Ford Adjusts EV Investment Strategy as Consumers are not Ready to Pay Premium Price

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In response to shifting consumer trends towards hybrid vehicles and family SUVs, Ford announced plans to scale back investments in new Electric Vehicle (EV) capacity. The decision comes as consumers express concerns over pricing and charging infrastructure for EVs.

Marin Gjaja, head of Ford’s Model E EV business, stated that the next generation of Ford EVs will only be launched “when they can be profitable.” This strategic shift was revealed during discussions with analysts on Tuesday.

The Michigan-based company aims to achieve $2 billion in cost reductions to offset expenses associated with the recently reached labor contract deal with the United Auto Workers union.

Despite the decrease in EV investment, Ford reported promising financials for the fourth quarter of 2023. Revenue during this period amounted to $46 billion, marking a 4 percent increase compared to the same period the previous year.

For the full year 2023, Ford said its revenue saw an 11 percent rise to $176 billion, with net income improving to $4.3 billion year-over-year.

Ford CFO John Lawler in its earnings report outlined the automotive giant’s strategy to enhance efficiency by selectively reducing investments while elevating the expected returns for greenlit initiatives.

John Lawler emphasized the company’s commitment to improving total adjusted return on invested capital from 14 percent in 2023 to 20 percent in the coming years, emphasizing that investments are prioritized for projects with credible plans to deliver targeted returns.

John Lawler acknowledged the significance of EVs in Ford’s future plans, noting the growing customer adoption and long-term potential within the Ford+ framework. He highlighted the invaluable customer insights gained through early ventures into electric pickups, SUVs, and commercial vehicles, underscoring the development of next-generation EVs aimed at surprising customers while ensuring profitability within a year of launch.

However, recognizing the slower-than-expected mainstream adoption of EVs, Ford previously announced the deferral of certain capital investments in EVs until demand and prospects for acceptable returns justify such expenditures. This decision reflects Ford’s commitment to aligning investments with evolving consumer preferences and market dynamics.

For the full year, Ford expects to earn between $10 billion to $12 billion in adjusted EBIT and the high end of the range would be a record for Ford; adjusted free cash flow of $6 billion to $7 billion; and capital expenditures of $8 billion to $9.5 billion, flat to moderately up year over year.

“We expect EVs to be about 40 percent of the total Capex, and this reflects products already in flight, including investments in EV powertrain supporting our next generation of products in our LFP battery plant in Michigan,” John Lawler said.

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