It’s not exactly news that Ford, like many other automakers, is finding it difficult to sell electric vehicles (EVs) in the expected numbers at the moment.
And if there is less demand for EVs, there is less demand for EV batteries.
Back in November, Ford announced that it was scaling back the size of a planned EV battery plant in Michigan because of lower than expected demand. It was said at the time that the plant would account for 1,700 new jobs rather than earlier estimates of 2,500. The green industrial revolution continues.
The plant was originally planned to produce 35 gigawatt-hours’ worth of batteries annually, which Ford estimated was enough to equip about 400,000 vehicles. Now, the plant will produce 20 gigawatt hours annually, enough for roughly 230,000 vehicles, or a 42.8 percent cut.
When central planning misses, it misses.
CNBC (February 6, 2024)
Ford Chief Financial Officer John Lawler said in addition to reassessing its vertically integrated system of producing its own batteries via joint venture operations, rather than sourcing from a third-party supplier, the company is further looking into adjusting installed production capacity to match demand and potentially delaying next-generation EVs to “to ensure they meet our criteria for profitability, given the new market reality.”
The company’s EV business, known as Model e, lost $4.7 billion last year, including $1.57 billion during the fourth quarter of 2023, offset by profits in the company’s fleet and traditional internal combustion engine units. Both businesses earned more than $7 billion each last year.
Lawler said Tuesday that the unit will have to stand on its own “sooner rather than later.”
And if regulators get their way it will have to. In some markets automakers will be fined if conventional cars amount to more than a certain percentage of auto sales. This may already be about to start causing trouble in the U.K., as I noted here.
Unanswered question: If the number of conventional cars carmakers can sell is capped, how are they going to find the money to invest in a massively lossmaking EV business?
Unnecessary to answer unanswered question: Are taxpayers going to be asked to “invest” yet more in EVs?
Back to CNBC:
As Ford pulls back and reevaluates the EV business, it intends to lean in on sales of hybrid vehicles, specifically trucks. The company expects its hybrid sales to increase 40% this year. It sold 133,743 hybrid vehicles in the U.S. in 2023.
Hybrids, again. There’s a message there. I could be being unfair, but this may be a message that some would like to see downplayed.
Ford Motor Co. has begun cutting orders from battery suppliers to stem growing electric-vehicle losses, according to people familiar with the matter, as it throttles back ambitions in a rapidly decelerating market for plug-in models.
“Plug-in models”?
Click on the link, however, on that word “decelerating” to find this from January:
Instead [of EVs], car buyers are shifting toward hybrids—the gas-electric vehicles that have been around for a quarter century—which dealers have a hard time keeping in stock. Toyota Motor Corp., Ford Motor Co. and others are cranking up hybrid production to meet demand. Meanwhile, traditional internal combustion engine vehicles continue to do big business, representing more than 8 in 10 auto sales in America.
Some plug-ins are doing fine. EVs not so much. That’s off message.
Back to May 10:
The move is part a retrenchment of Ford’s EV strategy, which includes reducing spending by $12 billion on battery-powered models, delaying new EVs, cutting prices, and postponing and shrinking planned battery plants. Ford has forecast EV losses of up to $5.5 billion this year and Chief Executive Officer Jim Farley recently said its EV unit, Model e, “is the main drag on the whole company right now.”
…As EV prices have plunged and demand has slackened, Ford’s losses per EV exceeded $100,000 in the first quarter, more than double the deficit from last year, one of the people said.
Bloomberg Intelligence estimates the losses Ford expects to sustain in its EV unit this year will come close to wiping out the profits it earns from its Ford Blue division, which makes traditional internal combustion engine vehicles like the Bronco SUV and gas-electric hybrids such as the Maverick truck.
To repeat the question mentioned just above, what happens when sales of conventional cars are capped?
The writers of the report note that a backlog of unsold battery inventory is piling up in South Korea, China and elsewhere. This is hitting prices for metals such as lithium. And that, in turn, is “stalling investment decisions on new projects and, in some cases, leading to mine closures.”
A closed mine can, I imagine, be reopened fairly easily. But if new mine projects are postponed (mines take a while to open), that raises the possibility of a nasty squeeze on some metal prices once buyers of new cars in the EU, UK and parts of the U.S. can no longer buy new conventional cars (2035), finally forcing more of them to buy EVs. That, in turn will push up the price of EVs.
And so the ratchet turns.