This week, the Detroit automaker gave investors more clarity about how it plans to reach that goal and transform its fuel-intensive automobile business.
As electric vehicles capture an increasing share of the global auto market, Ford announced in March that it would reorganize its business and separate its internal combustion engine efforts from the electric vehicle. By 2026, it said it expects to build more than two million electric vehicles a year — 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 details on how the company plans to overcome market supply challenges. Adam Jonas of Morgan Stanley called it an “extended” target and said he lacked confidence in Ford’s ability to secure enough raw materials and tools to manufacture the batteries to come close to dropping them.
Ford addressed some of those concerns in another presentation on July 21, when it told investors it had secured enough batteries to reach its near-term goal: 600,000 EVs per year by the end of 2023. So far, it said, it has secured about 70% of what it needs to achieve its goal for 2026.
Ford promised to share more about how it plans to achieve its goals during next year’s annual Capital Markets Day. But during last week’s second-quarter earnings call, CEO Jim Farley gave some hints about the automaker’s strategy.
An opportunity to simplify
Rather than simply replacing internal combustion engines with batteries and electric motors, Farley said the company is completely rethinking how it develops its vehicles — and how it maintains them over time.
The company sees a new era where it will be able to revamp its electric cars with upgrades to software, batteries and electric motors, much like Tesla does.. This means that the most expensive parts of the car – the sheet metal body panels and the foundations that make up its overall dimensions – do not need to be changed as frequently.
“We have an opportunity as we go digital with these electric vehicles, to simplify the engineering of our bodies and put the engineering where customers really care,” Farley said last week. “It is not a different flap. It is a programme. It is a digital display technology. It is an autonomous driving system and [autonomous vehicle] Technique. And of course they will be, in some cases, more powerful engines.”
Ford redesigns its traditional car models every five to seven years. If she can extend that time by relying on software updates to keep her cars new, rather than redesigning the body, she could save fortunes.
It’s part of how Ford expects to improve its operating margin to 10% by 2026. In the second quarter, the company posted an adjusted operating margin of 9.3%. These results were supported by tight new car inventories that allowed Ford to increase its prices.
The Right Traders of the Future
Ford is at a disadvantage for companies like Tesla and EV that sell directly to consumers, without dealers acting as middlemen.
The company doesn’t plan to get rid of its authorized dealerships, which have strong legal protections in many US states that effectively prevent Ford from selling directly to its customers as Tesla does. But Farley said Ford sees a way to reduce the cost disadvantage — which is estimated to be about $2,000 per vehicle — by keeping dealer inventories very low and by changing the way Ford markets its products.
One key to the effort: Ford plans to allow customers to order its electric vehicles online rather than buying a vehicle from dealer stock.
As Farley sees it, dealers will only have a few new vehicles in their trim, enough to offer customers test drives before they order them. Farley said customers will be able to order at the dealership or online “in bunny slippers,” with the merchant making delivery and providing after-sales service.
Farley estimates that lower dealer stocks and online ordering will account for roughly $1,200 to $1,300 of the $2,000 cost defect per vehicle, while ensuring that Ford dealers remain profitable. The plan would free merchants from having to carry costly inventory, allowing them – in theory, at least – to focus more on service and customer education. That might give Ford an advantage that electric car makers who sell directly won’t be able to easily match.
“I think this is a different play on the pure electric car companies,” Farley said.