Editor's note: The original version of this article incorrectly quoted Ford CEO Jim Farley as saying Ford would price some battery-electric vehicles as low as $20,000. The story has been corrected.
Ford does not expect to chase sales of electric vehicles selling for $100,000 or more, according to Jim Farley, the automaker’s new CEO.
Instead, Farley (below, left) says Ford’s strategy for electrification is built around commercial vehicles, including a soon-to-be unveiled version of the Transit van. The automaker also will broaden its push to reduce soaring warranty costs that have hobbled its earnings and stock price.
“Our warranty coverages in the last few years is up $1 billion to $2 billion depending on the year, and that is not okay,” Farley says. “So, although it moderated in the (third) quarter and we have taken a lot of actions on craftsmanship, long-term durability, we have a much bigger ambition to improve the quality of our vehicles. We have taken a lot of countermeasures. They will take time.”
Ford beat Wall Street expectations by reporting a third-quarter profit of $2.4 billion on revenues of $37.6 billion.
“We’re moving with urgency to turn around our automotive operations, improve our quality, reduce our cost and accelerate the restructuring of underperforming businesses,” Farley says during a conference call with analysts. “And third, we are going to grow again, but in the right areas – allocating more capital, more resources, more talent to our very strongest businesses and vehicle franchises.”
Farley says the emphasis on curbing warranty costs is particularly important as the automaker begins to ramp up production of vehicles such as the new F-150 pickup, Bronco utility vehicle (below) and the all-electric Mustang Mach-E CUV.
“These are fantastic opportunities for us on the top line for the next many years to come,” Farley says, predicting North American profit margins could exceed 10%.
Electrification is particularly important, Farley adds. “There's been a lot written about the electrification of our industry and Ford’s bet is different. We’re betting on a full lineup of commercial electrified vehicles.”
Farley says the industry is only in the “first inning of electrification and it’ll be a long game that plays out over many years,” which will provide Ford with tremendous volume opportunity.
“We are not going after the $100,000-plus market. These are affordable vehicles,” Farley says, adding Ford EV prices in the U.S. and Europe will be between $45,000 and $70,000 and include CUVs and CVs.
“We’re talking about these vehicles being 10%-plus of the revenue pool in North America at their price,” he says. “The electric Transit, by the way, will be revealed next month,” he says, noting the fullsize van will be sold in markets around the world, including China.
Farley says Ford now has four assembly plants in North America targeted for building EVs, among them a completely new plant at the Rouge complex in Dearborn, MI, and a retooled facility in Oakville, ON, Canada.
Farley says the changeover of the F-150, the automaker’s most important product, is running smoothly with a methodical sell-down of older models. “I’m delighted to say that we’re in good shape in important areas of readiness for these launches. Software, the hardware engineering is done, supplier manufacturing readiness looks great.
“In fact, right now all-new F-150s are rolling off the line in Dearborn as we speak and production will soon start at Kansas City (MO),” he says.
Nonetheless, Ford expects F-150 sales to drop by 100,000 units in the fourth quarter due to the changeover, according John Lawler, Ford’s chief financial officer. “This volume is a result of our measured production ramp-up plan to ensure that every vehicle we wholesale is gate-released with the highest possible quality for our customers,” he says.
Lawler adds Ford’s guidance for fourth-quarter 2020 stands at between a loss of $500 million and breakeven, which would leave Ford profitable for the full year.
Offering more context to the numbers, Lawler says “the approximate 100,000-unit impact” in the fourth quarter will far outweigh the effect of the $600 million in UAW ratification bonuses paid out in fourth-quarter 2019.
“We also expect higher structural and other costs from the manufacturing launch activities for the Mustang Mach-E,” Lawler says.