The bloodbath in Ford Motor Company’s EV division continues.
On Thursday, Ford reported an operating loss of $1.3 billion in its EV division during the third quarter. That translates into a loss of $62,016 for each of the 20,962 EVs it sold during the period.
That’s a smaller loss than the company recorded in the second quarter when it lost $72,762 for each EV and the $66,446 it lost per EV during the first quarter. [emphasis, links added]
In a press release, the company said the $1.3 billion loss was “attributable to continued investment in next-generation EVs and challenging market dynamics.”
It also cited “EV price pressure.” Those “market dynamics” and price pressures are resulting in knee-buckling losses.
The third-quarter loss in the EV business of $1.3 billion, combined with a $1.1 billion second-quarter EV loss and a first-quarter EV loss of $722 million, means that FoMoCo has already lost about $3.1 billion in its EV business this year.
As I noted in these pages in July, the company said it expected to lose $4.5 billion on its EV business in 2023.
In its October 26 press release, Ford provided additional comment on the EV losses, saying, “According to the company, many North American customers interested in buying EVs are unwilling to pay premiums for them over gas or hybrid vehicles, sharply compressing EV prices and profitability.”
Let’s ignore why Ford is using such an odd formulation — “according to the company”?— and focus on its admission that “many” customers are unwilling to “pay premiums” for EVs.
That’s a truth bomb of the first order, one to which veteran observers of the EV hype should rightly reply, “Ya think?”
Consumers, that is, consumers who aren’t part of the Benz and Beemer crowd, have been unwilling to pay premiums for EVs throughout the century-long history of the EV business.
The question that Ford shareholders should be asking the company’s management, and CEO Jim Farley in particular, is obvious: “What the hell took you so long to recognize that customers aren’t willing to pay high prices for EVs?”
Of course, it’s easy to underscore the problems at Ford. But the Dearborn-based auto giant isn’t the only one feeling the EV pain. Indeed, numerous automakers are reporting major losses on EVs or are announcing cutbacks in their EV expansion plans.
These moves show that the universe of likely EV buyers is far smaller than the automakers expected. That miscalculation will cost the companies, their shareholders — and taxpayers — tens of billions of dollars in wasted capital.
The reality is that EVs have long been a niche market product, not a mass-marketing one. Further, that niche market is primarily defined by class and ideology.
In March, Gallup reported, “a substantial majority of Republicans, 71%, say they would not consider owning an electric vehicle.”
Earlier this month, researchers at the University of California, Berkeley, released a remarkable study that found “counties with affluent left-leaning cities like Cambridge MA, San Francisco CA, and Seattle WA, play a disproportionately large role in driving the entire national increase in EV adoption.”
The summary of the study is worth quoting at length:
The prospect for EVs as a climate change solution hinges on their widespread adoption across the political spectrum. In this paper, we use detailed county-level data on new vehicle registrations from 2012-2022 to measure the degree to which EV adoption is concentrated in the most left- leaning U.S. counties.
The results point to a strong and enduring correlation between political ideology and U.S. EV adoption. During our time period about half of all EVs went to the 10% most Democratic counties, and about one-third went to the top 5%. There is relatively little evidence that this correlation has decreased over time, and even some specifications that point to increasing correlation.
The results suggest that it may be harder than previously believed to reach high levels of U.S. EV adoption.
The conclusion:
Many new technologies start off as niche products, appealing only to a relatively small subset of households. But it has now been 14 years since Nissan introduced the Leaf, and 16 years since Tesla introduced the original Roadster. Moreover, there are now over 100 different EV models for sale in the United States.
Enough time has passed — one might have thought — for the U.S. EV market to have broadened considerably. Yet we find a strong and enduring correlation between political ideology and U.S. EV adoption.
About half of all EVs still go to the 10% most-Democratic counties, and despite dramatic growth in the overall size of the market, the correlation in 2022 is actually higher than the correlation in 2012.
Thus, overall, we do not find evidence that the U.S. EV market is broadening across the political spectrum.
The punchline here is obvious: Ford and the other big automakers have been spending billions of dollars to cater to the whims of a tiny segment of the overall car market — a segment that’s heavily concentrated in a handful of liberal counties.
That’s a lousy business strategy.
The fallout from that strategy is coming fast and hard. On Thursday, Mercedes-Benz reported disappointing earnings and revenues.
Reuters quoted the German automaker’s CFO, Harald Wilhelm, who called the EV sector a “pretty brutal space.” Reuter said some automakers are selling EVs at prices “below the level of internal combustion engine cars despite their higher production costs.”
It also quoted Wilhelm as saying, “I can hardly imagine the current status quo is fully sustainable for everybody.”
On Wednesday, Reuters reported that Honda and General Motors “were ending a $5 billion plan to develop lower-cost EVs together just a year after announcing the effort.”
The article continued, noting that on Tuesday, GM said it “would focus near-term EV efforts on meeting demand rather than hitting specific volume targets.”
A GM spokesman told CNBC, “After extensive studies and analysis, we have come to a mutual decision to discontinue the program.” He added that both companies are “committed to affordability in the EV market.” But not, it appears, if that effort includes losing scads of money.
Last week, Elon Musk warned about slowing demand for EVs after Tesla missed revenue and profit targets for its third quarter. And if Musk is warning about demand, then the EV business must indeed be in trouble.
Musk said that for the “vast majority of people buying a car”, the first concern “is about the monthly payment. If interest rates remain high or if they go even higher, it’s that much harder for people to buy the car…They simply can’t afford it.”
A few days before that, General Motors announced it would delay production of its planned Chevrolet Silverado and GMC Sierra electric pickup trucks at a plant in Michigan.
And about two weeks ago, Ford said it was cutting one of the three shifts at the plant that builds its electric F-150 Lightning pickup truck.
Last month, Ford said it was halting work on an EV battery plant in Marshall, Michigan, that could get billions of dollars in tax credits under the Inflation Reduction Act.
Earlier this week, the chairman of Toyota, Akio Toyoda, couldn’t help but do a bit of a victory dance. Among the major automakers, Toyota has been the most skeptical about EVs and has instead focused much of its development efforts on hybrids.
Toyoda said that automakers are “finally seeing reality” about EVs.
I agree with Toyoda. I’ve said it before, and I’ll say it again: electric vehicles are the Next Big Thing…and they always will be.
Read more at Substack
Radical environmentalists work with the philosophy that cost is no object. This is really convenient because it isn’t their money. Industralists are forced to eventually give priority to cost. The only thing that will keep large scale electric vehicle production going is government mandates. If the courts do their job they will end those mandates.
There is another more worrying aspect to this article.
The people in the auto makers who decided it was a good business idea to develop and build BVs (battery vehicles) in the first place, should be held to account for their behaviour. If it was their own money on the line, I’ll bet BVs would not exist with their badge on them. That said, I also think some of them thought they’d get by with government a guarantee to make money. If so, this proves they are fools and should be sacked.
Reinventing the Edsel
Great business model — take a loss on every unit but don’t make it up with volume.
Toyota got it right, wait and see.
They’re not burning cash trying to sell expensive curiosities. Is the public avoiding EV’s or big payments? A local Ford dealer has 10 2023 Raptors for sale. They’re expensive, too, and they’re not moving.
How can these EVs that have so few parts to them cost so much to make!? Oh, must be the battery, right? But they may be following Milo Minderbinder from the WW2 novel Catch 22 where he was buying eggs for 3 cents each but selling them for 2 cents. He said he’d make money by selling in volume!
As to Toyota, they are following through with what their chairman said recently, the way to go with electric vehicles is Plug-in Hybrids. They have several models that are plug-ins from their luxury Lexus brand all the way down to the Prius that is selling for under 40K and can go about 100 miles as an EV while still having its ICE for longer drives.
The Big Three will lose Millions if they switch too making only EV.s all over this whole Global Warming, Climate Change Lie
Agree 100% Spurwing…. Here is proof that there’s a price to pay for not acknowledging the truth. Climate change is the great big lie of the century, while Toyoda is really smart for what they have done.
BTW – Here where I live on the southern tablelands of NSW Australia, it has been gradually getting cooler since 2019. So much for “their” global warming. A lot of people need to look out the window.