Ford leaves BYD and Tesla to do battle on EV costs

Ford has signalled that it will back away from competing with EV giants such as BYD and Tesla for its second generation of EVs, due from 2025, as it targets more profitable niches in response to an increasingly crowded field. Ford CEO Jim Farley told analysts at the American giant's recent capital markets day that it saw in advance how tough the five-seat electric SUV market was going to be. “If your EV strategy depends on a two-row crossover right now, you better have the [low] cost of BYD to compete,” he said. “We knew that freight train was coming. “We don’t see ourselves competing with Tesla and BYD in our second cycle product,” Farley said. “If you do the math with competitors, they aren't betting on those segments." Ford will instead focus on a pick-up truck and a three-row SUV for its second generation of EVs. Farley also threw out the names of Chinese companies Geely, SAIC and Changan as other rivals that Ford is keen to avoid as it focuses on the 8% profit margin target for its Model E electric division by 2026. Ford compared its forthcoming electric seven-seater to today's vast Expedition, although reports from the US say it will probably be a size down from that to create an electric equivalent of the ever-popular Explorer. Ford described this seven-seat electric SUV as a “personal bullet train” and touted a 350-mile range from a 100kWh battery. It added that this would have been 150kWh if it hadn’t worked hard on efficiency, including aerodynamics. “There’s a bit of an arms race in the industry to shove bigger and bigger batteries in EV to try to make them like ICE vehicles,” said Doug Field, head of advanced development at Ford. “But the real battle ground is efficiency. That’s God’s work. We will optimise efficiency, not compromise it.” Field said of the "affordable" electric SUV: “It will be a longer, sleeker, quieter vehicle with amazing size and features in the interior space." Ford knows first-hand about the increasingly tough electric competition, thanks to its Mustang Mach-E SUV, the price of which it cut earlier this year in the US in response to Tesla’s own price reductions on the big-selling Model Y. In China, meanwhile, a vicious price war is handing customers EVs for similar cost to ICE cars. Given that the Mach-E sits squarely in the ‘two-row crossover’ space that Ford has warned about in terms of cost competitiveness, it’s less than clear whether the company intends to continue with the model on its second-generation EV platform or whether it will wait for its third-generation EV platform, which it has already started work on. Ford has made it clear on many occasions that it won’t be “everything to everybody” in the future, as Field put it. The company wants to be “asset-light” as it navigates a path to 10% profit margin by the end of 2026. “We're getting out some of the commoditised vehicles – [the] Fiesta, Focus etc," said chief financial officer John Lawler. "We’ve made that decision, which is a good decision for our overall profitability." Ford has already told us how much of a hole the Model E electric division is right now, spending more than it makes on its EVs, and it gave investors an idea how it intends to rectify that on the path to the division's promised 8% margin by 2026. From the -41% margin right now, it will claw back 20% on scale (ie making more examples of the second-generation pick-up and seven-seat SUV) to an expected 1.1-1.2 million annually by the end of 2026. Then it will find 10% from battery savings, including adding the option of LFP (lithium iron phosphate) chemistry, 15% from streamlining design and engineering and 3% from "other". It will also expect to benefit from the higher prices that it will charge customers. Ford stated that it had $7 billion (£5.6bn) higher costs than the “competition”, mostly in its ICE vehicle division, Ford Blue. Bringing down those will help the bottom line, as well leveraging software usefulness in its Ford Pro commercial vehicle division and in Model E. Assisted driving features like the eyes-off-and-hands-off Blue Cruise system falls under that. Ford predicted that 20% of its profits will come from software and service by 2026. What Ford’s capital markets day illustrated was the scale of the competition that exists now in EVs and how that’s going to affect Ford. By focusing on larger categories of vehicle as well commercial vehicles, Ford is essentially ceding the volume EV market to the Chinese and other players in both China and to a lesser extent Europe (the new Volkswagen-derived Ford Explorer wasn't mentioned) until it can get a handle on costs via its planned North American network of EV and battery plants. Morgan Stanley automotive analyst Adam Jonas asked Farley if Ford was going to seek money from elsewhere to fund its EV development (eg by floating Model E), rather than using profits from Ford Blue. “Going head to head with Chinese and Tesla in is this environment is a pretty easy way to destroy billions and billions of capital over a four year period,” Jonas prefaced his question. “Not as of yet,” was Farley’s reply to an outside capital raise, reiterating that he didn’t think of Tesla and BYD as competitors to Ford, due to the difference in segments they will be playing in. By its third generation of EVs, Ford hopes to be back in the fight, and Farley hinted at a return to the manufacturing disruption of company founder Henry Ford. “It’s yet another leap forward. We love to be able to make vehicles without a paintshop,” he said. “It’s like we’re back in the mid-1920s, when vertical integration became a thing in our industry and people really started to make big leaps. We’re starting the same cycle again for the industrial system.”