During Ford’s Q4 2023 earnings conference, CEO Jim Farley announced a strategic shift in the company’s electric vehicle (EV) investment strategy, slowing down battery plant investments in response to the rapidly changing EV market. Farley explained that the disruptions in the supply chain caused by the COVID-19 pandemic, resulting in chip shortages, coupled with the low financing costs during the 2021-2022 period, led Ford to misread customer preferences. Initially, when Ford accelerated the release of EV cars, they sold like hotcakes. However, as the early adopters bought their EVs, the subsequent customers were less willing to pay a premium. This problem was first identified by Tesla, and Ford quickly followed suit to adapt.
Farley stated that if we look at the EV sales statistics in the second half of 2023 in the United States, we will see an increase in the number of cars delivered, but a decrease in overall revenue. This is because automakers with excess inventory had to lower prices significantly. This problem occurred not only in China but also in Europe.
The changes in the EV market have caused Ford’s EV business, known as Model E, to lose $4.7 billion in 2023 (despite the company’s overall profitability of $4.7 billion). Ford believes that the proportion of EV sales will increase to 40% by the end of 2024.
Given this market situation, Ford is delaying investments in several planned battery factories and adjusting its plans for the launch of Gen 2 electric vehicles until they are truly cost-effective and profitable.
Interestingly, Farley revealed that Ford has quietly built a team of engineers for the past two years to develop a new EV platform. This platform is designed for the next generation of low-cost, high-performance EVs to compete with Tesla’s new models and the competitively priced Chinese EVs. However, Farley did not disclose which specific models will utilize this new platform or when they will be launched.
TLDR: Ford is adapting its EV investment strategy due to the rapidly changing market. Chip shortages and low financing costs during the pandemic have led to misreading customer preferences. Despite an increase in EV sales, overall revenue has decreased due to excessive inventory leading to significant price reductions. Ford is delaying investments in battery factories and adjusting plans for the launch of Gen 2 EVs until profitability is guaranteed. They have secretly developed a new EV platform to compete with Tesla and Chinese EVs, but specific details and launch dates remain undisclosed.
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