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The Ford Motor Co. has started working on smaller and less expensive EV’s to reduce their EV losses. Ford’s CEO revealed these plans after they announced adjusted earnings from those losses from the current EV strategy. They plan to recalibrate the EV strategy to move away from large, expensive EV’s as the high prices and the uncertain EV charging grid are barriers to convincing vehicle buyers to go to a fully electric vehicle.

According to Ford, they have been secretly developing a plan to focus on smaller EV products for the last two years. Ford have been forming a specialist team to develop and create a low-cost EV platform. The small team is being led by a former Tesla employee who is now the director of Ford’s advanced EV programme.

The new EV platform will be the basis of several types of vehicles, which Ford are hoping should generate profits. Ford’s current battery powered models lost $4.7 billion US dollars in 2023, and projects the losses will grow to as much as $5.5 billion in 2024.

Ford announced that they are ruthlessly focused on cost and efficiency for EV products because the ultimate competition is going to be the affordable Tesla and Chinese EV.

It's trending that EV sales are slowing down, Ford is attempting to balance between scaling back the company’s EV spending while moving up the output of traditional internal combustion engine models. Which, by the way, generate profits needed to fund future EV growth.

As part of that initiative to find more profits, Ford is looking to find billions in cost cutting, targeting areas such as materials, freight, manufacturing and operations.

In December 2023, Ford halved production of their electric F-150 Lightning trucks, while increasing output of its highly profitable internal combustion powered Bronco Sport SUV and Ranger trucks. Ford’s 2023 EV deficit translated to a loss of an estimated $28,000 on each battery powered EV it sold, those losses are unsustainable by any measure.

A bright spot is hybrid petrol-electric vehicles, which Ford has pivoted to in response to stronger consumer demand. Ford are expecting sales of hybrid models to grow by 40% in 2024, up from 2023’s 25% jump in sales of hybrids. Although recent history predictions haven’t been too reliable for the auto industry.

All US automakers are also facing higher labour costs related to the action and demands from the United Auto Workers (UAW). GM has said the contract it signed with the UAW will add about $575.00 to the cost of each vehicle, while Ford predicts an increase of up to $900.00 per vehicle due to the record deal that increases wages by 33% over the next 4.5 years.

It is possible that GM is better set up to absorb those labour costs because they already had a healthier cost base in the US and Canada. However, Ford has more UAW employees working in the US than GM has.

In Ford’s traditional internal combustion engine business, known as Ford Blue, the company has been close to revenue targets. Even when you factor in the disruptive United Auto Workers (UAW) strike that hampered production targets of high profit models such as the F-Series Super Duty truck and the Ford’s popular Explorer SUV. In its commercial business, known as Ford Pro, the income was above expectation before interest and taxes.

What is causing Ford’s profitability to be tight is the transition to electric vehicles. It clearly takes longer than expected, requiring right-sizing to cut EV losses while managing tough competition from more focused competitors like Tesla and the Chinese EV companies.

April 2024