Ford Adapts Strategy in Response to Mounting EV Losses
Ford Motor Co. is reevaluating its approach to EVs as losses from its Model e business unit continue to accumulate, CEO Jim Farley announced. The company anticipates losing between $5 billion to $5.5 billion on EVs this year, marking a potential 15 percent increase from the previous year's losses. This shift in strategy also entails relinquishing the expectation of achieving 8 percent margins on EVs by 2026, a goal reaffirmed just last year. Farley disclosed that Ford might postpone the release of some forthcoming EVs and is contemplating sourcing more batteries from external suppliers, a departure from its recent focus on vertical integration in production.
In response to the evolving landscape, Ford is redirecting efforts towards developing smaller, more affordable EVs on a new flexible platform, led by former Tesla engineer Alan Clarke based in California. Farley emphasized the importance of cost efficiency in EV production, acknowledging the fierce competition posed by affordable Tesla models and Chinese OEMs. The decision to pivot comes amidst a slowdown in EV growth, prompting Ford to defer $12 billion in spending and scale back production of models such as the F-150 Lightning.
While affirming its commitment to expanding EV volume, Ford recognizes the need for adaptation in light of shifting consumer demand dynamics. Farley highlighted the company's transition from a period of manufacturing constraints to one where pricing convergence with hybrid models is evident. This realization underscores Ford's bet on choice and flexible manufacturing as key drivers for navigating the industry's transition towards electrification successfully.
Despite the challenges posed by the transition to EVs, Ford remains optimistic about its prospects, citing the strength of its combustion business. The Ford Blue division, responsible for combustion vehicles, reported earnings of $7.5 billion in 2023, while the Ford Pro commercial unit saw profits more than double to $7 billion. Executives expressed confidence in the potential of Ford Pro, particularly in its software and services segment, projecting a significant contribution to earnings in the coming years.
Ford's outlook for 2024 includes adjusted earnings before interest and taxes ranging from $7 billion to $7.5 billion for Ford Blue and $8 billion to $9 billion for Ford Pro. While anticipating challenges such as lower pricing and increased labor costs, the company remains committed to achieving its earnings targets through a $2 billion cost-cutting initiative and innovative measures such as aerodynamic design enhancements.
Ford's strategic adjustments reflect a proactive response to the evolving landscape of the automotive industry, prioritizing flexibility, and efficiency to navigate the transition to electrification successfully.
