Ford announced the withdrawal of its full-year financial forecast due to the impact of the recent labor strike and ongoing challenges in the EV sector. Most consumers are reluctant to pay higher prices for electric cars compared to traditional or hybrid vehicles. Ford also postponed its planned $12 billion investment in expanding electric vehicle production capacity but remains committed to its goal of advancing its electric vehicle business.

TrendForce’s Insights:

1. Slower Market Demand Spurs Automakers to Rethink EV Strategies

The United Auto Workers (UAW) union initiated a six-week strike in Detroit starting on September 15, 2023, motivated by demands for improved compensation and benefits. The strike came to an end when consensus was reached with Ford, Stellantis, and GM (General Motors), resulting in the signing of a new contract.

According to predictions from Deutsche Bank, this new agreement will add an estimated $6.2 to $7.2 billion in costs for each of the three major automakers. This cost increase is nearly equivalent to the expense of building an electric vehicle platform. Compounded by the impact of slowing demand for global new energy vehicles (BEV and PHEV), with growth rates decreasing from 54% in 2022 to 30% in 2023, Ford announced the suspension of its $12 billion electric vehicle investment plan. This plan includes its partnership with SK On for a battery factory and a partly reduction in production capacity for the Mustang Mach-E.

2. Automakers Must Adopt More Practical EV Development Strategies to Address Price and Range Concerns

The slowdown in electric vehicle market demand stems from the issues of high vehicle prices and range anxiety, which affect consumer willingness to make a purchase. Addressing these two problems requires increasing battery energy density to achieve comparable driving range to conventional vehicles and constructing an adequate charging infrastructure. However, achieving these goals will take time and effort.

With range anxiety still unresolved and the goal of banning fossil fuel vehicles unchanged, automakers positioned between policy and the market face transition risks. At this juncture, choosing to independently develop electric vehicle platforms might add financial burden and risk, with the associated costs reflected in vehicle prices, potentially eroding competitiveness. A more practical approach would involve considering alternative development strategies, such as exploring platform outsourcing to reduce manufacturing costs.

Automakers or Tier 1 suppliers with proprietary electric vehicle platforms have the option to lease their platform production capacity to companies that are currently unable or unwilling to independently develop their own platforms. This strategy can increase production efficiency for lessees, allowing them to commission the production of all or some of their electric vehicle models from the lessor, ultimately reducing manufacturing costs and accelerating the release of new vehicle models.

By doing so, companies can maintain their market share in the electric vehicle race while waiting for the right opportunity to reevaluate the potential for developing their own electric vehicle platforms. In summary, as the demand for electric vehicles slows down, automakers will face tighter financial constraints, making it crucial for them to explore how to collaboratively leverage existing resources to create electric vehicles that align with market demands.

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• [News] Ford Shifts EV Investment Focus Amidst Fierce Price Competition

(Photo credit: Ford’s Facebook)

After a grueling six-week standoff, the United Auto Workers (UAW) has reached a groundbreaking labor agreement with General Motors (GM). This news comes after resolving disputes with Ford and Stellantis, the parent company of Chrysler, signaling a turning point in the largest auto industry strike in recent history.

According to reports from Reuters and The Wall Street Journal, the UAW and General Motors reached a preliminary agreement on October 30, officially putting an end to the six-week-long strike. It is reported that the UAW has successfully secured wage increases from General Motors similar to those obtained from Ford and Stellantis.

Over a four-year period, the average wage increase reaches 25%, and retirement benefits receive additional enhancements. When including other allowances, the maximum wage increase reaches 33%. The details are subject to approval by union members’ vote.

In response to the agreement, GM’s CEO, Barbara, stated that the new terms would enable the company to continue investing while offering well-compensated employment. She eagerly anticipates the return of all employees to their workstations.

The UAW initiated localized strikes against the three automotive giants – GM, Ford, and Stellantis – starting on September 15. These strikes grew in scale over time, primarily targeting larger and more profitable factories to exert pressure on the management. At Its Peak, Nearly 50,000 People Joined the Strike, with President Biden Personally Expressing Support by Visiting the Strike Sites.

The lengthy strike has finally concluded, bringing a sigh of relief to automakers. However, it has had a significant financial impact, with both General Motors and Ford canceling their annual earnings forecasts. General Motors estimates the strike resulted in approximately $200 million in losses each week.

Analysts anticipate that the new labor agreement will substantially increase production costs for the big three automakers, potentially undermining their competitiveness against union-free electric vehicle manufacturers like Tesla and foreign brands such as Toyota.

Notably, the union has secured greater influence over capital decisions during negotiations, including the power to initiate strikes when a manufacturer contemplates plant closures.

While the three major automakers currently express their intent to keep existing factories operational during their transition towards electric vehicles, contractual constraints may force them to continue running unprofitable facilities in times of economic downturn or declining sales.

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• [News] Ford Shifts EV Investment Focus Amidst Fierce Price Competition

(Photo credit: GM’s facebook)

Once considered a driving force behind economic growth, the electric vehicle (EV) market is facing a reality check as consumers are becoming more practical about their needs due to rising inflation and high-interest rates. Automakers acknowledge that in times of inflation, electric vehicles won’t be on consumers’ radar in the coming years unless their prices are lowered.

In the third quarter, the U.S. saw a surge in EV sales, breaking the 313,000 mark, almost a 50% increase from the same period the previous year. The EV market share reached an all-time high of 7.9%.

However, this growth may be reaching its peak as major automakers are now either postponing their electric vehicle sales targets and production plans or resorting to price reductions.

For instance, Ford has extended the annual production target for electric vehicles to 600,000 units by one year, abandoned the goal of producing 2 million electric vehicles by 2026, and temporarily halted a $12 billion investment in EV projects.

General Motors has also abandoned its sales targets, and Honda has given up on its plans to jointly develop electric vehicles priced below $30,000 with General Motors. Tesla has postponed its super factory project in Mexico.

More manufacturers are resorting to price reductions, including Mercedes-Benz, Tesla, and Ford’s electric trucks, all of which are offering significant discounts.

Price vs. Affordability

Consumers are primarily concerned with the price difference between EVs and gasoline vehicles. In the U.S., most compact electric SUVs are priced at around $52,000, while similar gasoline SUVs cost only about $34,000.

According to Ford’s CEO, in the EV industry, exceptional products alone are no longer sufficient; they must also be cost-competitive. Elon Musk also noted that the high-interest-rate environment is unfavorable for market demand, and making products more affordable is essential to encourage people to make purchases.

However, even with price reductions and discounts, it seems that buyers remain unimpressed. U.S. dealers have observed that the next wave of buyers, unlike those who made impulsive purchases in the past couple of years, are now more focused on practical factors such as cost, infrastructure challenges, and lifestyle impediments.

Practical Considerations

Market analysts suggest that over the past decade of low-interest rates, consumers have increased their spending. However, as interest rates rise, consumers now find the need to be more frugal.

The price of EVs has gone beyond the affordability range of many consumers. The current high-interest-rate environment is also unfavorable for convincing consumers to explore immature automotive technologies.

A survey found that aside from price, consumers still worry about range anxiety and the lack of charging infrastructure. Up to 77% of respondents said these were the most pressing issues when considering EVs. Consumers are less likely to consider immature products when their budgets are tight.

The U.S. government aims to have half of all new vehicles sold be zero-emission vehicles by 2030. Just a few years ago, policymakers believed that Americans would adopt EVs without needing much persuasion. However, this optimism now appears to be overly idealistic.

For now, General Motors, Ford, and even Tesla are deciding to hold onto their cash reserves and redeploy them when the economic situation stabilizes. Toyota Chairman Akio Toyoda, who has consistently argued that pure EVs are not the only solution, should be feeling vindicated as he stated at the recent Tokyo Motor Show, saying that “People are finally seeing reality.”

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• [News] Fisker Responds to EV Market Challenges with Pricing Adjustments
• [News] Ford Shifts EV Investment Focus Amidst Fierce Price Competition

(Photo credit: Pixabay)

In the wake of ongoing labor strikes affecting the U.S. automotive industry, major players are recalibrating their investment plans. Ford announced today that it will temporarily delay its $12 billion investment in electric vehicles, including the construction of its second battery factory in partnership with SK On.

Ford’s Chief Financial Officer, John Lawler, emphasized during the earnings conference that the company is not retreating from the electric vehicle sector. However, he and CEO Jim Farley acknowledge that as electric vehicle sales increase, consumers’ price elasticity decreases. Most consumers are reluctant to pay higher prices for electric vehicles, resulting in pricing pressures that compress profit margins and hinder the growth of Ford’s electric vehicle business.

Ford’s financial reports for the third quarter of 2023 revealed revenue of $1.8 billion in its electric vehicle division, with total sales of 48,000 pure electric vehicles, marking the best sales performance in over a year and a half. However, the company also reported record losses, highlighting the challenges of scaling production without achieving profitability.

In response to these challenges, Ford is shifting its electric vehicle strategy away from feature-centric development to prioritize cost efficiency. “Tesla actually gave us a huge gift with the laser focus on cost and scaling the Model Y,” said Ford CEO Jim Farley. With Tesla setting an industry standard, Ford’s forthcoming second and third-generation electric vehicles will build upon this foundation.

Under this cost-driven approach, Ford is reviewing its electric vehicle investment portfolio to better align with market demand. This includes scaling back production lines for certain models, suspending the joint battery factory project with SK On in Kentucky, and adjusting other electric vehicle-related investments totaling up to $12 billion.

(Image credit: Ford’s Facebook)

According to the latest data from TrendForce, car sales across 37 regional markets (as indicated in the notes under the table above) in August totaled 5.55 million vehicles, representing an increase of nearly 1% compared with July. This modest growth can be attributed to the upcoming launch of new vehicle models by automakers for the fall season. Some consumers were anticipating price reductions on existing models, while others were waiting for the release of new ones. Therefore, it is expected that car sales will be concentrated in the month of September.

The rankings of the top 10 car brands for August remained the same compared with July. The top three brands, in order, were Toyota, Volkswagen, and Honda. In August, the Japanese car market experienced a seasonal slowdown, leading to a drop in sales for most Japanese automakers. Compared with the previous month, Toyota posted a decline of 2.6%, whereas Honda posted a slight increase of 0.8%.

Chinese automaker BYD surpassed Ford to become the fourth-largest global car brand in terms of car sales for August. Despite the weakening demand in the domestic car market, BYD was not significantly affected as all of its offerings are new energy vehicles. BYD saw a 5% increase in car sales compared with July and was just 0.1 percentage point behind Honda in market share, which held the third position. Japanese automakers can still rely on demand from regional markets such as Southeast Asia to drive their vehicle sales. Therefore, accelerating the pace of overseas expansion is a key challenge for BYD if it seeks to surpass Honda on a global scale.

As for Ford, its performance in August showed a contraction in sales in Europe and the US. With a decline of 6.7% compared with the previous month, Ford dropped to sixth place.

While the launch of new vehicle models this fall is expected to boost new car sales, several factors continue to influence regional markets. These factors include the ongoing strike by the United Auto Workers in the US and Russia’s announcement on September 21st regarding restrictions on the exportation of gasoline and diesel. Russia’s actions could once again impact Europe’s energy supply and lead to a surge in oil prices. Such development could also disrupt governments’ efforts to ease inflation. If inflation heats up again, the consumer market might weaken further, and central banks could be compelled to raise interest rates once more.

China is currently stimulating domestic demand through various policies, but abnormal weather conditions in various parts of the country since the summer have affected local sales. In general, TrendForce believes that as the fourth quarter approaches, automakers will do their utmost to ensure smooth production, meet orders promptly, and spur sales during the year-end holiday season. They will strive to minimize the impact of the reduction in demand visibility caused by the latest economic turbulence.