Ford CEO offers more guidance on automaker’s ambitious electric vehicle plans

Ford CEO offers more guidance on automaker’s ambitious electric vehicle plans

Electric vehicle batteries are in short supply and the cost of materials such as nickel and cobalt is rising. But legacy automaker Ford Motor plans to profitably build 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 reach that goal and transform its fuel-guzzling car-based business.

With electric vehicles taking up a growing share of the global auto market, Ford announced in March that it would reorganize its business and separate its internal combustion engine and electric vehicle efforts. By 2026, the company expects to build more than 2 million electric vehicles annually – about a third of its total global production – while increasing its operating profit margin.

Wall Street analysts were generally positive about the plan, but some expressed skepticism about the lack of detail on how the company plans to address supply challenges in the market. Morgan Stanley’s Adam Jonas called it a “stretch” target and said he has no confidence in Ford’s ability to secure enough raw materials and tooling to make batteries to come anywhere close to his projection.

Ford addressed some of those concerns in another presentation on July 21 when it told investors it had secured enough batteries to meet its short-term goal: 600,000 electric vehicles per year by the end of 2023. As of now, it said it has about Secured 70% of what it takes to meet its 2026 goal.

Ford promised to share more about how it plans to meet its goals during its annual Capital Markets Day next year. But during his second-quarter earnings call last week, CEO Jim Farley offered some more guidance on the automaker’s strategy.

A chance to simplify

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

The company sees a new era in which it can refresh its electric vehicles with upgrades to software, batteries, and electric motors, much like Tesla is doing. That means the most expensive parts of a vehicle – the body panels and the substructures that make up its overall proportions – don’t need to be replaced as often.

“Going digital with these electric vehicles gives us an opportunity to simplify our body engineering and take the engineering to where customers really care,” Farley said last week. And it’s not another fender. It’s software. It is a digital display technology. It’s a self-propelled system and that [autonomous vehicle] Technology. And of course there will be some more powerful engines.”

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

This is part of how Ford expects to improve its operating margin to 10% by 2026. For the second quarter, the company reported an adjusted operating margin of 9.3%. These results were aided by tight new vehicle inventories, which have allowed Ford to raise prices.

Dealers fit for the future

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

The company doesn’t plan to eliminate its franchised dealerships, which enjoy strong legal protections in many U.S. states that effectively prohibit Ford from selling directly to its customers like Tesla does. But Farley said Ford sees a way to reduce this cost disadvantage – which he estimates at around $2,000 per vehicle – by keeping dealer inventories very low and changing the way Ford markets its products.

A key to these efforts: Ford plans to let customers order its electric vehicles online, rather than buying a vehicle from a dealer’s inventory.

Farley believes dealerships will have few new vehicles on their lots, just enough to allow customers to test drive them before they order. Customers can order from the retailer or online “in their bunny slippers,” Farley said, with the retailer handling delivery and after-sales service.

Farley estimates that low dealer inventories and online ordering will account for approximately $1,200 to $1,300 of that $2,000 per vehicle cost disadvantage while ensuring Ford dealers remain profitable. The plan will free dealers from having to carry costly inventory so they can — in theory, at least — focus more on service and customer education. That could give Ford an edge that EV makers that sell directly can’t easily match.

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