Although policymakers across the globe have set lofty climate-change goals that involve transitioning from fossil-fuel vehicles to zero-emission battery electric vehicles (BEVs), carmakers are having an incredibly hard time achieving profitability in the nascent electric vehicle sector. High production costs due to the rarity of EV battery raw materials and the complexity involved in processing the materials coupled with high electric-vehicle prices are making it hard for many automakers to sell the BEVs they are manufacturing.
As a result, many of these companies are opting to cut prices and sell their electric cars at a loss just to get them off their lots. A Bloomberg report has revealed that Ford Motor Co. is bleeding tens of thousands of dollars for every electric car it sells, indicating that even established carmakers with decades in the automotive game are also finding it exceedingly difficult to break into the EV space.
The Bloomberg report indicated that Ford has lost more than $100,000 for every EV it delivered in the first quarter of the year, a significant loss that has forced the Dearborn, Michigan-based carmaker to go back to the drawing board and rethink its ambitious electrification targets. The report notes that the electric-vehicle losses are so massive they could wipe out the profit the company makes in its fossil-fuel vehicles division this year.
Like many other established automakers, Ford initially planned to quickly ramp up electric-vehicle production in the next few years until it fully replaced fossil fuel vehicles over the next decade. However, waning electric vehicle demand in late 2023 made it clear that most carmakers had overestimated market demand for electric vehicles. With the EV early-adopter market mostly saturated, even companies such as Tesla are struggling to convince regular drivers to part with a significant premium in exchange for an electric car.
Furthermore, as interest rates and living costs have increased globally, even fewer drivers are willing to spend tens of thousands of dollars more on an electric vehicle, even if the cars are environmentally conscious.
According to individuals familiar with the matter, Ford has already started reducing orders from EV battery suppliers in response to growing losses in the electric-vehicle segment. The company has postponed its $12 billion investment on battery electric vehicles, and plans to lower EV prices and delay the release of new electric vehicles, as well as postpone or even scale down plans to build electric-vehicle battery plants. In the meantime, CEO Jim Farley says the automaker’s new line of electric vehicles, Ford Model e, is a “main drag” on the entire company, and Ford estimates that its total electric-vehicle losses for the year will add up to $5.5 billion.
The struggles that legacy automakers are having in keeping losses on their EVs low give startups like VinFast Auto Ltd. (NASDAQ: VFS) an opportunity to innovate and come up with cost-efficient ways of producing mass-market electric vehicles.
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