Batteries for electric vehicles are scarce and costs for materials such as nickel and cobalt are rising. Still, longtime automaker Ford Motor says it plans to profitably build millions of EVs a year in just four years.
This week, the Detroit automaker gave investors some clarity on how it plans to achieve that goal and transform its company built on gas-guzzling cars.
As electric vehicles represent a growing share of the global auto market, Ford announced in March that it would be reorganizing its operations and separating its combustion engine and electric vehicle efforts. By 2026, the company expects to build more than 2 million electric vehicles annually — about a third of its total global production — while increasing its operating profit margin.
Wall Street analysts were generally positive about the plan, but some were skeptical about the lack of details on how the company plans to address the delivery challenges in the market. Adam Jonas of Morgan Stanley called it a “stretch” target and said he was not confident in Ford’s ability to obtain enough raw materials and tools to manufacture batteries to even come close to his projection.
Ford addressed some of those concerns in another presentation on July 21, when it told investors it had secured enough batteries to meet its near-term goal of having 600,000 electric cars a year by the end of 2023. what it needs to meet its 2026 target, secured.
Ford promised to share more about how it plans to achieve its goals at its annual capital markets day next year. But during his second-quarter earnings call last week, CEO Jim Farley provided some more hints about the automaker’s strategy.
An opportunity to simplify
Rather than just swapping combustion engines for batteries and electric motors, Farley has said the company is completely rethinking how it develops its vehicles — and how it keeps them fresh over time.
The company sees a new era where it can refresh its electric vehicles with upgrades to software, batteries and electric motors, just like Tesla does.. That means the most expensive parts of a vehicle – the sheet metal body panels and the foundations that make up the overall proportions – don’t need to be changed as often.
“We have an opportunity to go digital with these EVs, to simplify our body engineering and put the engineering that customers really care about,” Farley said last week. “And it’s not another fender. It’s software. It is a digital display technology. It is a self-driving system and the [autonomous vehicle] Technic. 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 vehicles fresh, rather than redesigning the bodywork, it could save fortunes.
It’s part of how Ford expects to improve its operating margin to 10% by 2026. For the second quarter, the company posted an adjusted operating margin of 9.3%. Those results were aided by tight supplies of new vehicles, which allowed Ford to increase its prices.
Fitting dealers into the future
Ford is against companies like Tesla and EV startups that sell directly to consumers, without dealers acting as intermediaries.
The company has no plans to eliminate its franchise dealers, which enjoy strong legal protections in many US states that effectively prohibit Ford from selling directly to its customers like Tesla does. But Farley said Ford sees a way to reduce that cost disadvantage — which he estimates at about $2,000 per vehicle — by keeping dealer inventories very low and changing the way Ford markets its products.
One key to that effort: Ford plans to let customers order its EVs online rather than buying a vehicle from a dealer’s stock.
As Farley sees it, dealers will only have a few new vehicles on their lots, just enough to offer test drives to customers before ordering. Customers can order from the dealer or online “in their bunny slippers,” Farley said, with the dealer making the delivery and providing after-sales service.
Farley estimates that low dealer inventory and online ordering will account for about $1,200 to $1,300 of that $2,000-per-vehicle cost disadvantage, while Ford dealers remain profitable. The plan will free dealers from having expensive inventories, allowing them – in theory at least – to focus more on service and customer education. That could give Ford an edge that direct-selling EV manufacturers can’t easily match.
“I think that’s a different game from the pure EV companies,” Farley said.