American auto major Ford Motor has recently launched the formation of its new subsidiary. Named as the Ford Autonomous Vehicles LLC, this newly formed subsidiary will be responsible for driving ahead the Automated Vehicle business in order to make the most of the future opportunities of the global auto market. The Ford Autonomous Vehicles, which has been formed to take on third party investments, has come into existence as a fully owned subsidiary of the Ford Motor Company. Ford has the intentions of investing a whopping $4 billion dollars in this newly formed brand. However, when the third party investments are concerned, the new firm would be giving at least a part of its ownership to other organizations.
This arrangement is pretty similar to the American auto major’s take at the Argo AI, a separate autonomous vehicle software startup firm. Ford is committed to investing one billion dollars in the Argo AI over a period of four years. Ford’s fellow American car major, General Motors also opened a similarly subsidiary named as Cruise with a $2.25 billion investment by Softbank.
The auto majors are following this business strategy of forming a new entity to handle the autonomous vehicle unit, as it is an upcoming market segment which is still rather unsure. This strategy is in keeping with the lessons that were thought in the classic business book ‘The Innovator's Dilemma’by the Harvard Professor Clayton Christensen. As per Christensen’s lesson, one of the primary approaches for the incumbent businesses to adopt is to put the emerging product line-ups under an independent, stand-alone business unit, which is also often physically separated from the headquarters of the parent company. This strategy is actually followed by many global auto majors, but Ford Motor and General Motors seem to have taken Christensen’s advice very literally.
Moreover, these two American automotive majors seem to have taken the Harvard professor’s method to a different level, as the companies have also set up legally independent entities which come with different shareholders and practically different interests as well. Ford Motor now has three separate organizations, each one of which has set their potentially different interests; these are namely - Ford Motor Company, Ford Autonomous Vehicles and Argo AI.
General Motors have acquired the Cruise, and the company’s acquisition decision has proven to be highly successful. The startup firm’s valuation has increased by leaps and bounds by a multiple of 11 in only two years’ time.
The newly formed Ford Autonomous Vehicles LLC is also expected to achieve similar success, and if this happens then other auto majors are surely to follow suit.
Ford is currently busy working on several upcoming models for the global auto markets, while also busy preparing for the future auto industry which is rapidly changing in a massive way, thanks to the advent of the electric vehicles and the autonomous vehicle technology. The global auto industry is preparing for a huge shift from the current conventional vehicle ruled market to the fully green, intelligent and connected vehicles.