Ford reported strong earnings and an optimistic earnings outlook for 2024 earlier this week and said the company would continue to spend more on its electric vehicle transformation. But it’s the details of this latest change in strategy that have investors most excited.
“We think there’s been a seismic shift over the last six months,” Ford CEO Jim Farley said on the U.S. electric vehicle market conference call, during which ” electric vehicle manufacturers [are] reducing their price by 20% in all major geographies, and a huge amount of capital is flowing and a ton of new capacity into a single segment: two-row crossovers.
Ford’s overhaul of the electric vehicle market still involves investing, and somewhat heavily it seems, in its Model e business unit, but focusing more on its Gen 2 electric vehicles, which will bypass this “electric vehicle market.” two-row crossovers” dominated by Tesla and other manufacturers. . Farley said Ford would move into larger electric vehicles like trucks and also try to capitalize on the new space.
“We’re going to focus these large electric vehicles on geographies and product segments where we have a dominant advantage, like trucks and vans,” Farley said, later revealing that Ford is also “adjusting its capital, focusing more on smaller electrical products. »
This means that Farley and Ford are essentially abandoning the mid-market for electric vehicles.
The pivot to smaller electric vehicles is a new challenge for Ford, which had retreated from the entry-level sedan and compact market to its gas-powered cars in recent years, focusing its electric vehicle efforts on premium products like the Mustang Mach-E crossover and full-size Micro Lightning.
Farley revealed more of Ford’s smaller electric vehicle projects, saying they have been in the works for some time. For the past two years, Ford has had a hidden startup, or “skunk works” team, working internally to create a low-cost EV platform, he said.
This was music to Morgan Stanley’s ears. Adam Jonas. The analyst criticized Ford for using its profitable Ford Pro business, which he dubbed the “Ferrari” of Ford, to subsidize its “electric vehicle science project.”
“What Matters in Dearborn’s Revaluation Story?” More effective build-partner-buy decisions on the Model E, where we see opportunity for Ford to leverage its strong relationships with Chinese EV partners that we believe can give them the best chance,” he said. wrote Jonas on Wednesday morning.
Farley did not say whether the Ford team would work with its Chinese partners, but only indicated that they posed a threat to the company. “All of our EV teams are ruthlessly focused on the cost and efficiency of our EV products, because the ultimate competition will be affordable Tesla and Chinese automakers,” Farley said, adding that “the upcoming Gen 2 products from Ford will be profitable in the future. the first 12 months of their launch.
Barclays analyst Dan Levy also appreciated Ford’s shift in EV spending.
“While the transition to electric vehicles remains central to Ford, comments on the call indicated some pivoting in Ford’s EV strategy – reflecting broader market challenges in electric vehicle demand. Overall, Ford is working to be more attentive to capital requirements and vehicle economics,” Levy wrote.
The pivot to making a smaller electric vehicle presents a risk, however, Levy noted. “While there is white space for this offering, it stands in stark contrast to Ford’s efforts to electrify with its major franchises, and raises the question of what kind of savings Ford could ultimately achieve with such a vehicle,” did he declare.
From a competitive perspective, Tesla is the only Western automaker manufacturing electric vehicles with a healthy profit margin. The idea is that Tesla is probably the only automaker (aside from Chinese rivals like BYD) that can make a cheap electric vehicle affordable. At least that’s the goal of Tesla and its next $25,000 electric vehicle.
Whether Ford can accomplish its pivot — abandoning the mid-market of electric vehicles and going high-end with trucks and low-end with small electric vehicles — is the risk long-term investors are taking with Ford. But as Ford has indicated, in the short term at least, the auto sector will be strong thanks to the performance of its traditional gas-powered business and the continued growth of Ford Pro – now its most profitable business at 1.8 billion dollars of EBIT in the last quarter alone.
Count Barclay’s Levy is among the group that is happy to see Ford continuing its ICE (internal combustion engine) business, while the electric vehicle world gets its act together.
“While we believe there remains a barrier to the transition to electric vehicles for Ford and other legacy automakers, we nevertheless like the near-term benefits of higher ICE earnings,” Levy said. .
For Ford and Farley, the hope is that profits from the ICE and Pro businesses can continue to fund an electric vehicle transformation that appears to be evolving in real time.
Pras Subramanian is a journalist for Yahoo Finance. You can follow it Twitter and on Instagram.
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