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Ford, Magna Can Look to Startups for Electric Focus Roadmap

Updated with clarification from Tesla: Ford Motor Co. (s F) took a big step today on the road to producing an all-electric Ford Focus by 2011, pledging to invest $550 million to retool an SUV and truck factory for the new Focus and other small-platform cars in Wayne, Mich. But Ford and Magna International (s MGA), the Canadian auto parts giant hired to develop the battery, powertrain and other components for the model, face an uphill climb to put an affordable EV in showrooms within two years. For tips, it should look to green car and battery startups, which have already begun that climb.

The idea behind the Ford-Magna deal — and behind Magna’s plug-and-play electric platform, unveiled in prototype earlier this year — is that by contracting an outside supplier to develop the bulk of this new technology, Ford can trim its R&D expenses, reduce risk and move faster than it would if it did all of the work in-house. Since the rights aren’t exclusive — Magna can market the system to other automakers — the development costs will theoretically be covered not just by Ford, but also by future partners.

Startup Tesla Motors has taken a similar approach with its Roadster as Ford is taking with the electric Focus, developing the powertrain inhouse but sourcing the battery cells, chassis, transmission (initially) and other components from outside suppliers. It ran into trouble with its transmission, which caused major production delays, required the company to retrofit early models with a new and simpler single-speed transmission, and landed the company in court with the second company hired for the job — none other than Magna Powertrain, a subsidiary of Magna International.

Update: Ultimately Tesla decided to develop specifications for another transmission in-house (it hired supplier BorgWarner (s BWA) to build it), having learned, then-VP of Marketing Darryl Siry told us at the time, that, “We need to have more control over our fate and manage the process in-house.” That’s what GM has decided to do with much of the Chevy Volt, assembling a battery pack with software and controls developed within the company, along with LG Chem’s lithium-ion cells. “We’re relying more on a battery developer,” Ford’s director of sustainable business strategies, John Viera, told us in an interview last week, noting that while there is a “relatively small supplier base” for EV batteries, that base is “very capable.”

Tesla’s rocky road to production of its first electric vehicle may offer another key lesson for Ford, one that emerged early this year, when sports car maker Lotus — which makes the Roadster bodies — announced plans to build an extended-range electric vehicle: Watch out for suppliers and contractors launching out on their own. This lesson is especially relevant for Ford and Magna, as Magna has set off in hot pursuit of a minority stake in GM’s European subsidiary, Opel, a play that could put the longtime supplier on the road to becoming a full-on automaker.

For startups, the auto industry’s ongoing tumult, combined with mounting pressure from the government for automakers to produce more fuel-efficient and innovative vehicles (especially if they’ve taken bailout money), is opening doors to mass production, but not without risk. Battery startup A123Systems came close to winning a big contract for GM’s Chevy Volt, and GM is continuing to work with the company — as well as other companies — as a backup for its supply agreement with LG Chem. A123Systems, meanwhile, ended up snagging the supply deal for Chrysler’s planned ENVI lineup. As powertrain analyst Mike Omotoso told us this week, that deal is now up in the air as Chrysler undergoes restructuring, which could delay A123Systems’ planned public offering — highlighting the risk, for Magna and startups alike, of relying heavily on one or a few customers.

Magna is already on shaky ground. Its revenue comes mostly from the big automakers, with purchases from now-bankrupt Chrysler — which has shuttered all of its North American plants indefinitely — making up some 11 percent of sales in the first quarter of this year. GM (s GM), which is also teetering on the brink of bankruptcy, accounted for another 19 percent in that period. Today Magna reported a $200 million loss and 46 percent drop in sales for the quarter of this year, and noted that Chrysler and GM’s restructurings “could have a material negative impact on our financial position and operations” (bankruptcy could allow the automakers to avoid paying the hundreds of millions of dollars Magna was counting on for the quarter). But Magna says it’s making the most of the shakeout. According to the Canadian Press, Magna chief executive Donald Walker said today that the company has acquired some business from competitors and is “hopeful on a number of other takeover opportunities.”

Photo courtesy Ford Motor Co.

9 Responses to “Ford, Magna Can Look to Startups for Electric Focus Roadmap”

  1. cliff @ motoring

    A ford focus eco friendly car should be a good seller, Ford have been expanding there range of cars for some time and with there new fusion on the roads ford cars are looking up.

  2. Any one that has the guts to make something that could help is stretching themselves. What have you done to help the world citizen save money or have a better future? At least the little electric car is a start. The start may develop into something big. Their sedan looks good, if they can get the price down it may be a contender in the ev market. I can’t afford their car but they are selling all of them!!!

  3. kent beuchert

    Tesla DID NOT develop any mechanical part of the roadster inhouse. That car is a slightly lengthened Lotus produced and built by the British automaker.
    Tesla’s engineers simply plopped in an electric motor they bought from someone else, and 8700 batteries (designed for laptops, not automobiles). Gee, what a piece of engineering. They have stories in every newspaper of Joe the shadetree mechanic transforming his Chevy S10 into an electric car. Takes about 8 hours and a few wrenches.
    Tesla didn’t even have the expertise to
    certify the car – they had to hire ex-Detroit auto execs. The Tesla startup, far from providing any direction for GM, was actually going to copy the Volt architecture until they realized they couldn’t do it, at which time unreliable, unethical Elon Musk (the man who sues competitors with frivolous lawsuits- Fisker)
    suddenly decides to proclaim the GM technology faulty (Elon has no clue as to how much better the Volt avoids emissions and gasoline that his overpriced all-looks, no impact, car). Musk (along with brainless Dave Letterman, one of Tesla’s sucker buyers) told more than a few lies on national TV and have been virtually excommunicated from the environmentalist movement. Musk is nothing if not
    embarrassingly dumb – a point made by the judge who awarded Fisker over a million dollars to be paid by Musk for bringing a totally frivolous lawsuit whose only purpose was to eliminate a competitor (which DOES use GM technology). I despise anyone (listening, ugly Dave?) who does business with Mr Musk. There are such things as ethics, and they are far more important than the insignificant modified Lotus bugs he’s peddling.

    Anything that comes out of Musk’s mouth must be considered unlikely to be true, until proven otherwise.