The strategic shift of a three-row SUV is driven by the competition: The impact of battery technology on an electric automaker’s profitability
The strategic shift reflects Ford’s new requirement for any vehicle to become profitable within 12 months after its launch date — a tall hurdle for an all-electric three-row SUV. Adding that to an EV market that is cooling on the consumer side even as businesses ramp up their offerings and competitive pressures makes Ford’s leadership change course.
“When you look at the three-row SUV, hybrid technologies or multiple propulsion technologies, for those customers, is the best solution.,” John Lawler, Ford vice chair and chief financial officer, said on Wednesday in a conference call with journalists.
“We’re seeing a tremendous amount of competition” in the SUV segment, Lawler said. In the US, there are over 100 electric vehicles in the process of being built, and most of them are two-row and three-row SUVs.
The write-down for manufacturing assets will be $400 million and Ford says it will take an additional cost of up to 1.5 billion dollars.
“With EVs, it’s all about the battery,” Stephanie Valdez Streaty, director of industry insights at Cox Automotive, told NPR. She stated that depending on the variables, batteries can make up to 45% of a vehicle’s cost.
The profit profiles for larger vehicles like a three-row SUV are better when the battery size is lowered. The battery costs are outsized for vehicles like this.
Streaty says the equation will change a bit as battery technology advances. She says that consumers may have to evaluate how much range they really need, and understand that a bigger battery means a bigger price tag.
Plug-in hybrid electric cars are a good option for consumers who want to go electric, but also use gas, if they need to go on a long trip,” she said.
Future Trends in Electric Vehicles: Ford, the Skunkworks, and the China-Exotic War for 2027/30? A Primer from Streaty
Streaty pointed out that other companies have cut production in response to the changes Ford has announced.
She said that carmakers need to track moving targets when trying to match consumer demand. That ranges from manufacturing and charging infrastructure to consumers adapting to a different car ownership experience, Streaty said.
In a call with reporters today, the chief financial officer told them that Ford would be “pivoting” from its existing electric future and instead expand its other platforms.
“What we’ve learned is that customers want choice, so we’re providing that choice with a full line of EV, hybrid, electric, gas and diesel products,” said Lawler.
Ford’s attempt to be “nimble” was what led to the creation of an EV team in 2022 tasked with taking on China. Ford officials revealed today that the first vehicle from the Irvine, California, skunkworks team will be a midsize pickup due out in 2027.
“We saw what was happening [in the market] and we knew that we needed to change our approach,” he pointed out, seemingly oblivious to industry analysts’ warnings about China’s EV prowess for the past 10 years or more.
“The market is changing globally, with the Chinese at overcapacity, and so it’s all going to come down to being nimble, having a low cost and multiple low-cost platforms, and being able to adjust as we continue to develop the transition of this industry,” said Lawler.