Ford invests $1.9 billion in affordable electric vehicles: a smart move for future growth

At a Ford dealership in Glendale, California, the Mustang Mach-E takes center stage as part of Ford’s significant strategic shift. From Detroit, the narrative is changing for Ford Motor Company. Traditionally dominated by sales of large trucks and SUVs, the company is now moving toward smaller, more affordable electric vehicles (EVs).

Marin Gjaja, Ford’s chief operating officer for Model and EV, describes the shift as a strategic safeguard. The plan aims to increase the presence of hybrid models and introduce affordable EVs, charting a course for a more capital-efficient and profitable future in the EV industry. Gjaja expressed confidence in an interview with CNBC, noting, “The entry-level market segments will likely see the fastest adoption of EVs. It’s critical for us to be competitive in this space, especially against emerging manufacturers.”

These emerging competitors, including Warren Buffett-backed BYD, are making significant inroads from China to Europe. Ford’s strategy adjustment, announced just a day earlier, calls for an investment of $1.9 billion. That includes about $400 million in impairment charges on manufacturing assets and additional expenses of up to $1.5 billion.

Ford’s revamped strategy for North America includes scrapping plans for a large, three-row electric SUV and delaying production of the full-size “T3” electric pickup until late 2027. Instead, focus will shift to launching a commercial van in 2026, followed by a midsize pickup and finally the T3 pickup.

The decision to kill the three-row vehicle was a tough one, Gjaja noted, especially since it had previously been touted as a significant innovation by CEO Jim Farley, among others. The commercial van will be part of Ford’s “Pro” line, which has been instrumental in balancing its financial balance sheet amid losses in the electric vehicle business.

Jim Farley, in a recent investor call, highlighted the economics behind the move to smaller electric vehicles: “Unlike traditional internal combustion engine vehicles, where larger models generate higher margins, the dynamics for electric vehicles are reversed due to the substantial cost and weight of the batteries required for larger vehicles.”

The strategy changes come on the heels of Ford’s ongoing losses in its EV business, which totaled nearly $2.5 billion in the first half of this year alone. With market conditions fluctuating, Ford also revised its projected profit margins for its EV division through 2026.

As part of a broader realignment, Ford is also increasing its focus on hybrid and plug-in hybrid vehicles to meet stringent fuel efficiency and emissions standards. CFO John Lawler revealed a significant reduction in capital allocated to all-electric vehicles, down from 40% to 30%, with a comprehensive strategy to offer hybrid options on all models in North America by 2030.

The strategic shift is Ford’s response to a market that is adapting to electric vehicles more slowly than expected and is part of a broader trend within the auto industry, which is grappling with profitability challenges and competitive pressures from global players, particularly China.

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