Ford Motor’s profit engine in the U.S. has historically been large trucks and SUVs, but now the automaker is shifting its focus to smaller, more affordable electric vehicles in order to drive profitability in the EV market. The company believes that by offering more capital-efficient and profitable electric vehicles, such as hybrid models and affordable EVs, it can better compete with emerging entrants in the market, particularly Chinese automakers like BYD.
Ford’s recent updates to its EV strategy, which will cost up to $1.9 billion, include canceling a large electric SUV and delaying the production of its next-generation electric full-size pickup truck. Instead, the company plans to launch a commercial van in 2026, followed by a midsized pickup and then the full-size pickup.
CEO Jim Farley emphasized the importance of focusing on smaller, more affordable EVs due to the different economics of EVs compared to internal combustion engine vehicles. The weight and cost of battery packs for larger vehicles have proven to be a limitation for EVs, making smaller vehicles a more viable option for volume production.
Despite the challenges and losses in the EV market, investors and analysts have shown support for Ford’s shift in strategy, with shares rising since the announcement. By refocusing its efforts on smaller, more affordable EVs, Ford aims to capitalize on the growing demand for electric vehicles while leveraging its competitive advantages in the market. Given the magnitude of the charge, making this decision is undeniably challenging in the short term. However, we believe that it is a rational move in the medium to long term, considering the anticipated lackluster economics in the three-row CUV/SUV segment.
The latest updates in Ford’s electrification strategy emphasize a strong emphasis on hybrid and plug-in hybrid electric vehicles (PHEVs) to comply with increasingly stringent fuel economy regulations. Ford’s CFO, John Lawler, announced a shift in future capital expenditure plans from allocating 40% to all-electric vehicles to 30%. This pivot marks a significant departure from the previous plan to invest over $30 billion in EVs by 2025.
Ford’s hybrid initiatives aim to offer these options across its entire North American lineup by 2030, including three-row SUVs, to meet stricter emissions and fuel economy standards. To enhance profitability, Ford is expediting the mix of battery production in the U.S. that qualifies for tax incentives and credits.
Ford’s strategic shift aligns with the broader auto industry trend characterized by a slower-than-expected adoption of EVs and challenges in achieving projected profitability. Despite concerns about Chinese automakers potentially dominating markets with more cost-effective EVs, Lawler emphasized Ford’s competitive stance against them.
Contrary to Ford’s approach, its primary competitor, General Motors (GM), has scaled back spending and delayed some of its EV projects. However, GM maintains a robust portfolio of large all-electric vehicles and has integrated a vertically integrated electric vehicle platform to support its EV lineup.
In addition to Tesla, GM stands out as the first automaker to establish U.S. battery cell manufacturing at scale, positioning itself for cost advantages. GM’s current lineup comprises three all-electric large pickup trucks, a Hummer SUV, Chevrolet crossovers, a luxury Cadillac crossover, and the high-end Celestiq car. The company anticipates adding more crossover models and an all-electric Escalade SUV to its lineup this year.
Despite the distinct approaches of Ford and GM, both companies are striving to deliver customer-centric, affordable, and profitable solutions. Ford remains committed to leveraging the right technologies to meet customer needs while ensuring profitability.