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Ford mulls how to get EV prices down
CFO John Lawler stresses that US EV demand is going to be increasingly price-sensitive
Legacy Detroit OEM Ford expects price reductions across the EV market to slow down in 2024. And CFO John Lawler warns that greater price stability could further squeeze US EV demand growth in the near term, meaning finding ways to get sticker prices lower will be key to increasing penetration.
“Pricing has come down much quicker than we expected, or I think anyone else expected in the segment. When I look at that, I do not think there will be much more price compression next year, but in time there will be price compression,” Lawler told auto analyst Dan Levy at the Barclays Global Automotive and Mobility Tech conference on Thursday.
Lawler warns that, as price reductions taper off, a slowdown in the rate of EV demand increases is a growing pain as the market reaches an intermediate stage.
“As we move beyond early adopters, these new customers will not be willing to deal with issues like early adopters were. They are not going to pay a premium for electric vehicles,” Lawler says.
And, according to Lawler, whatever efficiencies his firm can unlock as it ramps up a second generation of BEV offerings, the priority is to ensure “that top line on the EVs is not going be a premium.”
“The top line sets the whole thing up. If you are assuming revenues and premiums way beyond what the market is willing to bear, it is going to be a very difficult situation,” he cautions. As such, Lawler says that Ford is now targeting “parity with gas vehicles net of IRA from a revenue standpoint”.
Lawler also offers additional colour on Ford’s recent announcement of $12bn in EV investment being delayed or cancelled, saying that it will involve downsizing some key manufacturing facilities, such as the firm’s Marshall, Michigan, and Kentucky batteries plants, as well as putting the brakes on some vertical integration.
“It is incremental capacity [being cut]. Marshall is going to be about half the size of what we had planned. With Kentucky, we are not going to outfit the plant. We do not think the demand is going to be there, but the option will be there,” he says of potential to have a second Kentucky plant.
Ford will also be “pulling back on the amount of vertical integration […] because we do not need as much capacity in that space”, adding that Ford is reviewing its battery sourcing options.
“We have to be very thoughtful about where we build, where we buy, and where we partner,” he says.
“The key distinction here is that there are not any changes to the strategy, it is the tactics of the executions of that strategy,” Lawler says, echoing a Ford management characterisation of the deferral of investment as a “retiming”.
Lawler does not rule out “bringing powertrain components in house”. “Battery management software is going be critical, so the cell and pack structure could be very common, but the invertors [and] converters, we will continue vertically integrating there.
“Some vertical integration on key components to take out that margin to the intermediary,” he continues. “Then it comes to efficiency of design. It is about optimising the battery, it is about optimising the kW/mile, getting to the smallest battery possible.
“You are going to see improvement as we launch these vehicles and you are going to see improvement over time, because we are also working on our third-generation vehicle which is going to be a step function from a design standpoint beyond our second generation,” Lawler expands.
Ford will also lean on its hybrid range to meet medium-term regulatory requirements for ZEV sales. “With EV adoption slower”, hybrids “will be a critical part of how we meet our regulatory requirements”, the finance chief says.
But he stresses the company’s hybrid range is not only regulator box-ticking but also a strategy for meeting individual segment needs.
“You are not going to have large truck customer who pulls a fifth wheel driving an EV. It is just not going to happen with the technology of today,” Lawler says. “But they might drive a hybrid.”