Is Ford Scaling Back Its Electric Vehicle Ambitions After a $19.5 Billion Loss?

Ford's recent decision to pivot away from manufacturing large electric vehicles (EVs) reflects a significant strategic shift in response to dwindling demand and changing regulatory landscapes in the United States. The company plans to focus instead on developing more profitable hybrid and gas-powered vehicles, as well as smaller, more affordable EV models. This move is projected to result in a substantial £14.6 billion hit to profits, highlighting the challenges facing the EV market amid evolving consumer preferences and government policies.

Last updated: 30 October 2023 (BST)

What’s happening now

Ford has officially announced a strategic retreat from its plans to produce large electric vehicles, attributing this decision to lower-than-anticipated demand, rising production costs, and recent regulatory changes under the Trump administration. The company will redirect its focus towards more profitable segments, including hybrid and gasoline-powered vehicles, alongside smaller EV models. This transition represents a significant shift in Ford's business strategy as it adapts to current market realities and consumer preferences.

Key takeaways

Ford is halting production of large electric vehicles due to decreased demand.
The company anticipates a £14.6 billion hit to profits following this strategic shift.
Ford plans to focus on hybrid and gas-powered vehicles and smaller EVs.

Timeline: how we got here

The decision by Ford marks a critical point in its EV strategy, following a series of key milestones:

September 2023: The US government ends a tax credit that previously subsidised EV purchases by up to £5,608, leading analysts to predict a downturn in EV sales.
October 2023: General Motors announces a similar rollback of its EV plans, citing weak demand and forecasting a $1.6 billion impact.
October 30, 2023: Ford publicly declares its intention to refocus on hybrid and gas-powered vehicles, cancelling plans for all-electric models like the F-150 Lightning.

What’s new vs what’s known

New today/this week

Ford's announcement this week confirms its shift from large electric vehicles to more traditional models, influenced heavily by recent regulatory changes that aim to ease fuel economy standards. This marks a significant pivot for the company and reflects broader trends in the automotive industry.

What was already established

In light of declining government incentives for EV purchases and a lack of robust consumer demand, analysts had already cautioned that the growth trajectory of the EV market in the US was likely to be less aggressive than previously anticipated. Ford's latest decision is in line with these projections.

Impact for the UK

Consumers and households

The shifting focus from larger EVs to hybrids and gas-powered vehicles may affect UK consumers who are looking for more affordable and diverse vehicle options. While the UK has a growing EV market, Ford's decision could signal broader challenges ahead for consumers and manufacturers alike in adopting electric vehicles.

Businesses and jobs

Ford's pivot could also impact the UK automotive supply chain and job market, particularly in sectors focused on EV production and technology. As the emphasis shifts towards more traditional vehicles, companies aligned with hybrid and gas production may see increased opportunities, while those focused on EVs could face challenges.

Policy and regulation

The UK government’s own policies regarding emissions and EV incentives could be influenced by these developments in the US. As Ford adjusts its strategy in response to regulatory changes, UK policymakers might consider similar actions to bolster the domestic automotive industry and ensure it remains competitive in the global market.

Numbers that matter

£14.6 billion: Anticipated profit hit for Ford due to the shift away from large EVs.
£5,608: The amount previously deducted from certain EV purchases under a now-expired US tax credit.
$1.6 billion: The expected financial impact on General Motors as it reduces its EV ambitions.
700 million metric tons: Projected carbon dioxide emissions reduction anticipated from the Biden administration’s original fuel economy standards.

Definitions and jargon buster

EV: Electric Vehicle, a car that operates on electric power rather than traditional fuel.
Hybrid Vehicle: A vehicle that uses both an internal combustion engine and an electric motor.
Fuel Economy Standards: Regulations set by governments to improve the average fuel efficiency of vehicles.

How to think about the next steps

Near term (0–4 weeks)

As Ford implements its new strategy, consumers should monitor changes in available vehicle options and pricing, particularly for hybrids and smaller EVs. The market's response will be key in determining Ford's success with this new direction.

Medium term (1–6 months)

Over the next several months, it will be important to assess how Ford's reallocation of resources affects its production capabilities and product offerings. Consumer sentiment towards hybrid vehicles could also evolve, influenced by broader market trends.

Signals to watch

Changes in government policies regarding EV incentives and fuel economy standards.
Monthly sales figures for hybrids vs. EVs and traditional vehicles.
Statements from Ford and other automotive manufacturers regarding future production plans.

Practical guidance

Do

Stay informed about government incentives and regulations that may affect vehicle purchases.
Consider the total cost of ownership for hybrid versus electric vehicles when making a purchase decision.

Don’t

Don’t rely solely on past trends to determine future vehicle purchases, as market dynamics are shifting.
Don’t overlook the potential for hybrid vehicles as a transitional option between traditional and fully electric vehicles.

Checklist

Evaluate your driving needs and explore hybrid options alongside traditional vehicles.
Research the latest government policies affecting vehicle purchase incentives.
Compare total costs (purchase price, fuel, maintenance) between hybrids, EVs, and traditional vehicles.

Risks, caveats, and uncertainties

While Ford's decision reflects current market realities, uncertainties remain regarding consumer sentiment towards hybrid vehicles and the long-term viability of the EV market in the US. The impact of changing government policies and incentives continues to be a pivotal factor. Additionally, global market trends, especially in Europe and China, may affect US manufacturers' strategies as they adapt to competitive pressures.

Bottom line

Ford's retreat from large electric vehicles signifies a notable shift in the automotive landscape, driven by changing consumer preferences and regulatory environments. As the company pivots towards hybrids and more affordable models, UK consumers may find themselves navigating a more complex vehicle market, necessitating careful consideration of their options in light of evolving trends.

FAQs

What led Ford to change its EV strategy?

Ford's change in strategy was primarily driven by lower-than-expected demand for large electric vehicles and recent regulatory changes under the Trump administration.

How much will Ford's profit be affected by this decision?

Ford anticipates a £14.6 billion hit to its profits as a result of shifting focus away from large electric vehicles.

What are Ford's new plans for vehicle production?

Ford plans to invest in hybrid and gas-powered vehicles and smaller, more affordable electric models instead of large electric vehicles.