All the Wrong Moves: Ford’s EV Business Sector Continues to Fail
The ongoing result of letting politicians decide what consumers should be driving.
Image: Cox Automotive
Some would call this a mere “misjudgment” of market demand for electric vehicles (EVs). Others have stated that the market is still in a “formative phase,” with many consumers still evaluating whether an EV will fit their needs.
I view this as an agreed-to suicide pact among legacy automakers such as Ford Motor Company in exchange for taxpayer bailout dollars.
In the last week of July, 2023, Ford reported a $1.08 billion operating loss on its EV business in the second fiscal quarter. During that period, Ford sold 14,843 EVs, meaning that Ford lost nearly $73,000 on each EV it sold.
That’s an even bigger loss than what was reported in the first quarter, when a $722 million loss on 10,866 EVs sold resulted in a $66,446 loss on each EV sold. Now that losses have increased $6,316 per vehicle in only three months, and with Ford amending its originally forecasted yearly loss of $3 billion to $4.5 billion on its EV business, you have to question why the company is committed to dramatically increasing its EV production.
Making up the losses through volume? Seriously?
Ford sells around 60,000 EVs per year at the current sales rate. The company says it expects to reach a 600,000-unit EV production run rate during 2024, which would suggest a ten-fold increase in sales to move all of those EVs. That’s going to be a challenging objective given that Ford’s EV sales are not growing – they’re falling.
Ford’s EV sales overall fell almost 3% from 2022, with year-over-year quarterly sales of the flagship sedan Mustang Mach-E falling 21.1% and its E-Transit commercial electric van sales down 23.8%. And the market demand environment could get even more difficult as interest rates have reached the highest percentage in 22 years, placing more financial strain on potential buyers of EVs who already believe pricing is too high compared to gas-powered equivalents.
It’s not that Ford doesn’t operate profitability. The company’s two internal-combustion vehicle sectors (Blue and Pro) continue to generate income and represent impressive market dominance. Compared to these two business sectors, however, the EV business registers barely a blip. In the second quarter, Ford sold 212,516 gas-powered F-Series pickups compared to 14,843 EVs IN TOTAL. So much cash burn for so little sales volume.
EVs: We have ‘em in stock!
In anticipation of increased competition, Tesla cut prices on some of its Model Y and Model 3 EVs, the sixth time it has lowered prices this year. Ford did likewise on its Mach-E in order to get relief from a reported 117 days’ worth dealer inventory of the Mustang. Ford says this is the result of “ramped up production in anticipation of stronger third-quarter sales,” and not the result of obvious sell-through challenges at the dealer level.
Bonus observation: I wonder if these dealerships have enough electrical capability to keep all of those unsold EVs charged. Left unplugged, all EVs continuously lose battery strength and its charge will eventually run out. Will customers wait for a 45-minute charge to test drive an EV?
Cox Automotive claims that the nationwide supply of EVs has swelled to more than 92,000 units, or three months’ worth of EVs and nearly twice the auto industry average. A price war to rid dealers of exceedingly-high EV inventory that the automakers sold to them at a massive loss is setting up to be the “perfect storm” for a business sector meltdown.
Clearly, the factory production of EVs does not line up with market demand. With this year’s U.S. market share for EVs barely reaching 7 percent, expectations of EV sales at a 20 or even 30 percent market share within the next few years is wishful thinking at best and business malpractice at worse.
Feeding at the trough
But that doesn’t stop Ford from taking billions of dollars of taxpayer money in pursuit of this pipe dream. Last month, the Department of Energy announced it would give Ford a $9.2 billion “low-interest loan” to build two battery factories in Kentucky and one in Tennessee. This is in addition to $6.7 billion in tax credits and $1.7 billion in state and local subsidies Ford received for a battery factory under construction in Michigan. The 2,500 “green” jobs at this new Ford plant will cost taxpayers $3.4 million. EACH.
The EV business is one of the most obvious examples of corporate rent-seeking, taking its place alongside “renewable” energy. If not for massive government spending in the form of tax credits, subsidies, “low interest loans” (a euphemism for “bailout”), and guaranteed governmental fleet sales, the EV market would settle itself into the market position where it belongs: A boutique, high-ticket second-or third-vehicle market for wealthy people with money to waste.
Market demand apparently does not matter
Is the market demand for EVs truly on the rise? It is forecasted that 2023 will mark the first year that EVs will have sold one million units, so that’s a good milestone for the industry. However, consumers who prefer gas-powered vehicles over EVs have become even more resolute in their position, according to a recent J.D. Power study. While you would expect the older Boomer demographic to reject EVs in favor of internal combustion vehicles, fully one-third of younger Gen Z customers – the future of marketplace – claim they are “unlikely” to purchase an EV.
How can Ford rationalize its “transition” from producing the gas-powered vehicles wanted by its market, to producing electrified versions the market clearly does not want and could not afford even if they did? Using government regulatory force, the gas-powered competition will simply be eliminated and Ford will be left with a captive EV market. That appears to be the plan.
Ford doesn’t have any choice in the matter anyway, now that they’ve taken tens of billions of taxpayer dollars with governmental strings attached. As long as the subsidy dollars and tax credits keep coming in, Ford’s EV charade can stay propped up without that pesky need to be attractive to the market or even to be profitable.
Look! General Motors has its hand up.