Ford CEO Farley outlines plans for automaker’s electric vehicle shift

Electric vehicle batteries are in short supply, and the cost of materials such as nickel and cobalt is rising. Yet veteran automaker Ford Motor says it plans to make millions of EVs a year in just four years.

This week, the Detroit automaker gave investors a little more clarity about how it plans to reach that goal and transform its business built on gas-guzzling cars.

As electric vehicles account for a growing share of the global car market, Ford announced in March that it would reorganize its business and separate its internal-combustion engine and electric vehicle efforts. By 2026, it said it expects to make more than 2 million electric vehicles annually — about a third of its total global production — while expanding its operating profit margin.

Wall Street analysts were generally positive about the plan, but some expressed skepticism about the lack of specifics about the company’s plan to address supply challenges in the market. Morgan Stanley’s Adam Jonas called it a “stretch” target and said he lacked confidence in Ford’s ability to secure enough raw materials and tooling to make the battery as it approached its launch.

Ford addressed some of those concerns in another presentation on July 21, when it told investors it had acquired enough batteries to meet its near-term goal: 600,000 EVs per year by the end of 2023. . So far, it said, it has achieved about 70% of the amount needed to achieve its 2026 target.

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

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easy chance

Rather than swapping internal-combustion engines for batteries and electric motors, Farley says the company is completely rethinking how it develops its vehicles — and how it keeps them fresh over time. Is.

The company sees a new era where it will be able to refresh its electric vehicles with software, battery and electric motor upgrades, just as Tesla does, This means that the most expensive parts of the vehicle – the sheet metal body panels and underpinnings that make up its overall proportions – won’t have to be replaced as frequently.

“We have an opportunity as we go digital with these EVs, to simplify our body engineering and put engineering in a place where customers really care,” Farley said last week. ,And this is no different fender. This is software. It is a digital display technology. It is a self-driving system and [autonomous vehicle] Technique. And of course it’s going to be more powerful motors in some cases.”

Ford typically redesigns its traditional vehicle models every five to seven years. If it can extend that time by relying on software updates rather than redesigning its vehicles, it could save a fortune.

It’s part of how Ford can improve its operating margin to 10% by 2026. For its second quarter, the company posted a 9.3% adjusted operating margin. Those results were helped by tighter new-vehicle inventories that have allowed Ford to boost its prices.

Fitting Dealers in the Future

Ford is at a disadvantage for companies like Tesla and EV startups that sell directly to consumers, without dealers acting as middlemen.

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The company doesn’t plan to eliminate its franchised dealers, which enjoy strong legal protections in several US states that prevent Ford from selling directly to its customers like Tesla does. But Farley said Ford sees a way to offset that cost loss — which he estimates is about $2,000 per vehicle — by keeping dealers’ inventory very short and changing the way Ford markets its products.

One key to that effort: Ford plans to have customers order their EVs online instead of buying vehicles from a dealer’s list.

As Farley sees it, dealers will only have a few new vehicles on their lots, enough to offer customers a test drive before placing orders. Customers will be able to order “in their bunny slippers” from dealerships or online, Farley said, adding that the dealer is making deliveries and providing after-sales service.

Farley estimates that low dealer inventory and online ordering will make up about $1,200 to $1,300 of that $2,000 per-vehicle cost loss, while ensuring that Ford’s dealers remain profitable. The plan would free dealers from holding expensive inventory, allowing them to – in theory, at least – focus more on service and customer education. This could give Ford an edge that direct-selling EV makers simply won’t be able to match.

“I think it’s a different game than pure EV companies,” Farley said.