Hybrid Strategy Takes Precedence
Ford Motor Company has taken the decision to cancel its plans for an all-electric large SUV in the U.S., writing off $1.9 billion in the process. The American automaker cited profitability concerns as the primary reason for this decision, highlighting intense competition from Chinese electric vehicle (EV) manufacturers. Instead, Ford will pivot to producing a hybrid version of the SUV, which aligns with the company’s focus on offering consumers more varied choices in the vehicle market.
Competition From Chinese Automakers
Chinese automakers, including Xiaomi, BYD, and Geely, have made significant inroads into the global electric vehicle market. These companies have profited from reduced production costs and significant government subsidies. Xiaomi, in particular, recently exceeded its delivery targets, aiming to sell 120,000 EVs by the end of 2024. This development has intensified the pressure on Western car manufacturers, forcing companies like Ford to reassess their strategies.
Ford acknowledged that Chinese competitors leverage lower-cost structures, vertical integration, and advanced battery technology to expand their global market share. These advantages have led to a price war that has affected profit margins for many Western automakers.
Delays in Electric Vehicle Launches
In addition to cancelling the electric SUV, Ford announced a delay in the launch of its next-generation electric pickup truck. The successor to the F-150 Lightning, initially scheduled for release next year, will now be postponed until 2027. The delay is partly due to Ford’s desire to wait for cheaper battery technology, which would make the vehicle more cost-effective.
A new midsize truck, currently under development by a Ford “Skunkworks” team in California, is also set to launch in 2027. This vehicle aims to be affordable and cater to a broader range of consumers.
Focus on Hybrid Vehicles
Ford’s decision to cancel the electric SUV underscores a shift in strategy. The company will now concentrate on hybrid vehicles for its three-row offerings. Ford claims that these hybrids will offer “breakthrough efficiency, performance benefits, and emissions reductions” compared to traditional gasoline vehicles. Hybrids, which combine a gasoline engine with a smaller battery, are seen as a middle ground between fully electric and conventional vehicles. They allow for longer ranges on road trips, a feature that has made them appealing to consumers who are not yet ready to commit to electric vehicles fully.
Jim Farley, Ford’s CEO, emphasised that hybrids offer a practical solution for customers prioritising range and flexibility. He noted that this approach would play to Ford’s strengths while also addressing consumer demand for more affordable and versatile vehicles.
Figure 1: Jim Farley, Ford’s CEO
Financial Implications
The cancellation of the electric SUV will result in a $1.9 billion write-off for Ford, including a $400 million charge for tooling costs and an additional $1.5 billion in future expenses. These financial setbacks are part of a broader adjustment in Ford’s EV strategy. The company also announced that it would reduce its annual cash expenditures on EVs from 40% to 30%, signalling a more cautious approach to electric vehicle development.
Despite these setbacks, Ford remains committed to its existing electric vehicles, such as the Mustang Mach-E and the F-150 Lightning. The company also plans to begin production of a next-generation commercial van in 2026 at its Ohio Assembly plant. However, vehicle assembly at its Tennessee production facility, initially slated for next year, has been delayed, with battery cell production now expected to begin in 2025.
Future Outlook
Ford plans to provide an update on its electrification strategy in the first half of 2025. The company remains optimistic that these strategic adjustments will lead to a more profitable EV business in the long run. By focusing on hybrids and delaying some of its electric vehicle projects, Ford aims to navigate the challenges posed by the rapidly evolving automotive market, particularly the competition from Chinese manufacturers.
Ford’s pivot to hybrid vehicles and the delay in its electric vehicle launches reflect the broader challenges faced by Western automakers. As the global automotive industry continues to evolve, Ford’s decisions will likely influence the strategies of other major players in the market.
