Ford’s chief executive says he expects the cost of building electric vehicles to fall to the point that automakers will be battling each other in coming years for sales of EVs priced around US$25,000.
CEO Jim Farley told the Bernstein Strategic Decisions Conference in early June that the $25,000 price tag will democratize EVs. Materials to build that vehicle will cost around $18,000, he said.
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“I believe there our industry is definitely heading to a huge price war,” Farley said.
EVs are currently more expensive to build than internal combustion cars, Farley noted. The company’s Mustang Mach-E electric SUV, with a starting price around $44,000 that can run much higher, costs about $25,000 more than a comparable Ford Edge gasoline SUV, he said.
The battery alone costs $18,000, and the charger adds another $3,000.
But big cost reductions are coming, with new battery chemistries that use fewer expensive and scarce precious metals such as nickel and cobalt, he said. Plus, EVs will take less time and labour to build, saving more money, Farley said.
Ford also plans to cut distribution costs, currently $2,000 per vehicle more than Tesla, the world’s electric vehicle sales leader, he said. That can be done largely by cutting the cost of keeping a large supply on dealer lots and curtailing advertising costs.
Ford, like Tesla, may not have to buy advertising to sell EVs, a cost that now amounts to $500 or $600 per vehicle, Farley said.
Ford is designing the next generation of EVs for “radical simplification” of the labour it takes to put them together, he added.
“Half the fixtures, half the work stations, half the welds, 20% less fasteners,” he told the conference. “We designed it, because it’s such a simple product, to radically change the manufacturability.”
New EVs, he said, will also be designed for optimal aerodynamics, so they can use the smallest possible battery to get more range. Redesigning the body of a full-size electric pickup truck for lower wind resistance can add 75 miles (120 kilometres) of range with the same size battery, Farley said, cutting another $3,000 from the battery cost.
“The re-engineering for the vehicle to minimize the size of the battery, since it’s so expensive, is going to be a game-changer for these second-generation products,” Farley said. Ford also has to differentiate itself and boost profits by selling software services, including driver-assist and autonomous features that could be rented for a time period or by the mile.
It all adds up to erasing the $25,000 cost difference and turning a profit, even with raw material costs expected to rise. Farley conceded that getting to the lower price point will be challenging, with many things to work on at once.
But a price war is already going on in China, where more than half of the world’s electric vehicles are sold today, he said. The most popular model, a van made by Chinese manufacturer Wuling, costs about $8,000.
Michelle Krebs, executive analyst with Cox Automotive, said Ford has a long way to go to reach the cost reductions Farley outlined. “It sounds like a lot of things have to fall into place to make this happen.”
Ford in recent years has had quality control issues with several of its new vehicles, raising costs, AP says. But building a $25,000 electric vehicle will attract more buyers, which the administration of President Joe Biden is banking on to cut planet-warming greenhouse gas emissions. Research has shown that price is now is the biggest obstacle to people making the change from internal combustion engines, Krebs said.
The first of the next-generation electric vehicles at Ford will be ready in 2026, Farley said, as Ford refits older factories to build them and opens three new battery plants and one new assembly plant in Kentucky and Tennessee. By then, the company will have lined up the needed raw materials and expects new battery chemistries to be ready to commercialize.
“It’s going to take a little while, but I’m putting pressure on myself to get to making money on these vehicles,” Farley said. “It’s going to be a good investment.”
In March, Ford said it would split its electric vehicle and internal combustion operations into two distinct but strategically interdependent auto businesses—Ford Blue focusing on traditional combustion engines, and Ford Model e, which will develop electric vehicles.
Farley also confirmed Wednesday that Ford is working on an electric vehicle made specifically for ride-hailing services such as Uber, saying that product would fit well into Ford’s other commercial offerings. He gave no other details.
This Associated Press report was republished by The Canadian Press on June 1, 2022.