Ford Alters Course Dramatically in Wake of New EV Developments

Ford’s decision to abandon its electric SUV plans signals a major shift in the automotive industry’s approach to electric vehicles.

At a Glance

Ford cancels plans for an all-electric three-row SUV, shifting focus to hybrids
The company will take a $400 million non-cash charge for the write-down
Ford reduces planned EV investment from 40% to 30% of its capital budget
Consumer demand for EVs remains, but growth has slowed significantly
Ford cites affordability and range concerns as key factors in the decision

Ford’s Strategic Shift: Embracing Hybrids, Postponing EVs

In a surprising move, Ford Motor Company has announced a significant change in its electric vehicle (EV) strategy. The automotive giant has decided to abandon plans for an all-electric three-row SUV, instead shifting its focus to hybrid vehicles. This decision marks a notable departure from the industry-wide push towards full electrification and reflects growing concerns about the economic viability of large electric SUVs in the current market.

The shift in strategy is largely driven by consumer demand for more affordable vehicles with longer ranges. Ford CFO John Lawler explained the rationale behind the decision, stating, “When you look at the three-row SUV, hybrid technologies or multiple propulsion technologies, for those customers, is the best solution.” This approach aligns with Ford’s requirement for new vehicles to become profitable within 12 months of launch, a benchmark that has proven challenging for all-electric three-row SUVs.

Ford is implementing more cost-cutting measures as its EV unit struggles, including canceling plans for a three-row electric SUV and delaying the release of a new electric version of the F-150 https://t.co/dxuOIg0wBc pic.twitter.com/ItO10ScmRn

— Reuters (@Reuters) August 21, 2024

Financial Implications and Market Realities

The decision to cancel the electric SUV project comes with significant financial consequences. Ford will take a non-cash charge of about $400 million for the write-down related to manufacturing assets, with potential additional expenses up to $1.5 billion. Furthermore, the company is reducing its planned investment in EVs from 40% to 30% of its capital budget, signaling a more cautious approach to electrification.

“We’re seeing a tremendous amount of competition” in the SUV segment, Lawler said. “In fact, S&P Global … said that there’s about 143 EVs in the pipeline right now for North America — and most of those are two-row and three-row SUVs.” https://www.npr.org/2024/08/21/nx-s1-5084230/ford-electric-suv-hybrids

The EV market is experiencing a cooling period on the consumer side, with increased competition and new Chinese competitors anticipated. While the U.S. saw nearly 600,000 electric cars and trucks sold in the first half of 2024, representing a 7% increase from the previous year, this growth rate is significantly lower than the 46% surge observed in 2023. This slowdown in EV adoption has prompted Ford and other automakers to reassess their strategies.

The Battery Challenge and Hybrid Solution

One of the primary challenges facing electric SUVs is the cost of batteries. Stephanie Valdez Streaty, director of industry insights at Cox Automotive, highlighted this issue, saying, “With EVs, it’s all about the battery.” Battery costs can account for up to 40%-45% of a vehicle’s cost, particularly for large SUVs requiring long ranges. By shifting to hybrids, Ford can utilize smaller batteries, potentially improving profit margins.

“An affordable electric vehicle starts with an affordable battery,” – Ford CEO Jim Farley https://www.batterytechonline.com/automotive-mobility/ford-s-revised-ev-strategy-short-term-setbacks-long-term-optimism

Despite this setback, Ford remains committed to electrification in other areas. The company will continue selling its current fully electric vehicles, including the Mustang Mach-E, F-150 Lightning pickup, and commercial vans. Additionally, Ford is expanding its hybrid lineup, including a hybrid version of its next-generation F-Series Super Duty pickup trucks and replacing the scrapped electric three-row SUV with a hybrid model.

Looking Ahead: Industry Implications and Future Prospects

Ford’s decision reflects a broader trend in the automotive industry, with other major players like GM and Tesla also adjusting their EV production plans. The company’s cautious short-term approach aligns with long-term opportunities, focusing on domestic battery production and hybrid expansion. Ford is continuing with the construction of three new battery plants in Kentucky, Tennessee, and Michigan, with production starting as early as 2025.

While the immediate future may see a slowdown in EV adoption, advances in battery technology could change the cost equation over time. Ford’s strategy of “future-proofing” its offerings with hybrid, electric, and other electrified propulsion options positions the company to adapt to evolving market conditions and consumer preferences. As the industry navigates this period of transition, the balance between traditional combustion engines, hybrids, and full electric vehicles will likely continue to shift, shaped by technological advancements, consumer demand, and regulatory pressures.