Why Ford thinks its $1.9 billion transition to electric vehicles will benefit the automaker | Real Time Headlines

Detroit – Ford Motor CompanyFor decades, America’s profit engine has been large trucks and SUVs. .

The new program is an “insurance” for the automaker to expand its increasingly popular hybrid lineup and create more affordable electric vehicles that it believes will provide the company and investors with more capital-efficient, profitable options. Higher electric vehicle business.

“We’re very confident that the highest adoption of electric vehicles will be in the affordable, smaller segments,” he told CNBC on Thursday. “We have to race there to compete with the entrants that are coming.”

These expected new entrants are mainly Chinese car manufacturers, e.g. Warren Buffett– Support BYD, which has been growing rapidly from its home market into Europe and other countries.

Gjaja’s comments come a day after the automaker made the announcement Updating its electric vehicle strategy will cost Up to $1.9 billion. This includes approximately $400 million in writedowns on manufacturing assets and up to $1.5 billion in additional charges and cash outlays.

Ford’s new plans for North America include canceling a large electric three-row SUV already in development, delaying production of the next-generation “T3” electric full-size pickup truck by about 18 months to the end of 2027, and refocusing on battery production and procurement. U.S.

The company’s first new electric vehicle is expected to be a commercial van in 2026, rather than a three-row SUV or a large pickup, followed by a midsize pickup and a T3 full-size pickup.

Gjaja said the decision was not taken lightly, especially the cancellation Upcoming three-row vehicleFor years, Ford CEO Jim Farley and other top brass have touted it as a game-changer.

Commercial trucks are Ford’s “Pro” commercial vehicle and fleet businessThat includes vans and large super trucks, which have been the company’s top performers, offsetting billions of dollars in losses from electric vehicles.

The midsize pickup truck is expected to be the first from Dedicated “Skunk Works” team Two years ago, the company tasked the team with developing a new small electric vehicle platform in California.

“We believe smaller, cheaper vehicles are the way to go for electric vehicles in volume. Why? Because the math is completely different than (internal combustion engine (ICE) vehicles),” Farley told investors last month. “In the ICE industry, which we’ve been doing for 120 years, the bigger the vehicle, the higher the profit. But with electric vehicles, it’s the opposite.”

Farley said the weight and cost of the battery packs required for larger vehicles such as road trips, towing and hauling are limitations of electric vehicles for many families buying three-row SUVs due to current range and charging networks.

Ford’s current electric vehicles — the Mustang Mach-E crossover, F-150 Lightning and commercial vans in the U.S. — are generally unprofitable. In the first half of this year, the Model e business lost nearly US$2.5 billion, and it will lose US$4.7 billion in 2023.

These losses, along with changing market conditions and business plans, resulted in Ford earlier this year withdraw ambitious 8% profit margin its electric vehicle unit by 2026.

Investors and Wall Street analysts have largely backed the change to electric vehicles, with the company’s shares recently up about 2.3% since the announcement earlier this week, despite the expected costs.

“Overall, these changes will allow Ford to benefit from growing demand for electric vehicles while also focusing on areas where it has core competitive advantages,” Bank of America’s John Murphy wrote in an investor note on Wednesday. “Given the scale of the expense, this is obviously a difficult decision in the short term, but given that economics in the three-row CUV/SUV segment are likely to be sub-par, we think it makes sense in the medium to long term.”

Ford Chief Financial Officer John Lawler said on Wednesday that the company’s future capital spending plan will shift from about 40% spending on all-electric vehicles to 30% spending. He didn’t give a timetable for the change, but it’s a big shift from when the company announced the decision 2021 plans By 2025, spending on electric vehicles will exceed $30 billion.

The hybrid plan includes offering such options across the entire North American lineup, including three-row SUVs, by 2030 to help meet strict emissions and fuel economy requirements. To boost profitability, Ford is also accelerating the mix of U.S. battery production, which will qualify for tax incentives and credits, Lawler said.

The shift in Ford’s plans is consistent with the growth of the entire auto industry, but Electric vehicle adoption slower than expectedand the inability of automakers to achieve expected profits on vehicles.

“What we saw in ’21 and ’22 was a temporary market peak where the demand for electric vehicles really took off,” Gjaja told CNBC earlier this year. “It’s still growing, but it’s nowhere near where we thought it would be in 21, 22. possible annual growth rate.”

The industry is also worried that Chinese automakers may bring cheaper and more profitable electric vehicles to the market. Chinese car manufacturers such as BYD Car exports to Europe and other countries grew rapidly.

On Wednesday, Lawler pushed back against the idea that Chinese automakers have surpassed U.S. automakers. He said Ford developed the Skunk Works team in part to prove it could compete with Chinese automakers.

“As we’ve seen over the last 18 to 24 months, I think China has emerged with incredible products and strong competitors, and that’s really our story,” Gjaja said. “So now, when we look at the competitive landscape, we have to compete with the most competitive companies in China.”

Ford’s new plan is the polar opposite of its closest rivals, General Motors.

America’s largest automaker cuts spending Delayed production of many electric vehiclesbut it has several Large all-electric vehicle Coming soon.

General Motors was one of the first companies to go “all in” on electric vehicles, including creating a vertically integrated dedicated electric vehicle platform and supporting technologies such as batteries and motors.

Apart from TeslaGM is the first automaker to mass-produce batteries in the United States through a joint venture, which the company has touted as a cost advantage

GM’s current lineup includes three all-electric large pickup trucks, a Hummer SUV, two recently launched Chevrolet crossovers, a luxury Cadillac crossover and the $300,000 Celestiq vehicle. More crossovers and all-electric models Escalade SUV It is also expected to join the lineup this year.

Just last month, General Motors Reaffirm expectations Once production reaches 200,000 units in the fourth quarter, its electric vehicles can make a profit based on volume or contribution margin.

A GM spokesman said Thursday that the automaker will continue “working toward positive variable profit in the fourth quarter.”

Gadja declined to comment on GM’s goals or operations but said Ford was doing what was best for the company.

“We’re focused on the right technologies that we believe will serve our customers in a way that’s affordable for them and profitable for us,” he said.