Ford Motor Company announced on Thursday that it will be delaying approximately $12 billion in planned investments in electric vehicles (EVs), citing softening demand for higher-priced premium electric vehicles. The delay includes the construction of a second battery plant, which was a joint venture with SK On.
Key Takeaway
Ford is delaying
2 billion in planned investments in EVs due to softening consumer demand for higher-priced premium electric vehicles. The company remains committed to its EV strategy but acknowledges that consumers are not willing to pay a premium for EVs compared to traditional gasoline or hybrid vehicles. Ford is focused on reducing the sticker price on electric vehicles and plans to cut operational costs and scale quickly to compete in the EV market.
Concerns Over Consumer Demand
CFO John Lawler stressed that Ford remains committed to its next-generation EV vehicles and is not backing away from its EV strategy. However, Lawler, along with CEO Jim Farley, acknowledged that although EV sales have grown, consumers are not willing to pay a premium for an EV compared to a traditional gasoline or hybrid vehicle. The pressure to lower prices has affected profits, leading to losses in Ford’s EV business.
While Ford continues to be profitable overall, thanks to its commercial product and services business known as Ford Pro, as well as sales of its gas and hybrid vehicles under the Ford Blue unit, the Model e unit, dedicated to EVs, has been facing challenges. In the third quarter, Ford reported a $1.3 billion loss in its Model e unit, which was an increase from the $1.08 billion loss in the previous quarter.
Ford is aiming for an 8% margin on EVs and plans to achieve cost parity with internal combustion engine (ICE) vehicles. However, achieving this goal will require structural changes within the company.
Price Reduction as a Priority
CEO Jim Farley emphasized that reducing the sticker price on electric vehicles is a top priority for Ford. The company aims to compete with Tesla, which has set the standard for cost and scaling in the EV market. Ford plans to cut operational costs and scale quickly in order to find the right balance and appeal to consumers.
Ford has already taken steps towards this cost strategy by introducing the F-150 Lightning Flash pickup, a more affordable version of the F-150 Lightning, and plans to introduce second and third-generation vehicles at lower price points.
Farley emphasized that in the current EV business landscape, having a great product is not enough. Ford needs to be competitive in terms of cost in order to succeed in the EV market.
Shifting Production and Adjusting Capacity
To better align with market demand, Ford is shifting its production and adjusting future capacity. The automaker has reduced Mustang Mach e production and slowed down various investments, including delaying the construction of a second Blue Oval SK joint venture battery plant in Kentucky with Korean battery maker SK On. Ford is also evaluating its global Battery Park Michigan plant for potential adjustments.
In total, Ford has pushed approximately $12 billion of EV spending, including capital expenditures, direct investments, and expenses. The company is being cautious about moving forward with these investments unless they are deemed necessary.
