Ford CEO Farley outlines automaker’s plan to transform electric vehicles

Electric vehicle batteries are in short supply and costs for materials like nickel and cobalt are soaring. But Ford Motor’s successor car maker says it plans to generate profits of millions of electric vehicles a year in just four years.

This week, the Detroit automaker gave investors a little more clarity on how it plans to achieve that goal and transform its business built on cars. fuel consumption.

As electric vehicles take a growing share of the global car market, Ford in March announced it would reorganize its business and separate its internal combustion engine and electric vehicle efforts. By 2026, they said they expected to build more than 2 million electric cars every year – accounting for about a third of total global production – while expanding operating margins.

Wall Street analysts are generally positive about the plan, but some express skepticism about the lack of specifics around how the company plans to overcome supply challenges in the market. Morgan Stanley’s Adam Jonas calls this a “stretching” goal and says he lacks confidence in Ford’s ability to secure enough materials and tools to make batteries even close to meeting expectations. its.

Ford addressed some of those concerns in another presentation on July 21when they told investors they had secured enough batteries to hit their short-term goal: 600,000 EVs per year by the end of 2023. As of now, they’ve secured about 70% of what they needed to achieve the 2026 Goals.

Ford promised to share more about how it plans to achieve its goals during its annual capital markets day next year. But during last week’s second-quarter earnings call, CEO Jim Farley offered some more hints about the automaker’s strategy.

An opportunity to simplify

Instead of just swapping the internal combustion engine for batteries and electric motors, Farley says the company is completely rethinking how it develops its vehicles – and how to keep them fresh over time.

The company sees a new era where it will be able to refresh its electric vehicles with software upgrades, batteries and electric motors, as much as Tesla do. That means the most expensive parts of a car – the sheet metal body panels and the base plates that make up its overall proportions – won’t have to be changed as often.

“We have the opportunity to go digital with these electric vehicles, to simplify our body engineering and put engineering where the customer really cares,” Farley said last week. . And it’s not another fender. It’s software. It is a digital display technology. It’s a self-driving system and [autonomous vehicle] Skill. And of course, in some cases, it will be the more powerful engine. “

Ford typically redesigns its traditional models every five to seven years. If it can prolong that time by relying on software updates to keep its cars fresh, rather than redesigning the bodywork, it could save fortunes.

It’s part of how Ford hopes to improve its operating profit margin by 10 percent by 2026. second quarter, the company posted an adjusted operating margin of 9.3%. That result is supported by tight new-vehicle inventories that have allowed Ford to raise prices.

Suitable for future dealers

Ford is at a disadvantage against companies like Tesla and electric vehicle startups that sell directly to consumers without dealers acting as middlemen.

The company has no plans to phase out its franchisees, who enjoy strong legal protections in many US states that effectively prohibit Ford from selling directly to customers. Tesla did. But Farley says Ford sees a way to reduce its cost disadvantage — which he estimates at around $2,000 per vehicle — by keeping dealer inventories very low and by varying how Ford markets its products.

One key to that effort: Ford plans to let customers order electric vehicles online instead of buying them from a dealership’s warehouse.

As Farley sees it, dealers will only have a handful of new cars in their lots, just enough to give customers a test drive before they place an order. Customers will be able to order online from the dealer or online for “their bunny slippers,” says Farley.

Farley estimates that low dealer inventory and online ordering will generate about $1,200 to $1,300 out of a $2,000 cost-per-car disadvantage, while ensuring that Ford dealers still have it. interest. This plan will free dealers from having to ship expensive inventory, allowing them – at least in theory – to focus more on customer service and education. That could give Ford an edge that direct-selling electric vehicle manufacturers won’t be able to easily match.

“I think it’s a different way of playing than pure electric car companies,” Farley said.

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