Ford CEO Jim Farley is rethinking the automaker’s approach to electrification in a major way. On Wednesday, Farley said Ford needs to focus on offering small, inexpensive electric vehicles to consumers going forward—not big, battery-powered trucks. It’s a rather stunning admission from a company whose identity is deeply tied up in selling big pickup trucks.
As Farley explains it, the shift to EVs has flipped the car business on its head. With internal-combustion vehicles, bigger was always better. A larger vehicle can command a higher price, which ultimately yields fatter profit margins for Ford. Simply put, Ford can make a lot more money on a per-unit basis selling $65,000 F-150s than $25,000 EcoSports. That simple math has pushed Ford and its peers to prioritize big pickups and SUVs over smaller cars.
But that doesn’t hold up in the electric era, Farley said.
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Ford's path to EV profitability
Ford is the No.2 EV brand in the U.S. behind Tesla. But its EV business is far from profitable. Ford's EV unit posted a $1.1 billion loss for the second quarter.
“It’s exactly the opposite for EVs,” he said on Ford’s second-quarter earnings call. “The larger the vehicle, the bigger the battery, the more pressure on margin because customers will not pay a premium for those larger batteries.”
On the contrary, it’s making batteries smaller that can boost margins by driving down costs, he said. Plus, Farley added, the $7,500 federal rebate for EV purchases becomes a bigger factor when it’s applied to a cheaper vehicle.
The lithium-ion battery pack is the single most expensive part of an EV. And big, heavy SUVs and pickup trucks need more battery capacity to provide the kind of driving range consumers expect. That all leads to prices that many buyers can’t stomach. An electric Ford F-150 Lightning pickup with 320 miles of range will run you at least $68,000, roughly $20,000 more than the equivalent gasoline-powered model.
Take a look at Ford’s electric pickup sales, and it’s easy to see where Farley is coming from. Ford hasn’t been able to find nearly as many buyers for the Lightning as it once hoped to. Not long ago, the automaker planned to scale up production to an annual run rate of 150,000 units by late 2023. But it has trimmed back those ambitions considerably. It ended last year with about 24,000 Lightnings sold. By contrast, some 750,000 customers snapped up gas-powered Ford trucks in 2023.
All that proves automakers can’t just coast by offering electric versions of their best-selling gas vehicles—especially if those electric alternatives come at a significant price premium. The rate of EV sales growth has indeed slowed down, but the range of products people can buy is a big contributor. That's something automakers can control.
Ford hasn’t said much officially about what these smaller EVs will be like, but we do know that it has established a small team in California to design a new, low-cost platform for them. Farley refers to the team as Ford's "Skunkworks." On Wednesday, Farley offered a bit more color, saying that the effort will focus on two segments: work and adventure.
He said Ford will offer “very differentiated” EVs priced at under $40,000 “or even [under] $30,000.” Those would fill a gaping hole in the U.S. EV market, which skews heavily toward the premium end of the spectrum and offers few truly affordable options. He also said that EVs can provide lots of interior space in a small silhouette since they lack all the bulky parts of a conventional drivetrain, like engines.
Big EVs will still have a place at Ford, but the automaker will have to “be really careful” and “make much smarter choices on segments,” Farley said, appearing to acknowledge the company's missteps around the F-150 Lightning. Ford’s EV business lost $1.1 billion in Q2 as the company works to increase production volumes and achieve meaningful economies of scale, Ford said on Wednesday.
Farley said that going forward, larger Ford EVs will be commercial and work vehicles and that the company will rely on “a lot of partnerships” to bring them to market.
"Overall, the EV journey has been humbling, but it has forced us to get even more fit as a company," he said.
Contact the author: tim.levin@insideevs.com
