Batteries for electric vehicles are in short supply, and the cost of materials such as nickel and cobalt is rising. Still, veteran automaker Ford Motor says it plans to turn a profit by producing millions of electric cars a year in just four years.
The Detroit-based automaker gave investors a little more clarity this week on how it plans to achieve that goal and transform its gas-guzzling business.
As the share of electric vehicles in the global car market grows, Ford announced in March that it will reorganize its business and separate internal combustion engines and electric vehicles. The company said it plans to produce more than 2 million electric vehicles annually by 2026 — about a third of total global production — while increasing operating profit margins.
Wall Street analysts were generally positive about the plan, but some expressed skepticism about the lack of specifics surrounding how the company plans to overcome the market’s supply problems. Morgan Stanley’s Adam Jonas called the target a “stretch” and said he lacked confidence in Ford’s ability to secure enough battery raw materials and tooling to even come close to the target.
Ford addressed some of those concerns in another presentation on July 21, when it told investors it has secured enough batteries to meet its near-term goal of 600,000 electric vehicles a year by the end of 2023. provided about 70% of what is needed to achieve the goal by 2026.
Ford promised to share more about how it plans to achieve its goals during its annual capital markets day next year. But during its second-quarter earnings call last week, CEO Jim Farley gave a few more hints about the automaker’s strategy.
Possibility of simplification
Instead of simply replacing internal combustion engines with batteries and electric motors, Farley said the company is completely rethinking how it designs its cars — and how it keeps them fresh over time.
The company sees a new era in which it will be able to refresh its electric vehicles with updates to software, batteries and electric motors, as Tesla does. This means that the car’s most expensive parts – the sheet metal body panels and underpinnings that shape its overall proportions – won’t need to be replaced as often.
“When we go digital with these electric cars, we have an opportunity to simplify body design and put the engineering where customers really care,” Farley said last week. “And this is not another wing. This is software. This is digital display technology. It is a self-governing system and [autonomous vehicle] technical And, of course, in some cases it will be more powerful engines.”
Ford typically redesigns its traditional car models every five to seven years. If it can extend that time by relying on software updates to keep its cars fresh, rather than body redesigns, it could save money.
It’s part of how Ford plans to increase its operating margin to 10% by 2026. In the second quarter, the company posted an adjusted operating margin of 9.3%. These results were helped by a limited inventory of new cars, which allowed Ford to raise prices.
Fitting dealers for the future
Ford is at a disadvantage compared to companies like Tesla and EV startups, which sell directly to consumers without dealers acting as intermediaries.
The company has no plans to eliminate its franchised dealers, which enjoy strong legal protections in many US states, effectively barring Ford from selling directly to its customers, as Tesla does. But Farley said Ford sees a way to reduce that cost disadvantage — which he estimates at about $2,000 per car — by keeping dealer inventories very low and changing the way Ford sells its products.
One key to the effort is that Ford plans to allow customers to order their electric vehicles online rather than buying a car at a dealership.
According to Farley, dealers will only have a few new cars, enough to offer customers test drives before ordering. According to Farley, customers will be able to place orders at the dealership or online “in the bunny slippers,” with the dealer handling delivery and after-sales service.
Farley estimates that low dealer inventory and online orders will account for about $1,200 to $1,300 of that $2,000 per vehicle, ensuring that Ford dealers remain profitable. The plan would free dealers from having to carry expensive inventory, allowing them — at least in theory — to focus more on serving and educating customers. That could give Ford an advantage that direct-selling EV makers won’t be able to easily match.
“I think it’s a different game than companies that are purely electric,” Farley said.
