By Nora Eckert
DETROIT, Dec 16 (Reuters) – Ford CEO Jim Farley walked through Ford’s design studio in Michigan on Monday afternoon, reflecting on how he was about to cut thousands of hours of work on the electric vehicles he and his team had hoped would revolutionize the American auto industry.
Shortly after, his company announced it would kill some of those battery-powered models and take a $19.5 billion writedown on EV-related assets. It marked the industry’s biggest retreat from electric vehicles since US President Donald Trump’s sweeping auto policy changes that have already frozen demand for electric vehicles.
Farley spent years telling employees and investors that catching Tesla and China’s top manufacturers amounted to an existential struggle. Now, having lost an estimated $13 billion on electric vehicles by 2023, Farley says the path to survival lies in shedding these unprofitable models.
“We can’t allocate money for things that won’t make money,” he told Reuters on Monday. “As much as I love these products, US customers weren’t going to pay for them. And that was the end of it.”
Farley’s upset reflects the larger conundrum facing auto executives in the wake of Trump administration policies that have stripped the industry of subsidies for electric vehicles and eased restrictions on tailpipe pollution.
Most automakers now can’t sell electric vehicles in the U.S. profitably or in volume — but must sell them in China, Europe and other markets to appease regulators and compete with Chinese automakers expanding globally.
This left Ford and other automakers with the challenge of adapting very different vehicle lines for different regions.
The approach is about extra expenses that the industry thought it had left behind in recent decades through globalization — essentially making the same car, with common supply chains, sold around the world. Fifteen years ago, then-CEO Alan Mulally called the strategy “One Ford.”
Now Farley needs a lot of Fords. His company and others have turned to partnerships to absorb additional sourcing costs in various global markets. Renault and Ford earlier this month announced that they will work together to build affordable electric vehicles for Europe.
After announcing the partnership, Ford said Monday it would not build the electric commercial van it originally planned for that market. Ford has also been looking for a Chinese partner to provide technologies for EV platforms, Reuters reported.
On the electric vehicle front, Farley hopes to thread the needle by killing off most EV models but keeping a $30,000 mid-size electric truck due in 2027 that a specialized California skunkworks team designed to take on the electric powerhouses of China’s Tesla and BYD.
“As a global company competing with the Chinese and others, we don’t have time,” Farley said.
Michael Dunne, a consultant and former General Motors CEO who spent years in China, said U.S. automakers have no choice but to balance U.S. profits from gasoline-powered trucks while competing overseas with Chinese and other electric vehicle makers.
“EVs are not going away,” Dunne said. “So are we going to compete globally or just stay at home?”
Government support drives electric cars
U.S. electric vehicle sales have fallen sharply since the Sept. 30 expiration of a $7,500-per-car consumer tax credit killed in Trump-backed legislation.
This and other administration policies have cemented America’s electric vehicle latecomer status to the world’s other two big car markets. In China, electric vehicles and plug-in hybrids account for about half of sales; in Europe, they comprise about 25%. U.S. sales fell to about 5 percent after Trump’s policies took effect.
Ford’s write-down reflects a “broader industry assessment” that the economics of electric vehicles still don’t work without government support, said Stephanie Valdez Streaty, Cox Automotive’s director of industry information.
Other automakers are facing those brutal savings.
GM took a $1.6 billion charge in October as it scaled back plans for electric vehicles and warned more charges would follow. It also repurposes electric vehicle plants into gasoline vehicle production centers. Citigroup analysts said they expect GM’s taxes to ultimately be lower than Ford’s. GM has overtaken Ford in electric vehicle sales, although analysts estimate the company continues to lose billions in them.
GM dismissed gas-electric hybrids as a waste of capital as it moved toward a lineup of about a dozen electric vehicles for U.S. customers that began gaining traction in sales even before Trump’s policies took effect. Now, some of GM’s biggest U.S. competitors, Ford and Toyota, are moving a lot closer to hybrids and seeing sales rise rapidly as consumers move away from all-electric vehicles.
As Ford has phased out most of its electric vehicle models, it has nevertheless promised that half of its global sales volume by 2030 will consist of electric vehicles, hybrids or so-called “extended range” electric models, in which a small gasoline engine is used to recharge the large battery. These models total 17% today. If current consumer trends hold, the vast majority of these vehicles will be plug-in hybrids, selling far more plug-ins.
Hybrids already account for nearly half of all U.S. sales for Toyota, which has come under fire in recent years for sticking with hybrids over electric vehicles. Elliot Johnson, chief investment officer at Evolve ETFs, which owns Ford shares, applauded the Detroit automaker’s move to follow Toyota’s lead.
“Hybrids are the future for legacy automakers,” Johnson said, giving automakers an easier way to transition existing customers to electrified models without the hassle of charging.
Stellantis is fighting to regain market share in the US, focusing on hybrids and prioritizing sales of fleet vehicles. Volkswagen created its own electric vehicle company Scout to tackle the electric market, while leaning on partners Rivian and Chinese electric vehicle maker Xpeng to develop software.
Representatives for Stellantis and Volkswagen declined to comment. A GM spokesman outlined previously disclosed plans to offer plug-in hybrids. A White House spokesman did not respond to requests for comment.
When asked what factors contributed most to the massive move, from declining consumer interest in electric vehicles to Trump’s policy changes, Farley said it was difficult to give specific weight to any one. “It’s not just one thing. It’s actually a combination of all of them.”
While the EV market has been tough for a while, Farley said the pressure has recently increased to take action.
“In the last few months,” he said, “it’s become very clear to the team. We have to make a change.”
(Reporting by Nora Eckert in Detroit, Additional reporting by Abhirup Roy in San Francisco and David Shepardson in Washington; Editing by Mike Colias, Brian Thevenot and Nick Zieminski)
