Ford CEO: Going Small With EVs to Make Money

Ford CEO Jim Farley says he finds the market for battery-electric vehicles vastly different than he did a year ago. His new perspective is that Ford will focus more on BEVs the size of the current Ford Escape and smaller, and price them closer to where hybrid vehicles are today relative to internal-combustion-engine vehicles.

The CEO also says he is open to joint-venture and collaboration deals with other automakers to better compete against lower-cost Chinese manufacturers who seem poised to enter the U.S. market, and who are already rapidly gaining share in Europe.

Speaking at the Wolfe Research Global Auto Conference, Farley admits he misread the BEV market in 2021 and 2022 when Tesla saw a spike in Model Y sales and hiked prices on that model from about $50,000 to $75,000. “I thought that was going to be the new normal, and it wasn’t.”

Last year, Farley and Ford’s senior management saw the need to develop a low-cost EV architecture for compact vehicles that could hit the market at prices comparable to today’s hybrid vehicles. (Editor’s note: WardsAuto classifies battery-electrics, hybrids, plug-in hybrids and fuel-cell electrics as electrified vehicles (EVs); battery-electric vehicles are specified as BEVs.)

To get scale in EVs, says Farley, “we have to go to mainstream customers.” The first wave of EV buyers were “early adopters” and what Ford calls “lovers of new technology.”

Those mainstream customers are not early adopters. They do the math on buying EVs and hybrids, says the CEO. “They look at resale value and cost of energy, and that math is somewhat opaque right now,” says Farley. That accounts for some of the slowdown in demand for EVs.

The result will be Ford launching new EV vehicles in 2025, 2026 and 2027 on a new, low-cost- architecture. To accomplish this, the company formed a “skunkworks” last year with a new team of engineers and procurement professionals. Their marching orders: “Make it high quality and low cost. If it doesn’t make a profit in 12 months, we aren’t going to build it.”

Ford earned $6.25 billion in gross profit last year, including a loss of more than $5 billion on its EV business.

Those losses by the EV business have a lot to do with what Farley says is a cultural problem with the automaker’s “industrial system” of engineers, purchasing personnel, product planners, etc., who have not been conditioned to be accountable. The CEO, the only member of former CEO Alan Mullaly’s senior team (other than Bill Ford) who is still with the company, points to a situation in which he found 91% of midlevel and entry-level managers got 100% of their cash bonuses at a time when Ford had its worst year ever in quality and warranty costs.

If Farley is showing a sense of urgency, it is not being driven by approaching government mandates looking for 50% of industry sales to be EVs by 2030; it is the unknown penetration of the U.S. market by Chinese automakers, especially BYD.

“There is a bigger thing here than the government. It’s called the BYD Seagull,” says Farley. The Seagull is BYD’s smallest product, a 4-door city vehicle with a range of about 140 miles (225 km) that would cost that company about $11,000 to build in Mexico (where it is scouting manufacturing locations). That cost structure allows for extending range through greater battery capacity at a time when battery prices are coming down because of overcapacity.

Chinese automakers, Farley notes, have garnered 10% of the EV market in Europe in just three years. Not reacting fast enough to China, he says, would be like how Detroit did not take Japan and South Korea seriously when they first entered the U.S. market.

Ford and other U.S. automakers have a distinct price disadvantage relative to the Chinese. “We have to fix this problem. We have to address this. That’s why we decided to create a skunkworks with new talent” not tied to Ford’s legacy culture, Farley says.

When it comes to electrification, the CEO says the automaker in the near term will focus on smaller, less-expensive EVs, hybrids and BEV commercial vehicles under its Ford Pro business. Because commercial fleet vehicles are used more intensely and managed more closely, operating costs are “very favorable” when compared with ICE vehicles. The CEO notes that Ford cannot keep up with demand for E-Transit vans and Ford Pro versions of the Ford F-150 Lightning pickup truck.

EVs that carry a cost premium to ICE vehicles comparable to hybrids, though, offer a clear energy cost advantage of over 10% to mainstream buyers during the life of the vehicle, Farley says.