HomeBusinessFord CEO Farley outlined plans for automaker's electric vehicle shift

Ford CEO Farley outlined plans for automaker’s electric vehicle shift

Electric vehicle batteries are in short supply, and costs for materials such as nickel and cobalt are surging. Yet legacy automaker Ford Motor says it plans to be profitably building millions of EVs a year in just four years.

This week, the Detroit automaker gave investors a little more clarity about how it plans to reach that goal and transform its business built on gas-guzzling cars.

As electric vehicles account for a growing share of the global car market, Ford in March announced it would reorganize its business and separate its internal-combustion engine and electric vehicle efforts. By 2026, it said it expects to build more than 2 million electric vehicles annually — about a third of its total global production — while expanding its operating profit margin.

Wall Street analysts were generally positive about the plan, but some expressed skepticism about the lack of specifics around how the company plans to overcome the supply challenges in the market. Morgan Stanley’s Adam Jonas called it a “stretch” goal and said he lacked confidence in Ford’s ability to secure enough raw materials and tooling to manufacture batteries to even come close to its projection.

Ford addressed some of those concerns in another presentation on July 21, when it told investors that it has secured enough batteries to get to its near-term target: 600,000 EVs per year by the end of 2023. As of now, it said, it has secured about 70% of what it needs to hit its 2026 goal.

Ford promised to share more about how it plans to hit its goals during its annual capital markets day next year. But during its second-quarter earnings call last week, CEO Jim Farley gave some more hints about the automaker’s strategy.

A chance to simplify

Instead of just swapping out internal-combustion engines for batteries and electric motors, Farley has said the company is completely rethinking how it develops its vehicles — and how it keeps them fresh over time.

The company sees a new era where it will be able to freshen its electric vehicles with upgrades to software, batteries and electric motors, much as Tesla does. That means the most costly parts of a vehicle — ‌‍‎‏the sheet metal body panels and the underpinnings that form its overall proportions — won’t have to be changed as frequently.

“We have an opportunity as we go digital with these EVs, to simplify our body engineering and put the engineering where customers really care,” Farley said last week. And it’s not a different fender. It’s software. It’s a digital display technology. It’s a self-driving system and the [autonomous vehicle] tech. And of course it’s going to be, in some cases, more powerful motors.”

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.

It’s part of how Ford expects to improve its operating margin to 10% by 2026. For its second quarter, the company posted a 9.3% adjusted operating margin. Those results were helped by tight new-vehicle inventories that have allowed Ford to boost its prices.

Fitting dealers into the future

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

The company isn’t planning to eliminate its franchised dealers, which enjoy strong legal protections in many U.S. states that effectively forbid Ford from selling directly to its customers as Tesla does. But Farley said that Ford sees a path to reducing that cost disadvantage — which he estimates at around $2,000 per vehicle — by keeping dealers’ inventories very low and by shifting the way Ford markets its products.

One key to that effort: Ford plans to let customers order its EVs online rather than buying a vehicle from a dealer’s inventory.

As Farley sees it, dealers will have only a few new vehicles on their lots, just enough to offer test drives to customers before they order. Customers will be able to order from the dealership or online “in their bunny slippers,” Farley said, with the dealer making the delivery and providing service after the sale.

Farley estimates that the low dealer inventories and online ordering will make up roughly $1,200 to $1,300 of that $2,000 per-vehicle cost disadvantage, while ensuring that Ford’s dealers remain profitable. The plan will free dealers from having to carry costly inventories, allowing them — in theory, at least — to focus more on service and customer education. That could give Ford an edge that EV makers selling direct won’t be able to easily match.

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



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