Electric vehicle batteries are in short supply and the costs of materials such as nickel and cobalt are rising. Still, incumbent automaker Ford Motor said it plans to profitably build millions of electric vehicles a year in just four years.
This week, the Detroit automaker gave investors a bit more clarity on how it plans to achieve that goal and transform its gas-guzzling car business.
As electric vehicles account for a growing share of the global auto market, Ford announced in March that it would reorganize its businesses and separate its internal combustion engine and electric vehicle efforts. By 2026, it said it plans to build more than 2 million electric vehicles a year, about a third of its total global production, while increasing its operating profit margin.
Wall Street analysts were generally positive about the plan, but some expressed skepticism about the lack of details on how the company plans to overcome supply challenges in the market. Morgan Stanley’s Adam Jonas called it a “stretch” goal and said he lacked confidence in Ford’s ability to secure enough raw materials and tooling to manufacture batteries to even come close to its projection. .
Ford addressed some of those concerns in another presentation on July 21, when it told investors it had secured enough batteries to meet its short-term goal: 600,000 electric vehicles per year by the end of 2023. has got about 70% of what it needs to meet its 2026 target.
Ford promised to share more about how it plans to achieve its goals at its annual capital markets day next year. But during his second-quarter earnings call last week, CEO Jim Farley gave a few more clues about the automaker’s strategy.
A chance to simplify
Instead of just replacing internal combustion engines with batteries and electric motors, Farley said the company is completely rethinking how it develops its vehicles — and how it keeps them cool over time.
The company sees a new era where it can refresh its electric vehicles with upgrades to software, batteries and electric motors, just like Tesla is doing. This means that a vehicle’s most expensive parts – the sheet metal body panels and the underpinnings that form its overall proportions – won’t have to be changed as frequently.
“We have an opportunity, as we go digital with these electric vehicles, to simplify our body engineering and put engineering where customers really care,” Farley said last week. “And this is no different fender. It’s software. It is a digital display technology. It is a self-driving system and the [autonomous vehicle] technology. And of course it will be, in some cases, more powerful engines.”
Ford generally redesigns its traditional vehicle designs every five to seven years. If he can extend that time by relying on software updates to keep his vehicles current, rather than body redesigns, he could save a fortune.
This is part of how Ford plans to improve its operating margin to 10% by 2026. For its second quarter, the company posted an adjusted operating margin of 9.3%. These results were helped by tight inventories of new vehicles which allowed Ford to raise prices.
Ford is disadvantaged by companies like Tesla and EV startups that sell directly to consumers, with no dealerships acting as intermediaries.
The company does not plan to eliminate its franchise dealerships, which have strong legal protections in many US states that effectively prohibit Ford from selling directly to customers like Tesla does. But Farley said Ford sees a way to reduce that cost disadvantage — which he estimates at around $2,000 per vehicle — by keeping dealer inventory low and changing how Ford markets its products.
One key to that effort: Ford plans to allow customers to order its electric vehicles online rather than buying a vehicle from a dealership’s inventory.
According to Farley, dealerships will only have a few new vehicles on their lots, just enough to offer customers test drives before they order. Customers will be able to order from the dealership or online “in their bunny slippers,” said Farley, with the dealership delivering and providing after-sales service.
Farley estimates that low dealer inventory and online ordering will account for about $1,200 to $1,300 of that $2,000 per vehicle disadvantage, while ensuring Ford dealerships remain profitable. The plan will free dealers from having to carry costly inventory, allowing them — in theory, at least — to focus more on serving and educating customers. That could give Ford an edge that direct-selling EV makers won’t be able to easily match.
“I think it’s a different game than purely electric companies,” Farley said.
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