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Michael C. Anderson
February 8, 2024
4 Min Read
Ford President and CEO Jim Farley at a 2022 news conference.Image courtesy of Ford Motor Co.
At a Glance
- Ford Motor Co. held its 2023 Q4 earnings call on February 6.
- An upbeat Jim Farley, Fod President and CEO, directly addressed EV headwinds and buyer behavior.
- Farley also detailed the company's approach to the China EV market.
In a Q4 earnings call on February 6, Ford President and CEO Jim Farley provided insights into the company's plans for Model E, the success of Ford Pro, and addressed concerns regarding mainstream EV adoption. He also revealed the company’s strategy for the Chinese electric vehicle (EV) market, setting the tone for the automotive giant's future. Ford’s low-capital approach in China was a focal point, reflecting Ford's navigation of the challenging EV landscape in that country.
Model E and EVs
Ford acknowledged a seismic change in the electric vehicle market in the last six months of 2023, driven by EV manufacturers cutting prices and increased capital influx into the segment.
In response, the company is:
Adjusting its capital allocation, focusing on smaller EV products and spending less on larger EVs.
Developing a low-cost EV platform with a dedicated team, aiming for flexibility across various vehicle types.
Rationalizing battery capacity to match demand, reassessing vertical integration, and betting on new chemistries and capacities.
Q4 Infographic courtesy of Ford Motor Co.
Farley directly addressed concerns about the challenges facing the EV market, acknowledging the cost considerations for mainstream customers. He highlighted the importance of "getting the cost right."
"Now someone portrayed the change in the EV market as Darwinian," Farley noted. "That could be a slow evolutionary change, but we think this has been a seismic change in the last six months of last year. That will rapidly sort out winners and losers in our industry."
BEV vs HEV buyer behavior
The CEO pointed out the company's advantage in not relying completely on BEVs, in the drive to electrification, citing the company’s active hybrid-electric (HEV) business. Farley emphasized, "The good news is Ford has a high-volume hybrid business, and the timing of our second cycle product gives us a chance to make a lot of adjustments in capital, bringing it down."
Farley discussed the unique consumer dynamics in evaluating hybrid and electric vehicles (EVs). He noted, "Customers are doing the quick showroom math on hybrids, evaluating the breakeven between ICE and a hybrid on the showroom floor."
Farley cited the practical example of the F-150, stating, "For an F-150, they know how much a Honda generator costs versus Pro Power on board, and they don't have to change their behavior."
Addressing challenges in mainstream EV adoption, Farley pointed out complexities in cost-of-ownership evaluations, emphasizing uncertainties like, "How much will I save on repair cost? How much will I save on electrons versus gasoline? It's harder to compare."
Farley acknowledged the pivotal role of cost of ownership in the success of EVs and Ford Pro, stating, "The success of EVs and Pro is a customer that does that math more brutally, looking at cost of ownership in a clearer lens. Some are doing the math and going to EV."
Mustang Mach-E and F-150 Lightning. Credit: Ford Motor Co.
Reminder: Ford Pro includes electric
In contrast to the EV challenges, Ford Pro, the commercial business unit, is the company’s "profit juggernaut," demonstrated strong performance with revenue up 11% in Q4 and a notable EBIT margin of 11.8%. Ford Pro's full-year results indicated significant potential, with revenue jumping 19%, earnings before interest and taxes (EBIT) more than doubling year-over-year to $7.2 billion, and a margin of 12.4%.
In response to an investor notion that all profits from Ford Pro are funding the EV transition, Farley strongly disagreed.
"By the way, Pro includes electric,” Farley reminded. "And although electric is going slower for Pro customers, it's actually they do the math quicker than retail customers." Farley noted that January EV sales in Pro surpassed December, a counterintuitive trend indicating growing interest among commercial customers.
A cautious China strategy
In the Q&A portion of the earning call, Farley was asked about Ford's strategy in China, where the company has chosen an unconventional path in the fiercely competitive EV market. Farley acknowledged the current "bloodbath reality" in China's EV sector, opting for a low-capital strategy to navigate through the challenges.
"We're allowing our partners' platforms to lead our electrification. And in doing that, we are learning a lot about their capability and the local IP there in China,” he explained. “And it's pretty breathtaking to see what we're learning."
This cautious strategy involves leveraging partnerships with local entities, primarily Changan, and allowing their platforms to take the lead in electrification efforts. Farley expressed confidence in this unique learning approach, emphasizing the importance of understanding local capabilities and intellectual property.
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