US legacy OEM Ford is finding limits to the impact of cost-cutting strategies on its EVs, as top line pressure sees the firm's Model e business make little progress towards profitability in Q1.
Ford's strategy for breaking even on Model e has primarily revolved around driving costs down, ahead of economies of scale from greater unit volume. But, speaking on the company's Q1 earnings call, CFO John Lawler bemoaned that competitive pressure to cut sales prices has largely cancelled out this work.
"So far, the last 12 to 18 months, it has just been a continuous march down on the top line, which is offsetting any of the savings we have had from a cost standpoint," Lawler says.
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"On Mach-E, we have taken over $5,000 of cost out, but the revenue keeps dropping faster than we are able to take out the cost," Lawler continues.
"We are going to continue to work on driving every dollar of cost out of the business in the near term. And if the pricing stabilises and we do not see these significant reductions continuing across the industry, then I think that you could probably start to see some of those cost reductions flow to the bottom line."
Cheaper batteries
One major factor in allowing Ford to take costs out will be reduction in the bill of materials. But the firm suggests that this may be more of a long-term, rather than short-term, lever.
"I think the most important thing strategically is to get to new chemistries that have a lot less expensive materials in them," Farley says. "I would say that the biggest leverage on the battery cost is still going to be taking nickel out of them."
And Ford's recent decision to push back its upcoming pickup and SUV offerings was, it says, not simply a response to slowing global EV demand, but a move to time the launch with optimal material costs within existing supplier contracts.
"We delayed the launch of our three-row crossover, which is a great product, two years, not only to match the slower growth in EV, but more importantly, to take advantage of new battery chemistry and formats to substantially reduce the cost of the batteries for that vehicle," Farley says.
"We pushed out the three-row SUV because we need more cost to come out of that for that to be at the margin levels we expect," Lawler adds.
Ford is targeting profitable next-gen EVs at a c. $30,000 sticker price. And Farley is confident that pricing pressure like that seen in Q1 will not persist below this price point, despite the increasing crowdedness of the market.
"We think that prices for EVs are going to normalise around where gas is," the CEO says. "I do not think that you are going to find that you are going to have electric vehicles well below gas prices unless there is so much capacity pushing against the demand curve."
Ciaran has written about finance, politics and culture. He is passionate about e-mobility and what it means for our way of life.
Ciaran has a Masters in Ancient Philosophy from Oxford University.
