Strategy Changing for the Future: The Case for an All-Electric Three-Radio Three-row SUV and the Cost of the Battery
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. Add that to an EV market that’s been cooling on the consumer side even as businesses ramp up their offerings and competitive pressures, and Ford’s leadership saw fit to change course.
John Lawler, Ford’s vice chair and CFO, said on Wednesday in a conference call that the three-row SUV is the best solution for customers.
There is a lot of competition in the SUV segment. S&P Global reported that there are about 143 EV’s in the works for North America, most of which are two-row and three-row SUVs.
Spiking the SUV EV comes with a cost: Ford says it will take a “special non-cash charge of about $400 million for the write-down” related to manufacturing assets, with additional expenses possibly rising up to $1.5 billion.
“With EVs, it’s all about the battery,” Stephanie Valdez Streaty, director of industry insights at Cox Automotive, told NPR. Depending on the variables, batteries can make up up to 45% of a vehicle’s cost.
“When you can take down the battery size, whether it’s a plug-in or some type of extended-range type vehicle — on these larger vehicles, like a three-row SUV, the profit profile is better,” Lawler said. “Because … the cost of the battery is so outsized for vehicles like this.”
Streaty says the equation will change a bit as battery technology advances. She says consumers need to evaluate how much range they really need in order to get used to the idea that a bigger battery costs more.
Plug-in hybrid are a good option for consumers who want to switch to electric, but also want to have that option for gas if they have to go on a long trip.
The Future of the Automotive Industry: Modeling the Customer’s Demand with EVs and Charged Cars in 2024-2027, Revisited
As for the changes announced by Ford, the carmaker isn’t alone in adjusting its plans, Streaty said, noting that GM and Tesla have also seen production cuts.
Carmakers like Ford, she said, must track a moving target as they try to match consumer demand. The range includes manufacturing, charging infrastructure and consumers adapting to different car ownership experiences.
“Ford will be abandoning its electric future and expanding its other platforms because it is responding to market demand,” said John Lawler on a call today.
“What we’ve learned is that customers want choice, and so we’re providing that choice, with a full lineup of EVs, hybrid, electric, gas and diesel products,” said Lawler.
The creation of a 300-person EV team in 2022. was Ford’s attempt to be “nimble.” Ford will build a pickup in the mid-section in 2027, based on what officials revealed today.
He pointed out that he and his team knew that they needed to change their approach, seemingly ignoring the warnings about China’s EV prowess for the past decade or more.
The market is changing globally and so it’s going to be up to flexibility, low cost and multiple low cost platforms, as we continue to develop the transition of this industry.
