In a quarterly earnings call with investors on February 6, 2024, Ford Motor Company CEO Jim Farley outlined Ford’s plans for EVs, hybrids, and vehicles with internal combustion engines (ICEs). The TLDR version: Ford’s going to keep pushing all three.
What Ford and other automakers may have seen as a straight transition path to widespread vehicle electrification has more curves, turns, and roundabouts than initially anticipated. Multiple factors are in play with EV adoption, from harder-to-get EV tax credits and unexpected cold weather and climate change effects on EVs to changes in EV development and investment strategies by global vehicle brands.
Why EV strategy shifts matter
This is a period of movement for the auto industry. GM, BYD, Geely, Tesla, VW, Stellantis, Toyota, and Ford are all making moves or issuing statements about their EV business. GM is cutting EV production in half but sticking to a goal of 1 million EVs by 2025. Toyota champions hybrids as a better option than EVs while investing significant time in EVs.
Anecdotally, the BMW Group, including MINI, is setting records in EV sales. Stellantis claims its EV business is profitable (in non-U.S. markets) and pushing for all-EV even though its first all-electric U.S. vehicle, the Jeep Wagoneer S EV, isn’t scheduled to arrive until this fall.
In Ford’s quarterly earnings call with investors, CEO Jim Farley said the money is in hybrids and that profits from big hybrid sales will pay for developing EVs. Meanwhile, a Ford in-house skunkworks team is working on a low-cost EV to compete with the anticipated $25K Tesla, Hyundai’s Ioniq 2, and BYD’s small EV entry.
Note that Chinese automaker BYD doesn’t sell cars in the U.S. yet. However, in addition to selling more EVs worldwide than Tesla in the last quarter of 2023, BYD plans to build a huge EV plant in Mexico with an eye to eventual access to U.S. buyers.
Lessons Ford learned with Gen1 EVs
Farley characterized the changes in the EV market during the second half of 2023 as “seismic.” Early adopters took advantage of then-low interest rates in the immediate post-COVID period with seemingly insatiable demands for Ford’s Mustang Mach-E and F-150 Lightning BEVs. As inventories grew and auto loan rates escalated, customers no longer accepted EVs at any price. Farley referred to industry-wide EV 20% price reductions and said that Ford’s Gen2 EV development investments plan will focus on vehicles reaching profitability within 12 months of launch.
Ford will invest less in developing large EVs, Farley said. One leg of EV investment will be in commercial service areas such as vans and trucks. Ford is already dominant and has additional income from vehicle maintenance, software, and connected services. Farley also mentioned the difference in power source preferences in different regions. For example, during Q4 2023 in California, 50% of Ford sales were for EVs or hybrids, and the other 50% were ICEs. However, ICE vehicles accounted for 85% of the purchases in Dallas, Texas, and EVs and hybrids captured a combined 15%.
“And boy, can Ford do work vehicles.” – Jim Farley, Ford CEO
Ford will emphasize investment in smaller EVs because they will be less expensive to buy than the Gen1 EVs and will be profitable — a status that still escapes the early models. Farley spoke proudly and hopefully about a team dedicated to developing small EVs.
“Now, this is important,” Farley said, “because we made a bet in silence two years ago. We developed a super-talented Skunkworks team to create a low-cost EV platform. It was a small group, a small team, some of the best EV engineers in the world, and it was separate from the Ford mothership. It was a startup. And they’ve developed a flexible platform that will not only deploy to several types of vehicles but will be a large installed base for software and services that we’re now seeing at Pro.” [Pro is Ford’s highly profitable commercial fleet business that provides vehicles, service, and telematics.]
Profitable hybrids and ICEs
Ford is also all-in on hybrids. Farley says hybrid margins are almost as high as ICEs and much higher than EVs. Ford’s hybrid focus is on trucks. “Our global hybrid sales were up 20% last year, and we expect them to be up 40% this year. We’re now the number one and number two best-selling hybrid trucks in the U.S. Maverick is number one, and we’re the number three hybrid brand in the U.S. behind Toyota and Honda. But unlike them, our hybrids sell best on trucks for our side.”
Hybrids are the key to EV transition, again, according to Farley. “Hybrids will play an increasingly important role in our industry’s transition and will be here for the long run. Hybrid just hit specific customer use cases. On a Maverick pickup truck, our hybrid is focused on mileage and efficiency, and they do the math very clearly, and they don’t have to change their behaviors. On F-150 Hybrid, they get the same benefits even when they’re toeing on fuel efficiency, but we throw in Pro Power on board to displace a prohibitive generator cost.”
Ford wants to give customers a choice and modify its powertrain investments to match customer needs and behaviors. And ICEs? Farley speaks of the F Series SuperDuty truck and Transit commercial vehicles, where long-term experience with customer fleet needs embeds profitable vehicle and service sales. As Farley says it best, “And boy, can Ford do work vehicles.”
