The price of elements like nickel and cobalt is rising, and there is a shortage of electric vehicle batteries. Ford Motor, a well-known carmaker, claims that in just four years it would be able to produce millions of EVs annually at a profit.
This past week, the Detroit carmaker provided investors with a bit more information regarding how it intends to achieve that objective and alter its gas-guzzler-based business.
Ford said in March that it would restructure its business and divide its internal combustion engine and electric vehicle initiatives as the market share of electric vehicles increases around the globe. In addition to increasing its operational profit margin, it stated that by 2026 it aims to produce more over 2 million electric vehicles annually, or approximately a third of its total global output.
Wall Street analysts largely supported the proposal, but some voiced caution due to the lack of details regarding how the business intends to address the supply issues in the market. Adam Jonas of Morgan Stanley referred to it as a “stretch” aim and expressed doubt about Ford’s ability to obtain sufficient raw materials and manufacturing equipment to produce batteries on a scale even close to their prediction.
In a different presentation on July 21, Ford addressed some of these worries by assuring investors that it had acquired enough batteries to reach its short-term goal of producing 600,000 EVs annually by the end of 2023. It claimed that as of right present, it had around 70% of the funding required to reach its 2026 target.
Ford vowed to provide additional details about how company intends to achieve its objectives during its annual capital markets day the following year. However, CEO Jim Farley provided additional insights regarding the automaker’s approach during its results call for the second quarter last week.
It’s time to simplify
Farley has stated that the firm is radically rethinking how it produces its vehicles — and how it keeps them innovative over time — rather than just substituting internal combustion engines for batteries and electric motors.
The business envisions a new era in which it will be able to update its electric cars similarly to how Tesla does by adding new software, batteries, and electric motors. As a result, it will be less necessary to replace the most expensive components of a car, such as the sheet metal body panels and the structural underpinnings that determine how big it is overall.
“We have an opportunity as we go digital with these EVs, to simplify our body engineering and put the engineering where customers really care,” Farley said. ″And it’s not a different fender. It’s software. It’s a digital display technology. It’s a self-driving system and the [autonomous vehicle] tech. And of course it’s going to be, in some cases, more powerful motors.”
Every five to seven years, Ford regularly redesigns its traditional vehicle models. It might save a tonne of money if it can extend that time by depending on software upgrades rather than body redesigns to keep its vehicles current.
Ford anticipates doing this as part of its plan to increase operating margin to 10% by 2026. The business reported an adjusted operating margin of 9.3 percent for the second quarter. As a result of low new-car inventories, Ford was able to raise pricing, which aided those results.
A solution for dealership disadvantage
Ford is at a competitive disadvantage in comparison to companies like as Tesla and EV startups who sell directly to consumers without the use of dealers as middlemen.
The business doesn’t have any plans to do rid of its franchised dealers, who are protected by the law in many U.S. states in a way that effectively prevents Ford from selling to people directly like Tesla does. Farley asserted that Ford sees a means to reduce this cost disadvantage, which he pegs at about $2,000 per vehicle, by maintaining extremely low dealer inventories and changing the way it distributes its goods.
Ford aims to allow customers to order its EVs online rather than choosing one from a dealer’s inventory, which is a significant component of that initiative.
In Farley’s opinion, dealers will only have a small number of brand-new cars on their lots, just enough to allow customers to take a test drive before placing an order. Customers will be able to place orders “in their bunny slippers” at the dealership or online, according to Farley, and the dealer would handle both the delivery and any follow-up needs.
The low dealer stocks and online ordering, according to Farley, will offset around $1,200 to $1,300 of that $2,000 per vehicle cost disadvantage while assuring Ford’s dealers continue to turn a profit. Dealers will be relieved of the burden of maintaining expensive inventories under the plan, allowing them to concentrate more on customer service and education, at least in theory. Because of this, Ford might have a competitive advantage against EV manufacturers who sell directly to consumers.
“I think that’s a different play than the pure EV companies,” Farley said.