Google deal, Farley has Ford betting big

DETROIT — Ford Motor Co.'s failure to close a deal with Google in early 2016 helped bring Mark Fields' tenure as CEO to an end.

Five years later, a different type of tie-up with the tech giant secured by CEO Jim Farley could be just the beginning.

A sweeping six-year partnership announced last week will give Ford access to Google's cloud technologies for use in its factories, dealerships and vehicles as the automaker rolls out data-rich connected services. Ford also will use Google's Android operating system to power the infotainment on millions of vehicles starting in 2023, and it's forming a team to explore future collaborations.

It's an early win under Farley for an automaker often chided by Wall Street for a lack of flashy announcements, hailed by one analyst as a "step in the right direction" that could generate billions in revenue. The Google deal and a subsequent commitment last week that nearly doubles Ford's investment in electrification to $22 billion through 2025 offer a peek into Farley's strategy: invest in expanding and updating the well-established subbrands within Ford's lineup while leaving costly, time-consuming commodity work to others. Investors so far have responded, with the long-stagnant stock up more than 70 percent in the four months since he took charge.

"We want our team working on things that will differentiate us," Farley said last week on Ford's fourth-quarter earnings call. "It's a fundamental approach; the technology partners are becoming more and more important for us to deliver that digital experience and build the capability within our company. We don't have all the answers. These companies can really help us and we can help them."

A decision by Farley's predecessor, Jim Hackett, in late 2017 to embed connected modems in all new vehicles ultimately enabled the deal with Google. So, too, did Farley's past role as president of new businesses, technology and strategy.

From mid-2017 to early 2020, Farley spent considerable time in Silicon Valley building relationships and picking the brains of tech leaders across multiple industries.

Roughly a year ago, Ford began getting serious about finding a partner for cloud services and looked at multiple big-name companies, according to two people with knowledge of how the deal happened. Google was identified as the top target and talks began roughly nine months ago, the people said.

The negotiations went smoothly and relatively quickly, with most of the general framework in place halfway through the discussions. The legal contract was signed on Dec. 30.

Terms of the deal were not disclosed, although Farley told CNBC it's worth "hundreds of millions" of dollars.

People involved said both sides developed a friendly relationship with no bad blood from five years ago, when talks went south after Ford reportedly wanted more of a high-profile partnership than the quiet, technical tie-up Google desired.

Also at issue in the previous talks: who controls the data.

This time around, Ford has said that Google will not have access to customer data, but Morgan Stanley analyst Adam Jonas said Ford is likely to share key vehicle data that's not customer-specific.

"There's been changes on both sides of this equation," Sam Abuel-samid, principal research analyst at Guidehouse Insights, told Automotive News.

"In the past, carmakers were much more reluctant to partner with tech companies on something like this because they didn't want to give up control of the data. What's happened is both sides have come together and compromised a bit."

Ford said Google's technology can help it spot defects in manufacturing processes, improve supply chain logistics, alert customers when their vehicle needs service or offer trade-in alerts, for example.

Customers will get access to Google's voice assistant and navigation system within all new vehicles globally, except in China, starting in 2023. Ford says customers can continue to use Apple CarPlay, Amazon Alexa and other operating systems by connecting their own devices.

Farley said the company has more than 100,000 subscribers to its commercial telematics business and could continue to grow that.

Jonas praised the deal in an investor note and suggested Ford could earn as much as $5 billion from the deal through future subscription services.

"We believe it helps Ford more efficiently allocate capital, it accelerates time to market for key technologies and it reduces execution risk of an internally developed solution," Jonas said.

"We believe the industry is in the early innings of a profound shift to recurring revenue measured in data, derived from its hardware 'real estate' and monetized through a range of recurring business models tied to the utility of passenger miles traveled, to miles delivered and hours spent in the car."

The Google news is expected to be a sign of things to come under Farley, who called 2021 "a strategic inflection point" while reporting fourth-quarter and full-year 2020 earnings.

Although the automaker suffered its first full-year net loss since 2008, Farley vowed that Ford would "start to grow again, but most importantly, in the right areas," after spending considerable capital in recent years on low-margin vehicles.

One of those growth areas will be electrification, with a majority of its $22 billion commitment through 2025 earmarked for full battery-electric models.

After ending planned electric vehicle partnerships with Zotye in China and Mahindra in India, Farley hinted last week that there could be additional investments to come in battery cell production, echoing prior comments that it's an area Ford is exploring.

He also said more information on Ford's EV efforts would come during a spring investor day, an event his predecessor abandoned much to the consternation of Wall Street analysts looking for more concrete details.

"Our partnerships will change with electrification," Farley said. "You should expect more work in that regard, and I don't think you'll have to wait too long to hear more about that."