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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
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.
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.
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.
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.
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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