It’s easy for companies to make dramatic claims and pledges for future strategies, but when new information becomes available, they need to be just as willing to adjust those pledges. That’s the scenario Ford Motor Company (NYSE: F) faces with its electric vehicle (EV) strategy in Europe, where it once made a pretty dramatic claim.
But here’s why it has 5.5 billion reasons to change that strategy, and it appears that it will.
Dramatic pledge?
In 2021, Ford announced its goal to sell only EVs in Europe by the end of 2030. That was ambitious compared to the European Union’s own goal of allowing only EVs to be sold after 2035.
But with new information available, companies need to remain flexible for the health of their businesses and bottom lines. That new information includes higher interest rates and slowing demand for EVs, among other variables.
Ford appears to be walking that pledge back and is now admitting it will continue to sell vehicles with internal combustion engines after 2030 if there is demand. According to Automotive News, Martin Sander, head of Ford’s passenger car business in Europe, said, “If we see strong demand — for instance, for plug-in hybrid vehicles — we will offer them.”
Why is this good news?
Ford’s retraction of its European EV goal is good news because the company’s largest drag on earnings is easily its Model e unit, which is its EV division. That unit is expected to lose $5.5 billion in 2024.
A source told Bloomberg that Ford is losing more than $100,000 per EV during the first quarter, which is more than double the loss from the prior year. That’s a hefty price to pay just to sell EVs into a tough and competitive market right now.
In addition to walking back its goals in Europe, Ford is doing other things to bring down those losses. While it has cut costs on the vehicles, the price wars started by Tesla’s aggressive pricing tactics have mostly offset any gains from cost-cutting.
Ford has also adjusted plans for its EV battery factory in Marshall, Michigan, and it will now be much smaller than originally thought. It has also reduced spending on EVs, delayed new EVs, cut prices, and other moves, for about $12 billion in savings.
What it all means
Maybe the biggest takeaway here is that management is no longer as arrogant and headstrong as it was in past decades, when it ignored trends and stayed on its own path. Rather than repeating those mistake-filled years, now management clearly is willing to change its approach to meet the market, and that’s great news.
That $5.5 billion in losses is reason enough to slow down its approach to EVs and rely on its traditional business and its surging commercial business, Ford Pro, until the time is right to pump resources into the future of EVs. And this should all be welcome news for investors.
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Daniel Miller has positions in Ford Motor Company. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
The 5.5 Billion Reasons Why Ford Just Made a Smart Decision for Investors was originally published by The Motley Fool
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