Ford Moves Toward Vehicle Volume, Not Company Valuation
Randall McAdory
Retired from corporate in 2021. Launched TaasMaster. Edit the newsletter.
A recent newsletter article by Steve LeVine in The Information highlights how Ford CEO Jim Farley sees the future of Ford as an automaker committed to building a $30,000 electric vehicle (EV). Farley believes this is the only way to compete against the growing competition from Chinese automakers. He’s putting “all of Ford’s capital toward developing smaller, affordable EVs.”
The cheaper EV strategy may be useful in driving Ford vehicle volume, but is this enough to grow Ford’s valuation? It will not! Consider that Elon Musk is now positioning Tesla as an AI or robotics company rather than just an automaker. Musk has described Full Self-Driving (FSD) technology as the “difference between Tesla being worth a lot of money and being worth basically zero.”
It might be easy to dismiss Musk, but he is correct that just offering a low-priced EV, which increases vehicle sales for an automaker, is not a strategy that drives significant incremental valuation for a car company. It seems that even 通用汽车 recognizes this as well. Despite the safety challenges GM has faced with its own robotaxi division (Cruise), the company still plans to invest an additional $850 billion in the subsidiary. This investment could one day provide an entirely new business revenue stream disconnected from vehicle volume.
Additionally, as LeVine stated in his newsletter, there seems to be an “article of faith” for many automakers that the magic price for affordable EVs needs to be $25,000. Yet, in a Money article last year, Pete Grieve reported that just 4% of new vehicles cost $25,000 or less. Ford seems to be treating the EV category differently than their internal combustion engine (ICE) portfolio only because Chinese automakers are coming.
This is not the first time legacy automakers have faced competition from companies offering cheaper alternatives. Chasing volume with low-priced, low-margin cars is not the answer for driving company valuation.
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What are your thoughts on Ford’s strategy? Is betting the company on a low-cost EV to take on the Chinese the right move? Are Tesla and GM chasing an autonomous business future that will never pay dividends? Or is it more useful to focus on both strategies given the uncertainties inherent in the automotive category?
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TaaSMaster, LLC is not a registered investment advisor or broker/dealer. All investment opinions expressed by TaaSMaster, LLC are from personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur.
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3 个月Useful tips
(Retired) Senior Vice President, Operations and Quality, Boeing Defense and Space
4 个月I suspect that one early indicator of whether Ford’s strategy will work is the pace of sales of used EV’s There are already lots of low priced EV’s below $30k for sale. There just aren’t new. Used EV prices have dropped precipitously in the last year. If price point is the only significant barrier to adoption, then we should be seeing brisk used EV sales. I don’t have any data on used EV sales, but if that is not happening then Ford may struggle with it’s high volume strategy.
Student at University of Toronto
4 个月That's not going to stop Tesla from making a great mass market car with good margins, and impeccable safety, which will help their valuation. Doing it properly, rather than forcing it out the door Bill Pierce is why this will occur in early 2025. Just because legacy auto has been poor at making low cost cars and EVs, doesn't mean Tesla will. Legacy auto has largely abandoned small cars or just use them as compliance cars. Anyway, car making is increasingly less important to TSLA. Tesla is becoming a robotics, AI, and energy company. The cars will help with their mission but company valuation will be driven (so to speak) by FSD, robots-taxis, energy storage/utility, and humanoid robots.
Technology Editor Electronic Design Magazine, Innovator, Sociable Influencer, Provocateur, & Enginerd. Postings here are my own opinions, not my employer's.
4 个月According to Musk, he doesn't have a car company... It's all about margin dollars, as anyone in the consumer space can attest. Musk thinks he can starve The Great Unwashed into piling their worthless lives into his robotaxis. Of course he won't make a cheap car.
EVs: cars are indeed less profitable, small cars moreso. Short term gain is how execs are goaled. Llogic dictates a high margin product mix: large SUVs and pickups. If China execs are goaled on long term market share, as well as profit, small and low cost cars make sense. The higher unit sales of cars drive economies of scale that improve the margins on higher priced vehicles. This seems to be the China strategy. AVs: are believed by some western automakers as a way to achieve economies of scale when demographics mean declining car ownership. The hope is that cars take over what public transport does. Can enough roads be built for AVs to replace public transit? Many cities have already concluded the answer is “no.”