Ford says its larger electric cars are barely profitable.
It’s relying on selling small EVs, which is exactly what it doesn’t want in its main market.
Ford’s electric vehicles didn't do so well in the second quarter of 2024. The company lost more than $2.4 billion and expects to lose $5.5 billion by the end of the year.
The problem is obvious. First, in 2022, executives split the company to gain ground in the EV market and narrow the gap with Tesla, which dominates in the U.S. At that time, Ford argued that the Ford Model e (from the electric division) would be faster and more agile, while Ford Blue (from the internal combustion division) would sustain the business.
To balance things out, in the first few years, Ford Blue would be responsible for generating enough revenue so that the leap to electric cars wouldn’t affect the company’s financial health. Over time, the Ford Model e division would gain strength, balancing power between the two units in a controlled manner.
But Ford claims it has a problem. It needs to sell small EVs. In the U.S., customers aren’t willing to buy huge electric cars, and smaller vehicles are an exception.
In a call with investors, Ford CEO Jym Farley explained the problem.
“That Doesn’t Hold Up”
According to InsideEVs, Farley summarized the matter in a call to investors saying, “That doesn’t hold up in the electric era.”
The comment refer to the business model the company has to work with for years to come. In the first half of the year, Ford sold 22% fewer EVs than in 2023. The trend is bad because, in the second quarter, this division represented a decline of 26% in the company’s accounts.
To get an idea of the weight of each market for Ford, in recent years, the company sold more than two million vehicles in the U.S. (it reached three million a decade ago). In contrast, it's sold half a million cars in China (the second most important country in terms of EVs). In Europe, Ford's sales have already fallen below one million cars.
This context is awful for the company. During the presentation of Ford F-150 Lightning, Ford launched the ambitious message that the car could “pawn the whole company” if it didn’t sell as expected. Ford was confident that large electric vehicles would soon take off in the U.S., but sales remain stagnant.
According to Farley, large electric cars fail to attract customers because they're too expensive, and their buyers are unwilling to spend that money on the technology. This situation is like what Mazda CEO Masahiro Moro said when he claimed that Tesla sells for being Tesla, not for selling electric cars per se.
Farley says it’s best to opt for internal combustion vehicles, where companies can get a higher profit margin for large cars. He says automakers would have to equip such vehicles with huge batteries to convert them into EVs, which reduces the chances of making them profitable. Ford has experimented with this in the past with the Mustang Mach E.
As reported by InsideEVs, Farley claims it’s much more profitable for the company to produce a large combustion car than a small one, so Ford has shifted to more expensive gasoline vehicles.
Ford’s CEO explains that the most profitable electric cars are small because their batteries are smaller. Therefore, they can play with higher profit margins. For this reason, the company is determined to launch an all-electric model under $30,000 in the next few years and has chosen to partner with Volkswagen to produce models that follow these specifications in the present.
The company’s problem is that the U.S., a key market, is still turning its back on these cars. While the number of full-electric models is still slow to grow, Ford plans to reduce emissions from its internal combustion vehicles gradually. This decision further complicates the situation for smaller models.
The strategy seems clear: sell combustion cars that are as expensive as possible and electric cars that are as small as possible. Farley says this is the best way to make money “in the electric era.”
This article was written by Alberto de la Torre and originally published in Spanish on Xataka.
Images | Ford
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