Ford Loses $44,000 On Every EV Sells As It Switches To Hybrids
Good morning! It’s Monday, August 26, 2024, and this is The Morning Shift, your daily roundup of the top automotive headlines from around the world, in one place. Here are the important stories you need to know.
Even EVs Can’t Get A Break From The Heat
1st Gear: Ford’s New EV Plan Means More Hybrids
Last week, we reported that Ford was canceling its plans for a three-row electric crossover as part of an adjustment to its electric strategy because of cooling demand for EVs. Now we are getting a better look at just how much that strategy is changing and what it’ll end up costing The Blue Oval. Chiefly, Ford is expected to take on $1.9 billion in related charges and write-downs.
The cancelation of this three-row EV comes after Ford said in the Spring that it would be delaying plans for the model by two years to 2027. It also comes during mounting pressure to restore aggressive discounts to get their current EVs off dealer lots.
All of this means more hybrids are coming to Ford’s lineup. From the Wall Street Journal:
Ford instead will offer hybrid gas-electric versions of future large, three-row SUVs, a popular vehicle category that includes the brand’s Explorer and Expedition nameplates.
The company’s moves are the latest example of automakers unwinding EV-investment plans they made years ago, when it looked like there was big untapped consumer demand for battery-powered models. There has been more hesitancy among car shoppers than auto executives initially expected, with surveys showing concerns about high prices and finding places to charge.
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Ford also pushed back the launch of a new electric pickup truck by one year, until 2027, the second time it has pushed back the timeline. In addition, Ford said it would trim its capital spending on fully electric vehicles to about 30% of its budget, from 40%.
“Based on where the market is and where the customer is, we will pivot and adjust and make those tough decisions,” Ford Chief Financial Officer John Lawler said.
Ford said its EV business is on track to lose an eye-watering $5 billion this year alone. In the three-month period ending in June, the automaker lost about $44,000 on every electric vehicle it sold. That is not sustainable.
The automaker said it would take a special, non-cash charge of $400 million to write down expenses related to the cancelation of the electric three-row. The move may result in additional expenses of $1.5 billion. It would be reflected as special items in future quarters.
Executives have said the company is trying to reduce the losses on its current EV lineup while making sure future offerings turn a profit.
Carmakers are trying to strike a tricky balance on electric vehicles. Tougher tailpipe-emissions rules, along with the rapid rise of Chinese EV makers, are pressuring them to invest in the technology. But consumer interest in EVs has waned after a burst of enthusiasm.
For example, while Ford is recalibrating its plans to include more hybrids, it also is moving ahead with the rollout of several full EVs. It will start making an electric commercial van in 2026 and two new pickup trucks a year later.
One of the trucks will be a midsize pickup, built using a new, lower-cost EV system that has been under development for nearly two years by a team of about 100 Ford engineers in Irvine, Calif. Led by former Tesla executive Alan Clarke, that project is designed to produce several electric models that Ford says will be profitable and allow the company to compete with Chinese EV makers.
“We believe that the fitness of the Chinese in EVs will eventually wash over our entire industry in all regions,” Farley told analysts last month.
Ford obviously isn’t alone in this move to pull back on EV plans because of lower-than-expected demand. General Motors has acted similarly.
Sure, fully electric vehicle sales rose 6.8 percent through the first half of the year, WSJ reports, but that represents a sharp deceleration from nearly 50 percent growth in 2023. At the same time, sales of hybrids have risen sharply over the past year.
I don’t know, man. If I was Ford and I was losing $44,000 per vehicle, I’d probably try something new as well.
2nd Gear: Tesla’s Price Cuts Helping Used EV Market
For the most part, Telsa has been lowering the prices of its cars fairly steadily for the last year or so. That’s had the generally positive effect of lowering used electric vehicle prices all over the place, including directly across from Tesla’s Fremont factory in the San Francisco Bay area. From Bloomberg:
CarMax Inc.’s superstore in Fremont, California, has seen a stream of shoppers more willing than ever to kick the tires on an electric vehicle. While Tesla’s price cuts aren’t all that’s driving the foot traffic — the range of pre-owned plug-in models to choose from is steadily broadening — Elon Musk’s early dominance of the market for new EVs has translated to serious sway over used-car dynamics.
“We’ve seen a really good amount of interest,” Henry Melendez said in a phone interview. The CarMax general manager said customers have told him they wanted to seize on incentives and falling prices. “They’ve always wanted to get into an electric vehicle, but it just wasn’t quite as affordable.”
The trend taking place on Tesla’s doorstep in Fremont is playing out across much of the US. Retail sales of used EVs jumped 70% in the first half of the year, according to market researcher Cox Automotive. The average price of a used EV has fallen below $30,000, iSeeCars.com said in June, noting they’d become less costly than the typical gas-powered vehicle.
At this point, used EV buyers are no longer paying a premium over gas-powered cars. That’s a good thing because affordability is a major factor in whether or not EVs catch on wide a wider audience in the U.S.
“Tesla is driving the market by lowering the prices,” said Scott Shannon, a general sales manager at Axis Motorcars in Jersey City, New Jersey. The dealership has about 400 new and used cars in inventory, and just six EVs in stock, he said. “Used EVs are sold more quickly than gas cars, almost in a week.”
Unfortunately for some dealers, not all can be so lucky. Part of what is driving demand is a whole lot of supply. The inventory for used EVs is about four times as high now as it was back in 2021:
Overall, it’s taking dealers longer to sell used EVs than internal combustion engine-powered cars, according to auto researcher Edmunds. Where that flips is for models priced between $20,000 and $30,000 — used EVs tend to be snapped up within 30 to 36 days, the market researcher’s data show, compared to 39 days for gas cars.
It helps that Uncle Sam is lending a hand. While clean vehicle tax credits worth as much $7,500 for buyers of new EVs has gotten the most attention since the 2022 passage of the Inflation Reduction Act, the law also created $4,000 credits toward the purchase of used plug-in models costing $25,000 or less. Whereas manufacturers have to meet strict criteria for their new EVs to quality for incentives, used electric cars qualify as long as they’re below that price threshold and at least roughly two years old.
So, Tesla’s penchant for lowering prices may hurt its own buyers, but it seems to be helping just about everyone else.
3rd Gear: Rivian’s Illinois Plant Fire Damages Cars
A fire in a parking lot at Rivian’s manufacturing facility in Normal, Illinois broke out late on Saturday, August 24. It apparently damaged a whole bunch of EVs in the process, but luckily there were no reports of injuries. Right now, the cause of the fire is under investigation. From Reuters:
The fire was at a parking lot on the north side of the four-million-square-foot factory, located 130 miles (209 km) south of Chicago, and the assembly plant was unaffected, the Normal Fire Department said in a statement to Reuters.
Rivian did not confirm the number and type of vehicles affected.
Rivian, known for its R1S SUVs and R1T pickups, is expanding the Normal plant to produce its smaller, less expensive R2 SUVs that are expected to roll out in 2026 and seen as critical to its success.
The company this year shut the plant down for three weeks for a major retooling that is meant to simplify manufacturing and slash costs.
The EV maker produces all its vehicles at the factory in Normal, with a second assembly plant planned in Georgia.
While fires never come when you want them, this one certainly could have had better timing. Just last week, the automaker temporarily suspended production of its Amazon delivery vans because of a parts shortage.
4th Gear: GM’s Cruise Partnering With Uber
General Motors’ self-driving vehicle company Cruise is linking up with Uber for a multi-year deal. There’s no word on financials at this point, but the two companies said they plan to launch the partnership next year with a dedicated number of Chevy Bolt-based autonomous vehicles. From the Detroit Free Press:
Once the service is launched, when an Uber rider requests a qualifying ride on the Uber app, they may be given the option of choosing a self-driving Cruise vehicle.
“Cruise is on a mission to leverage driverless technology to create safer streets and redefine urban life,” Marc Whitten, CEO of Cruise, said in a statement. “We are excited to partner with Uber to bring the benefits of safe, reliable, autonomous driving to even more people, unlocking a new era of urban mobility.”
Uber’s CEO said the company is thrilled with the partnership.
“As the largest mobility and delivery platform, we believe Uber can play an important role in helping to safely and reliably introduce autonomous technology to consumers and cities around the world,” Dara Khosrowshahi, Uber CEO, said in a statement.
This is actually Uber’s second attempt at a self-driving car deal. Back in 2016, it partnered with Volvo, but that deal came apart when a self-driving Uber hit and killed a woman in 2018 in Arizona. The company has also partnered with Waymo to offer driverless rides or food deliveries in the state.
It’s also not the first for GM, which previously partnered with Lyft back in 2016. The $500 million investment was the beginning of plans to eventually develop a fleet of self-driving vehicles that could be hailed using Lyft’s app. That deal also fell apart in 2018 when GM decided instead to launch its own vehicles and network through Cruise.
GM still believes there is life to be found in Cruise:
Since this spring, Cruise, which was founded in 2013, has been inching closer to restarting its driverless robo taxi business after halting all services and recalling its vehicles late last year. As of June, Cruise resumed manual driving in Phoenix, Houston and Dallas. Supervised driving is underway in Phoenix and Dallas, according to a blog on www.getcruise.com.
During its second-quarter earnings in July, GM CEO Mary Barra said GM is suspending production of the Cruise Origin, a self-driving buslike vehicle that does not have steering wheel or pedals. It had been assembled at Factory Zero in Detroit and Hamtramck for use in a Cruise robo-taxi fleet.
Barra said Cruise will focus “their next autonomous vehicle on the next-generation Chevrolet Bolt, instead of the Origin. This addresses the regulatory uncertainty we faced with the Origin because of its unique design. In addition, per-unit costs will be much lower, which will help Cruise optimize its resources.”
Cruise had stopped all operations last fall after an incident in October in San Francisco, where the company is headquartered. A human-driven vehicle hit a pedestrian, pushing her into an oncoming Cruise self-driving car, which then dragged her several feet, leaving the woman critically injured. Cruise had been using modified Chevrolet Bolts at the time.
The fallout from that Oct. 2 accident resulted in regulators suspending Cruise from further operations in San Francisco. That was followed by Cruise opting to suspend all its operations nationwide. Cruise was accused of misleading federal regulators about the incident too. Ultimately, Cruise fired nine executives and cut about 24% of its full-time employees, about 900 people. Cruise CEO Kyle Vogt and co-founder and Chief Product Officer Dan Kan resigned.
Since 2016, GM has invested about $8 billion in Cruise, according to Freep. At one point, leaders at the company promised to deliver $1 million in annual revenue by 2025, but it has yet to make a dime.
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