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Author: Ji Zhenyu Editor: Liu Peng

The old American auto giant that once announced its entry into the electric vehicle marketFord, is rethinking its electric vehicle strategy. Under the new strategy, "profitability" and "capital efficiency" have become the two top priorities in the electrification transformation. Specifically, Ford will abandon the previously announced pure electric three-row seat large SUV plan and instead produce a three-row seat hybrid model.

Large SUVs and pickup trucks have always been Ford's biggest profit contributors, but this logic of making cars "bigger and more expensive" does not work for electric vehicles. The electric vehicle business is seriously dragging down Ford's overall performance. In the first half of 2024, Ford's electric vehicle business suffered a loss of $2.5 billion, while the company as a whole achieved a net profit of $3.2 billion during the same period. In the first quarter, Ford sold a total of 10,000 electric vehicles and suffered an operating loss of $1.3 billion, which means that on average, every electric vehicle sold brought a loss of $132,000.

The continued performance pressure has forced Ford to make the above-mentioned business adjustments, and the development of hybrid models and enrichment of its model structure have become an important part of Ford's new strategy.

In fact, the mainstream manufacturers in the current US electric vehicle market have reached a consensus that "hybrid" is a transitional product in the overall electrification process of the passenger car market, further enriching the product structure of traditional energy vehicles and new energy vehicles. The industry generally believes that electrification is an irreversible trend, but the current slowdown in the electric vehicle market is also an indisputable fact. Therefore, hybrid has become an ideal option that caters to consumer demand, guarantees financial performance, and continues to follow the long-term goal of electrification.

Ford announces adjustment of electric vehicle business strategy

Faced with its electric vehicle business unit that continues to drag down the company's overall performance, the veteran American auto giant Ford is making major adjustments.

"The competitive nature of the global market is changing, which means these vehicles need to be profitable, and if they are not, we will adapt and make difficult decisions.'"

The company said this week that its new electric pickup truck model will be delayed 18 months to 2027 from its original schedule, and it has directly canceled three new electric SUV products.

At the same time, Ford announced that it would cut and adjust its investment in its electric vehicle business, planning to launch a pure electric truck in 2026 and a mid-size electric pickup in 2027.

The above adjustments mean that Ford's short-term financial performance will usher in "pain" again. Ford said that the cancellation of the three new electric vehicle products will bring a one-time sunk cost of US$400 million due to the initial expenditure on manufacturing equipment purchased. In addition, the expenses related to these projects will total US$1.5 billion.

Ford's chief financial officer said that in the future, the proportion of investment in electric vehicles in the company's total capital expenditure will be reduced from 40% to 30%.

Ford currently has three battery factories in Kentucky, Tennessee and Michigan in the United States. The battery factory in Kentucky is scheduled to start construction next year. Ford has now stopped plans to build a fourth battery factory in Kentucky.

After abandoning plans to build a large electric pickup truck, Ford is turning to hybrid products and the company said it plans to build a three-seat hybrid SUV.

Electric vehicle business drags down overall performance

The main factor that forced Ford to make such a major decision is that Ford's electric vehicle business continues to drag down the company's overall performance. In the first quarter of this year, Ford sold a total of 10,000 electric vehicles and suffered an operating loss of $1.3 billion, which means that on average, every electric vehicle sold will result in a staggering loss of $132,000. The core reason for this dismal performance is that Ford's electric vehicle business is still in a period of large-scale investment, and the overall US electric vehicle market has begun to weaken. In the first quarter, Ford's electric vehicle sales decreased by 20% year-on-year, while electric vehicle sales revenue fell sharply by 84% year-on-year to only $100 million. Ford attributed this to the reduction in the price of electric vehicles.

Last year, Ford sold 116,000 electric vehicles, and its electric vehicle business suffered a pre-tax loss of $4.7 billion, averaging an operating loss of $40,000 per vehicle. This means that Ford's losses in its electric vehicle business continued to expand in the first quarter of this year.

In the first half of this year, Ford's electric vehicle business lost $2.5 billion, while the company's overall business achieved a profit of $3.2 billion. It is obvious that electric vehicles are dragging down the company's overall performance.

In Ford's second-quarter financial report, the company's overall judgment on the future development of the electric vehicle market showed a cautious and conservative attitude.

"While we continue to invest in our electric vehicle strategy, we are observing lower-than-expected industry acceptance of EVs and facing near-term pricing pressures, which may result in us adjusting spending, production and/or product launches to better match the pace of EV adoption now and in the future," Ford said in its earnings report.

Ford's strategy in the electric vehicle business has changed so quickly. Just a few years ago, Ford was ambitious to make a big move in the electric vehicle field, announcing that from 2022 to 2026, it would invest a total of $50 billion in the production and manufacturing of electric vehicles and batteries, and planned to produce 2 million electric vehicles by 2026. However, Ford announced the cancellation of this goal last year. Currently, Ford only sells three electric vehicle products, namely the F-150 electric pickup truck,Wild HorseMach-E and Ford Electric Van E-Transit van。

The North American electric vehicle market as a whole faces challenges

The challenges that Ford, a long-established American auto industry giant, faces in its new electric vehicle business are due to the slowdown of the overall electric vehicle market in the United States.

According to data from Kelley Blue Book, electric vehicle sales increased by 2.6% year-on-year in the first quarter of this year, but fell by 15.2% from the fourth quarter of last year. American residents purchased 268,000 electric vehicles in the first quarter, accounting for 7.3% of all new car sales, a decline from the fourth quarter of last year.

Just a year ago, the growth rate of electric vehicles in the US market was still very rapid. In the first quarter of 2023, electric vehicle sales increased by 46.4% year-on-year and 15.5% month-on-month. In the first quarter of 2022, the year-on-year growth rate was 81.2% and the month-on-month growth rate was 20.4%.

Stephanie Valdez Streaty, director of Cox Automotive, an automotive industry analysis firm, said that electric vehicle sales in the U.S. market fell month-on-month in the first quarter of this year, the first decline since the second quarter of 2020.

As a leader in the electric vehicle industryTeslaAffected directly by the impact, Tesla's electric vehicle sales revenue fell 7% year-on-year in the second quarter, marking the second consecutive quarter that the company's electric vehicle sales revenue has fallen. Tesla's response of price cuts and promotions, in the face of an overall weak market, has neither saved sales nor hurt profit margins. Tesla's net profit fell sharply by 48% year-on-year in the quarter.

Other automakers are also facing similar challenges. Volkswagen, which recently announced a partnership with electric car manufacturer Rivian, saw its electric car sales in the United States fall 28% in the first half of the year to just 12,000 units. General Motors is also slowing down its investment in battery factories and delaying plans to launch new electric car products. Currently, General Motors is also facing the dilemma of its electric car business dragging down its overall performance.

Investment bank Goldman Sachs pointed out in a recent research report that the decline in the electric vehicle market is mainly affected by three factors. First, the decline in the prices of used electric vehicles has led to concerns about capital investment in electric vehicles. Second, a series of elections around the world this year have increased concerns about the uncertainty of future government policies on electric vehicles or new energy industries. Third, there is a shortage of fast charging stations.

Manufacturers are adjusting their strategies

Although the overall electric vehicle market in the United States is currently slowing down, the industry does not believe that this marks the end of electrification, but that the pace of transformation is slower than previously expected.

Marin Gjaja, chief operating officer of Ford's electric vehicle division, previously stated in a public interview that the surge in demand for electric vehicles seen in 2021 and 2022 was a temporary "jump." He believes that electric vehicles will still grow, but will not reach the growth rate of 2021 and 2022.

Market research firm Cox Automotive said that electric vehicle sales in the United States reached a record 1.2 million last year, accounting for 7.6% of all car sales in the U.S. market. The agency believes that this proportion will further increase to 30% to 39% in the next 10 years.

While electric vehicles are slowing down, growth in hybrid vehicles remains strong, reflecting the fact that the entire market is in a transition period towards full electrification.

In order to cope with this market stage, electric vehicle manufacturers have begun to adopt strategic transformation. Ford's decision to abandon the release of some pure electric vehicles and instead invest in some hybrid vehicle products is a typical example in the industry.Kia、Toyotaand Volkswagen, etc., are pretty much doing the same thing.

"I think a more balanced approach is best." Pablo Di Si, CEO of Volkswagen North America, said in a previous interview that Volkswagen is considering launching hybrid models in the US market. The company currently sells hybrid models in the European market, but this segment is still missing in the North American market.

General Motors, the first traditional American automaker to propose electrification goals, also stated that it will adjust its business strategy based on current consumer demand in the market.

"We are basically facing 'two worlds' (traditional energy and electric) at the same time," said John Roth, vice president of Cadillac, a subsidiary of General Motors. "We will see where the future goes, but we still stick to our long-term goal of electrification."

Ford also expressed the same view. Marin Gjaja, chief operating officer of Ford's electric vehicle division, said that Ford has always taken a "free choice" approach to respond to market changes.

“This is partly to prevent us from going too far in one direction because, as we have seen, the current market is very uncertain,” Gjaja said.

In this regard, Toyota, another traditional automaker, may have already been on the same page as the industry's current consensus. Toyota Chairman Akio Toyoda has been adhering to the strategy of diversifying its models for many years to achieve the long-term goal of carbon neutrality by 2025. Toyota has a wide range of models including traditional energy, hybrid, and electric.

In the U.S. market, Toyota's pure electric vehicles have almost no presence, but its models are constantly expanding their share in the U.S. market.

"The sales growth rate of hybrid vehicles in the U.S. market is five times that of electric vehicles," said Adam Jonas, an analyst at Morgan Stanley. "Electric vehicles may be the 'future', but there is no doubt that they are facing challenges at the moment."