Article: Ford has right approach for Mach E development

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Good article on Ford's approach to EV and Mach E development. Seeking Alpha takes the position that Ford is doing it right.

Ford Is Taking Right Approach On EV Development

https://seekingalpha.com/article/4293928-ford-taking-right-approach-ev-development

September 27, 2019

Summary
  • Reality is starting to sink in that EV technology will lead to a permanent disparity in range, based on people's incomes and willingness to pay for it as a luxury.
  • While luxury car brands such as Mercedes need to take the EV market seriously, since it is competing for the same consumer demographic, the likes of Volkswagen should not.
  • Ford produces mostly vehicles meant for middle class, as well as cars with enhanced utility, such as trucks, meaning there is very little overlap with growing EV market.
  • Ford's latest EV plans, such as the Mach-E or F-150 EV, while still focusing on the conventional sector, show that it is taking a realistic approach to the EV phenomenon.
I wrote an article about a month ago, pointing out flaws in certain aspects of established perceptions in regards to the growing EV market, which tend to distort the reality. When there are such well-established distortions in place, I find that it is very important to take a step back and correct those misconceptions, especially when it comes to making potential investment decisions. For instance, there is much talk of EVs reaching price parity with comparable conventional cars within perhaps a few years. There is, however, one flaw in the comparison, which distorts the true picture. We are comparing similar-size cars, but there is a clear neglect to factor in driving range. In my view, an EV needs to offer a driving range of about 300 miles in order to provide the same utility as a typical conventional car. For the foreseeable future, however, most cost-competitive EVs tend to offer only up to about 150 miles of range, which falls short of meeting driver needs outside an exclusively city driving environment. Keeping these facts in mind, I think Ford (F) is doing a good job avoiding the pitfalls of chasing the price parity title, which has become a bit of an obsession within the media and analysts, leading many car manufacturers to play along. As EVs become an increasingly significant part of overall global car sales, the effects that it will have on all established car makers should not be underestimated. Therefore, it is important for each and every one of them to come up with a strategy that best suits their specific DNA.

The Mach-E is an indication of Ford being on the right track

Ford is set to release the Mach-E EV, next year, which is by far its most important EV move to date. It is a crossover, with a 300-mile range, which will sell at a starting price of around $40,000. Realistically speaking, it will probably sell at an average price of around $45,000-50,000 once options are included, and my suspicion is that Ford will lose money on it, or break even at best. But the loss will not be exceedingly steep. In my view, this is the exact approach that the Tesla (TSLA) experience shows, namely that EVs with a range that provide similar utility to their conventional car counterparts can only be sustainably produced and sold into the luxury and premium car segment. After all, in the last quarter, the average sale price of its cars was about $56,000. In other words, it is selling cars priced for the luxury car segment. All the talk about the model 3 being mass-affordable has been proven to have been just an attention grabber, not reality.

One of the aspects of the Mach-E is the fact that it has a unique design, and yet it has Ford fingerprints on it, with some shared characteristics with the iconic Mustang.

As I pointed out in a recent article, exploring Daimler's EV strategy, its most important EV offer currently hitting the markets is the Mercedes EQC, which seems to lack any significant design features that set it apart from most other Mercedes cars. The driving range, estimated to be just over 200 miles in real life conditions also falls short of providing full utility that drivers currently get from a conventional car. While the range of the EQC does not compare to the best that Tesla has to offer, the starting price does. It also fails to stand apart from other Mercedes models in a way that it says "EV", meaning that it fails to provide consumers with the ability to signal affluence and social responsibility simultaneously, like a Tesla does.

Ford's product lineup in no way threatened by EV trend

I think it is important for most luxury car makers like Daimler to ramp up their EV presence, because, increasingly, we have more affluent car buyers who would otherwise opt for its luxury cars, increasingly deciding to buy EVs instead. EVs are actually a very good fit for luxury car brands, because it is in the luxury car price range that automakers can offer the kind of EV range that makes them a viable alternative to conventional cars in terms of utility.

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EVs are increasingly becoming a way to signal both affluence and social responsibility simultaneously, which is why Tesla is increasingly becoming one of the best-selling luxury car brands in the US. None of this threatens Ford's core products in any way. The F-150 Trucks sell at an average price of $47,000, so in terms of price, they are in the same range as some longer-range EVs. Few car buyers out there are sitting around contemplating whether they should get a F-150, versus a Model 3, or a Nissan Leaf. Therefore, that is where the overlap ends. There are simply no EVs currently out there to offer an alternative to a conventional truck.

The average household income of a new Ford Focus buyer is currently $63,000, although some of the premium sedan versions that Ford has on offer do cater to more affluent buyers, so there could be some loss there to some of the EVs, which cater to the same income demographic. The average income of a Model 3 buyer is currently about $128,000. Overall, Ford seems to have very little overlap in regards to cars it is offering versus the price/utility that EVs currently on the market have to offer. As I pointed out, by comparison, Daimler's Mercedes brand is fully exposed. In other words, somebody looking to buy the E-class for $55,000 might just consider going for a Model 3 instead, or perhaps the Mach-E once it becomes available starting next year. By contrast, few people looking to buy an F-150 or a Ford Focus are likely to go for any of the EVs out there any time soon.

Ford's EV plans

As I pointed out in a recent article, Volkswagen's (OTCPK:VLKAF) EV plans may potentially become ruinous next decade, given that it is gearing its operations towards making an all-in bet on a pivot towards EV production. It actually wants to stop development of its conventional car technology by the middle of next decade. This is despite the fact that, as the name of the company suggests, it is supposed to be producing "people's cars". In other words, the cars of the working class. EV technology, however, does not provide for a way to profitably provide affordable cars, with similar utility as conventional cars, when it comes to driving range.

Ford's overall profile is also in many ways similar to that of Volkswagen. It produces cars mostly for the middle class, as well as trucks, which are often bought by trades people, as well as many small business owners in need of a vehicle that can haul larger items than most typical passenger vehicles. There are also many who buy a Ford truck as a luxury and affluence statement. As far as the latter demographic group goes, it is not compatible with most EV offers either, mostly due to personal taste. So, just like Volkswagen and unlike Daimler, Ford is in no danger of losing much ground to EVs, yet it is making sure to build a presence within the growing niche market.

Based on Ford's 2018 annual report, it seems that its interest in EVs has a lot to do with mandated requirements, such as the ones being enforced in California, where, by 2025, it will be required for EVs to make up 15% of sales for each carmaker. There are also EU and other mandates which are leading to rising pressure on car manufacturers to produce more EVs. It does not seem to me that Ford has ambitions to go beyond that minimum needed to achieve compliance in this respect.

Aside from the Mach-E, which, will in my view, be a success if it will deliver on range/price as it is currently being reported, it is also looking to offer an F-150 EV. It is clearly a platform which is not going to face limits in terms of competitive pricing. Most popular pickups sell at a steeper price compared with sedans or SUVs. Ford is right, therefore, to bank on selling EV trucks, which will probably come with a competitive driving range. F-150 EVs will probably sell above the current average F-150 price of $47,000. But they will probably not surpass the higher-end prices of the current model by much. Ford is currently betting that it has a customer base that already exists for such a truck, if it can provide an EV version with similar utility and performance, at a similar price to what people are already paying on the higher end.

Whether it is the Mach-E or the proposed F-150 EV, the common denominator seems to be that they are cars which will be priced on the higher end of the car market. It is the price range where car manufacturers can hope to avoid taking steep losses on each and every EV they sell. Even if they will not break even, at least the magnitude of the loss will be small. A well-executed EV strategy might even lead to some profits in this price range. This is important for Ford, given that last year's net income was only $3.7 billion. To put it into perspective, if it were to sell 100,000 more EVs next year and lose $5,000 on each unit sold, it would result in a drag on its finances of $500 million. It would not be an insignificant hit to its profitability by any means, especially if in coming years, the number of EVs it would sell would rise into the hundreds of thousands of units.

Because Ford's main products do not face a direct threat to their sales volumes from EVs, there is no reason for it to follow down the path that Volkswagen is taking, in betting its future on being able to replace most of its current conventional car sales with EVs, within a decade or so. While Ford is allocating some resources to developing EVs, its main focus continues to be its lucrative conventional car segment. If sales of the Mach-E and other future EVs will turn out to be good, then perhaps it will become a bonus, in addition to its current conventional car business. Overall, I think Ford is handling the increasingly important EV issue very well, which bodes well for its longer term future.





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MachSpeed

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Pricing is the thing Ford is aiming the Mach E at Tesla customers. EV's will not in the foreseeable future be priced at the entre level buyer The thing that will set the Mach E and other Ford EV's apart will be there build quality and reliability. I'm sure everyone has see and heard of the pour Tesla quality and this is where Ford must excel at to win over those customers and gain new customers.
 

w3rkn

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It depends on it's performance & drivability/usuablity.

Not to many use their teslas, the mostly just drive them. More camping trips and more ruggedness? I think we have to wait to see the Mach-E's direction.

But if it hit's the #'s on performance, I don't think Ford will have to sell them at a loss.
 

Midnight Blue

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But if it hit's the #'s on performance, I don't think Ford will have to sell them at a loss.
Sell them at a loss? I don’t think you understand the play here, at all. Ford is rolling the dice on whether they can strip away at Tesla’s market.

I’m not sure how the Mustang-anything helps this vehicle sell. Just target Tesla and actually deliver at an affordable price and you win.
 

MachEBuyer

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“selling at a loss”
I find that saying to be extremely overused and revolting in every aspect of the car business..

Ford CEO Jim Hackett received total compensation of $17.8 million in 2018, up from $16.7 million in 2017, according to finance documents released by the company on Friday. The Dearborn-based carmaker reported Hackett's pay was 276 times more than the median compensation for all U.S.-based Ford employees.


GM CEO Barra's total compensation package was valued at $21.87 million, slightly below the $21.96 million she received in 2017. Barra, GM's chairman and chief executive, was paid $22.58 million in 2016. GM said Barra's pay was 281 times that of the median company employee

Fiat Chrysler Automobile NV’s late Chief Executive Officer Sergio Marchionne received a total of $54 million in cash compensation, perks and shares in 2018, the year of his sudden death.

Just the amount of money AFTER the decimal point in every one of their salary’s is more than the President of the United States.

Since 2001, the president's annual salary has been $400,000, along with a: $50,000 expense allowance; $100,000 nontaxable travel account, and $19,000 entertainment account.
 

w3rkn

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Sell them at a loss? I don’t think you understand the play here, at all. Ford is rolling the dice on whether they can strip away at Tesla’s market.

I’m not sure how the Mustang-anything helps this vehicle sell. Just target Tesla and actually deliver at an affordable price and you win.

Well, there are MANY electric vehicles, THIS ONE is targeted at PERFORMANCE.
Otherwise, why would Ford Motor Company be trying to link/tie this to the Mustang..? And have such aggressive lines & stance..?

mach-e[1].png




Secondly, I don't see Tesla as a performance vehicle, they are more of a yuppy-posh eco statement. I don't think you understand who this 4-door electric "mustang" is intended for.
 
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Midnight Blue

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Well, there are MANY electric vehicles, THIS ONE is targeted at PERFORMANCE.
This is not a Porsche Taycan challenger. Ford didn’t have the balls for that. It’s more of a station wagon / Jaguar I-Pace.

Otherwise, why would Ford Motor Company be trying to link/tie this to the Mustang..? And have such aggressive lines & stance..?
Obviously bc Ford thinks they need to. What I’m saying is that they don’t. I’d even say it’s a misstep.

Secondly, I don't see Tesla as a performance vehicle, they are more of a yuppy-posh eco statement. I don't think you understand who this 4-door electric "mustang" is intended for.
Have you ever driven a Tesla?
 

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Secondly, I don't see Tesla as a performance vehicle, they are more of a yuppy-posh eco statement. I don't think you understand who this 4-door electric "mustang" is intended for.
You can get a Model 3 with stealth package for $50,000 or a full performance version for $56,000. They both do 0 to 60 in 3.2 seconds. That's faster than any stock Ford mustang or Shelby. The Model s can get in the mid 2 second range. The Model 3 AWD is 4.4 seconds and the base model 3 is 5.2 seconds. Tesla is all about performance.
 

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You can get a Model 3 with stealth package for $50,000 or a full performance version for $56,000. They both do 0 to 60 in 3.2 seconds. That's faster than any stock Ford mustang or Shelby. The Model s can get in the mid 2 second range. The Model 3 AWD is 4.4 seconds and the base model 3 is 5.2 seconds. Tesla is all about performance.
0~60 is drag racing... not handling.
 

w3rkn

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This is not a Porsche Taycan challenger. Ford didn’t have the balls for that. It’s more of a station wagon / Jaguar I-Pace.

Obviously bc Ford thinks they need to. What I’m saying is that they don’t. I’d even say it’s a misstep.

Have you ever driven a Tesla?
So this is a family SUV then.... ? LOL..
 

MachSpeed

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Sell them at a loss? I don’t think you understand the play here, at all. Ford is rolling the dice on whether they can strip away at Tesla’s market.
Sell them at a loss that ain't going to happen. The Mach E is the first shot at Tesla with more to come it all depends on how Ford handles the launch and quality of the product they turn out. For some resound the public ignored the bad build quality of Tesla but Ford won't be able to get by with it. The launch and the Mach E have to be as close to flawless as possible.
 

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I'm not looking at the Mach E as a performance car I'm looking at for it versatility and it's ability to cut my fuel costs. But I do want to be able to push the accelerator and the car get up and go fast not be slow about it. I'm looking seriously at Mach E can't wait to get a chance to drive one.
 

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0~60 is drag racing... not handling.
You said Performance, 0 to 60 is a key measure of performance. That's why they list it as part of the Mach E spec's. Plus, they have the performance model which handles fantastic on tracks. I do understand what you mean about it having a yuppy-posh image, I think most people feel that way. I was just pointing out, the model 3 is way more than that and most people don't realize it. I'm very excited about the Mach E, I want this to be a home run for Ford.
 

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I'm very excited about the Mach E, I want this to be a home run for Ford.
I'm with you my friend and I hope Ford understands the Mach E has to be a home run or they'll loose all there credibility.
 

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