Ford recently announced it will scrap its planned three-row electric SUV for a hybrid model, citing lack of profitability as the reason. Since coming under the leadership of Jim Farley, Ford’s president and CEO, the company has been focusing on the electric car market. They are trying to compete with Chinese automakers who have an advantage with lower costs and better battery technology. Companies have also been dealing with a weak EV market, as carmakers consistently struggle to make electric vehicles affordable due to high battery costs.
Here is a quote from the announcement:
“In addition to adjusting the cadence of product launches and realigning battery sourcing, Ford now plans to leverage hybrid technologies for its next three-row SUVs. As a result of this decision, the company will take a special non-cash charge of about $400 million for the write-down of certain product-specific manufacturing assets for the previously planned all-electric three-row SUVs, which Ford will no longer produce. These actions may also result in additional expenses and cash expenditures of up to $1.5 billion, which the company will reflect in the quarter in which they are incurred as a special item.”
Ford will also reduce its investment in all-electric vehicles, pushing instead for a hybrid alternative. The hybrid should better serve middle-class consumers looking for a practical and cost-efficient vehicle. The company will still proceed with its planned electric commercial van in 2026 and two electric pickup trucks in 2027 (although the trucks’ market dates have been delayed).
The struggle for Ford and many other car companies lies in the high battery costs and lackluster market interest. As Farley said, “An affordable electric vehicle starts with an affordable battery. If you’re not competitive on battery cost, you’re not competitive.”
China is currently able to produce battery cells 20% cheaper than North America. Considering that China also benefits from a better supply chain and favored prices, the gap is likely even larger.
A large difference in costs is also due to the metals used in the batteries. China uses LFP (lithium iron phosphate) batteries and is home to almost 100% of their production. China also has more than 75% of NMC (nickel manganese cobalt oxide) production capacity, which is the battery more common in U.S. and European markets. Despite the huge increase in lithium prices—the only critical mineral in LFP—it is still significantly cheaper to produce than NMC.
The reasons for Ford and other American car companies struggling to make affordable electric vehicles and compete with the Chinese and broader Asian markets become quickly apparent. Finding a solution to reducing battery costs will be key.
The American consumer is also playing a large role in the EV market not (yet) proving profitable. As Ford CFO John Lawler said, “These vehicles need to be profitable. If they’re not profitable based on where the customer is—where the market is—we will pivot and adjust.” 38% of Americans are very or somewhat likely to purchase an EV as their next vehicle. However, due to countless reasons (from batteries to the election year), electric vehicles are simply too expensive, and consumers, including those within the 38%, opt not to go electric.
The average electric vehicle price was almost $57,000, while a traditional engine vehicle averaged $48,000 this year. Many car companies have one answer for all these complications: hybrids. The world wants to make electric vehicles the future, but Ford and countless other car companies like it can’t ignore what consumers want and can afford. Until someone provides a better solution to make electric vehicles more affordable, hybrids seem to be where Ford is shifting its focus.