DETROIT \u2014\u00a0Ford Motor\u2019s profit engine for decades has been large trucks and SUVs in the U.S. So it might surprise investors that the automaker believes its new path to profitability for electric vehicles will first be led by smaller, more affordable vehicles.<\/p>\n
The new plan is an \u201cinsurance policy\u201d for the automaker to be able to expand its growingly popular hybrid models and create more affordable EVs that it believes will deliver a more capital-efficient, profitable electric vehicle business for the company and investors, according to Marin Gjaja, Ford\u2019s chief operating officer for its Model e EV unit.<\/p>\n
\u201cWe\u2019re quite convinced that the highest adoption rates for electric vehicles will be in the affordable segment on the lower size-end of the range,\u201d he told CNBC on Thursday. \u201cWe have to play there in order to compete with the entrants that are coming.\u201d<\/p>\n
Those expected newcomers are largely Chinese automakers, such as\u00a0Warren Buffett-backed BYD, that have been rapidly growing from their home market to Europe and other countries.<\/p>\n
Gjaja\u2019s comments came a day after the automaker announced\u00a0updates to its EV strategy that will cost\u00a0up to $1.9 billion. That includes about $400 million for the write-down of manufacturing assets, as well as additional expenses and cash expenditures of up to $1.5 billion.<\/p>\n
Ford\u2019s new plans for North America include canceling a large, electric three-row SUV that was already far in development, delaying production of its next-generation \u201cT3\u201d electric full-size pickup truck by about 18 months until late 2027, and refocusing battery production and sourcing to the U.S.<\/p>\n
Instead of the three-row SUV or large pickup, the company\u2019s first new EV is expected to be a commercial van in 2026, followed the next year by a midsized pickup and then the T3 full-size pickup.<\/p>\n
Gjaja said the decision wasn\u2019t taken lightly, especially the cancellation of the\u00a0upcoming three-row vehicle, which Ford CEO Jim Farley and other executives had been touting as a game changer for several years.<\/p>\n
The commercial van comes as\u00a0Ford\u2019s \u201cPro\u201d commercial vehicle and fleet business, which includes vans and large Super Duty trucks, has been a standout for the company and offset billions of dollars in EV losses.<\/p>\n
And the midsize pickup is scheduled to be the first vehicle from a\u00a0specialized \u201cskunkworks\u201d team\u00a0in California, The company had tasked the team two years ago with developing a new small EV platform.<\/p>\n
\u201cWe believe smaller, more affordable vehicles are the way to go for EV in volume. Why? Because the math is completely different than [internal combustion engine (ICE) vehicles],\u201d Farley told investors last month. \u201cIn ICE, a business we\u2019ve been in for 120 years, the bigger the vehicle, the higher the margin. But it\u2019s exactly the opposite for EVs.\u201d<\/p>\n
Farley has said the weight and cost of battery packs needed for large vehicles such as a three-row SUV, which many families buy for road trips, towing and hauling, are a limitation for EVs due to current ranges and charging networks.<\/p>\n
Ford\u2019s current EVs \u2014 the Mustang Mach-E crossover, F-150 Lightning and a commercial van in the U.S. \u2014 are not profitable overall. The Model e operations have lost nearly $2.5 billion during the first half of this year and lost $4.7 billion in 2023.<\/p>\n
The losses, as well as changing market conditions and business plans, caused Ford\u00a0earlier this year\u00a0to withdraw an ambitious\u00a08% profit margin\u00a0for its EV unit by 2026.<\/p>\n
Investors and Wall Street analysts have largely supported the EV changes, most recently sending the company\u2019s shares up about 2.3% since the announcement earlier this week, despite the expected costs.<\/p>\n
\u201cOverall, these changes will position Ford to benefit from growing demand for EVs, while also focusing on areas in which it has a Core competitive advantage,\u201d BofA\u2019s John Murphy wrote Wednesday in an investor note. \u201cGiven the size of the charge, this is clearly a tough decision in the short-term, but we think makes sense in the medium to long-term given what will likely be subpar economics in the three-row CUV\/SUV segment.\u201d<\/p>\n
The updates are the latest for Ford\u2019s electrification plans, which now include a heavy focus on hybrid and plug-in hybrid electric vehicles, or PHEVs, to assist in meeting tightening fuel economy regulations in addition to all-electric vehicles.<\/p>\n
Ford CFO John Lawler said Wednesday that the company\u2019s future capital expenditure plans will shift from spending about 40% on all-electric vehicles to spending 30%. He did not give a timeline for the change, but it\u2019s a massive swing from when the company announced\u00a0plans in 2021\u00a0to spend more than $30 billion on EVs through 2025.<\/p>\n
The hybrid plans include offering such options across its entire North American lineup by 2030, including three-row SUVs, to assist in meeting tightening emissions and fuel economy requirements. Lawler said that to improve profitability, Ford is also accelerating the mix of battery production in the U.S. that will qualify for tax incentives and credits.<\/p>\n
The shift in Ford\u2019s plans is consistent with the overall auto industry, which is facing growing, but\u00a0slower-than-expected adoption of EVs, as well as automakers not being able to achieve expected profitability on the vehicles.<\/p>\n
\u201cWhat we saw in \u201921 and \u201922 was a temporary market spike where the demand for EVs really took off,\u201d Gjaja told CNBC during an interview earlier this year. \u201cIt\u2019s still growing but not nearly at the rate we thought it might have in \u201921, \u201922.\u201d<\/p>\n
There\u2019s also an industrywide fear that Chinese automakers could be able to flood markets with cheaper, more profitable EVs. Chinese automakers such as\u00a0BYD\u00a0are quickly growing exports of vehicles to Europe and other countries.<\/p>\n
Lawler pushed back Wednesday on the idea that the Chinese have outgunned American automakers.\u00a0He said the Ford, in part, developed the skunkworks team to prove that Ford can compete against the Chinese automakers.<\/p>\n
\u201cAs we\u2019ve watched in the last 18 to 24 months, the emergence of incredible products and formidable competitors in China has really been, I think, the story for us,\u201d Gjaja said. \u201cAnd so now, when we look at the competitive landscape, we have to chin ourselves against the most competitive companies in China.\u201d<\/p>\n
Ford\u2019s new plans are polar opposite of its closest rival,\u00a0General Motors.<\/p>\n
America\u2019s largest automaker has pulled back spending and\u00a0delayed many of its EVs, but it has several\u00a0large all-electric vehicles\u00a0on sale coming soon.<\/p>\n
GM was among the first to go \u201call in\u201d on EVs, including by creating a vertically integrated, dedicated electric vehicle platform and supporting technologies such as batteries and motors.<\/p>\n
Aside from\u00a0Tesla, GM was the first automaker to begin U.S. battery cell manufacturing through a joint venture at scale, which the company has continued to tout as a cost advantage<\/p>\n
GM\u2019s current lineup includes three all-electric large pickup trucks, a Hummer SUV, two recently launched Chevrolet crossovers, a luxury Cadillac crossover and $300,000 Celestiq car. Several more crossover models and an all-electric\u00a0Escalade SUV\u00a0are expected to join the lineup this year as well.<\/p>\n
As recently as last month, GM\u00a0reconfirmed expectations\u00a0for its EVs to be profitable on a production, or contribution-margin basis, once it reaches output of 200,000 units by the fourth quarter.<\/p>\n
A GM spokesman Thursday said the automaker continues \u201cto work to reach variable profit positive during the fourth quarter.\u201d<\/p>\n
Gjaja declined to comment on GM\u2019s target or operations but said Ford is doing what\u2019s best for the company.<\/p>\n
\u201cWe\u2019re focusing on what we think are the right technologies to serve our customers that can also be affordable for them and profitable for us,\u201d he said.<\/p>\n<\/p>\n
DETROIT \u2014\u00a0Ford Motor\u2019s profit engine for decades has been large trucks and SUVs in the U.S. So it might surprise investors that the automaker believes its new path to profitability for electric vehicles will first be led by smaller, more affordable vehicles. The new plan is an \u201cinsurance policy\u201d for the automaker to be able […]<\/p>\n","protected":false},"author":0,"featured_media":8508,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-8507","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/8507","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/comments?post=8507"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/8507\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/8508"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=8507"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=8507"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=8507"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}