Ford rethinks its EV strategy

Ford is recalibrating its electrification strategy yet again, canceling plans for a fully electric sport utility vehicle in a shift that may cost the carmaker around $1.9 billion.

In addition to scrapping an all-electric three-row SUV that had already been delayed, Ford will postpone a next-generation electric pickup and reduce spending on EVs to 30% of its annual capital expenditures from about 40% previously.

The automaker also announced Wednesday it’s shaking up battery-sourcing plans, citing the need to better compete with lower-cost Chinese competitors.

Still confident

The actions amount to a further pullback by Ford CEO Jim Farley, who initially accelerated Ford’s shift to EVs when he took over the top job almost four years ago. The automaker incurred significant costs spooling up production as industry sales growth began to taper off, leading Ford to forecast that its EV unit will lose as much as $5.5 billion this year.

Farley, who recently confessed his conversion from petrolhead to EV enthusiast, is now betting Ford can deliver EVs priced on par with traditional vehicles, including a battery-powered midsize pickup truck due to debut in 2027, and turn a profit on these models within a year after they launch.

“This is a tremendous pivot for us, and we’re not going to make a tremendous pivot without doing a lot of homework to convince ourselves this is the exact, right plan,” Farley, 62, said in an interview with Bloomberg. “I’m very confident.”

EREV is the new buzzword

Ford has responded to the EV demand slowdown by cranking up the output of gas-electric hybrid models, which consumers have better received. Farley is particularly high on a type of hybrid called extended-range electric vehicles (EREVs). The vehicles use a small ICE engine to keep an onboard battery charged while driving, enabling longer driving range.

Ford is now considering extended-range EV technology for its next-generation three-row SUVs as it considers offering a range of powertrain options throughout its lineup. However, the automaker ultimately determined it couldn’t make money on an all-electric big SUV.

“We loved our three-row crossover, and I was so excited to show everyone our work,” Farley said. “But there was just no way it would ever meet our criteria of being profitable.”

As a result of this change of plans, Ford will take a special non-cash charge of about $400 million related to writing down the value of manufacturing assets it will no longer use. The Canadian plant where the electric SUV was going to be built is now slated to produce highly profitable, ICE-powered pickups.

Ford may also incur as much as $1.5 billion in additional expenses, including cash expenditures, in future quarters as special items tied to canceling the electric SUV and shifting powertrain options, totaling approximately $1.9 billion for the shift.

Farley also said the future midsize pickup powered by an LFP battery made in Michigan, foreseen for 2027 now, will be cheaper to own and operate than a traditional internal combustion engine or hybrid model.

He wouldn’t say when Ford’s EV division, Model e, will turn a profit. Those answers may come in the first half of next year when the company plans to provide an update on its electrification strategy. For now, Farley said Ford’s approach to any proposed new EV is simple: “We don’t approve ’em unless they’re going to be profitable in the first year.”

Vulnerable

“Ford’s new plan leaves the automaker vulnerable,” said Corey Cantor, an EV-focused analyst with BloombergNEF. He thinks this is the worst time to withdraw from EVs. “The recalibration of its strategy could leave it on the back foot if other automakers prove to have read the EV landscape better.”

“Ford taking a step back could reverberate across the longer-term outlook for EV uptake in North America but also open the door for rivals,” Cantor added. “Ford needs to improve its profitability and scale upwards, ideally with new, easier-to-make products. Cutting investments now, even if it looks good for quarterly earnings, rather than going the distance to keep its momentum could be a mistake.”

Until now, Ford does have that momentum. Sales of the Mustang Mach-E are up. Ford is the second-largest EV manufacturer in the U.S. But for how long? Competitors like the Koreans and Chinese are still accelerating their investments, also in the U.S., and American competitor GM has many more models coming too. Ford won’t have anything until 2027.

“We see the Chinese as the main competitor, not GM or Toyota,” Farley said last year. “To beat them, you have to have a very distinct brand, which we think we do, by leaning into our icons, or you have to beat them on cost. But how do you beat them on cost if their scale is five times yours?”

It’s still an unanswered question in 2024. But with these EV plans pushed further out, you have to wonder if Ford will finally have an answer in 2027.

Question mark Europe?

Ford of Europe has the more compact Capri and Explorer EV models that could be useful now in the U.S., but they’re not planned there. Being based on VW’s MEB platform, they aren’t all that relevant to Ford’s own development cycles, save for acting as a stopgap until Ford figures out what it will really do in Europe.

Ford and Volkswagen are the two manufacturers that could face the highest fines in the EU for failing to meet the 2025 CO2 goals, as the EV market here is also slowing down. According to Dataforce’s figures, only Geely and Tesla are already below their 2025 targets, and Toyota is close because it sells mainly hybrids. Ford and VW face the biggest gap.

That’s why several European carmaker CEOs recently asked to revise the EU targets, and VW CEO Oliver Blume was talking about joining an emission pool with a more efficient manufacturer to lower its fleet emissions. As for now, the European Commission says no major pooling agreements have yet been announced for 2025.