Ford is confident it knows how to keep its next round of electric vehicles, starting with a midsize pickup, affordable. A new approach and a simpler vehicle are key, Ford president and CEO Jim Farley tells investors on a call to discuss the automaker’s third-quarter earnings.
Ford surprised the industry in February when Farley explained the company was making a giant pivot: postponing already-delayed plans to make big three-row electric SUVs, delaying the next-generation of its electric fullsize pickup trucks, and shifting focus and energies to affordable EVs already under development for two years by a skunkworks team in California. Their mission: a low-cost platform that yields electric vehicles starting around $25,000 that can compete with Tesla and the EVs being developed in China which are already flooding the European market. The new platform is expected produce the pickup, a small SUV, and a ride-hailing vehicle. All must be profitable in the first 12 months.
Farley said he has confidence in keeping costs in line for Ford’s new EVs, starting with the pickup in 2027, because he has already quoted about 60 percent of the material and structural costs, including lower-cost lithium iron phosphate (LFP) batteries which is where Chinese companies like BYD have a huge advantage. He says the new EVs will match the cost structure of any Chinese automakers building their vehicles in Mexico.
Keep it Simple
Equally important is that the team took a totally different approach to developing the vehicle, Farley said. “We basically verified the design of each part a year or two earlier than we normally do, and we verified it from the supplier standpoint and ours by looking at a variety of different suppliers, even challenger suppliers. That has been an eye-opening experience for us to really see what cost is on these advanced components.”
Because Chinese competitors have an advantage on affordability of batteries, Ford has to make that up on the EV component side: inverters, gearbox, motors, etc. This is being done with a combination of new approaches, from the actual design of the component to leveraging new suppliers.
“Basically, we radically simplified the vehicle,” Farley says. “The number of parts in the vehicle is an order of magnitude change. When you simplify the components to that level, and you really move the design, and supplier design phases earlier, you can integrate simpler design with better costs. We’ve done a lot on manufacturing, we have a whole new kitting strategy, for the vehicle, we have a unit casting strategy that massively simplifies the stamping of the vehicle.” He knows other companies are exploring similar strategies, using gigacasting and design to remove cost from the outset. But he thinks the Ford ethos of simplicity and a higher engagement with a broader supplier chain earlier in the process will help ensure success.
Hits and Misses in Third Quarter
Ford reported a 26 percent drop in third-quarter net income to $0.9 billion, down $0.3 billion from a year ago on increased revenue of $46 billion. Adjusted income before interest and taxes amounted to $2.6 billion, a $352 million improvement from a year ago. The automaker took a previously announced $1 billion charge for postponing plans for three-row electric SUVs.
The moneymaker continues to be Ford Pro, the commercial vehicle division, that saw a 13 percent increase in revenue and generated $1.8 billion before interest and taxes. Ford Pro continues to grow its subscription base, up 30 percent to almost 630,000 users.
Ford Blue, which is the internal combustion engine side, generated $1.6 billion in profit (down 5.3 percent) on revenue that increased slightly to $26.2 billion, led by sales in North America. Hybrid sales were up 30 percent, on track to end the year as 9 percent of the total.
Ford Model e, the electric vehicle side of the house, lost $1.2 billion in the quarter but Ford says it continues to make cost improvements.
The revised forecast for the year is adjusted earnings of about $10 billion, a drop from previous forecasts of as much as $12 billion. Ford Blue will make about $5 billion this year but Model e is expected to lose $5 billion.
Key to improving earnings is reducing warranty costs which has put Ford behind the competition. And while the automaker continues to cut annual costs, it is not doing it fast enough to outrun the competition, says CFO John Lawler. Ford has a better understand of the root cause to get cost out of the system and has made progress on material costs but has gone backwards on warranty costs. “It’s a humbling position to be in,” Lawler says. “Eighteen months later, we have not closed the gap. We need to accelerate our pace to outrun what our competitors are doing.”
GM’s Third Quarter
Last week General Motors reported net income largely unchanged at $3.1 billion. Pretax earnings were up nearly 16 percent. The company had adjusted earnings before interest and taxes of $4.1 billion on $48.8 billion in revenue. It was led by North America where revenue was up 14 percent to a quarterly record of $41.2 billion.
GM grew share in the U.S. with strong pricing and below-average incentives. Even China saw improved sales. The strong results prompted the company to raise its forecast for the year, now expecting adjusted earnings of $14 billion to $15 billion and net income should now fall between $10.4 billion and $11.1 billion.
