Ford loses $2 billion in three months on EVs. How are car makers supposed to survive against cut price electric cars such as the BYD Atto 3 and MG4? | Analysis

Ford’s electric cars division lost almost A$2 billion in the United States during the first three months of this year, according to the company’s first quarter 2024 earnings report, and it raises the question: could the pursuit of electric cars prove too costly for some carmakers to compete?

First, let’s take a closer look at Ford US’s Q1 report which is freely available online and appears transparent regarding the losses the company has made on its electric vehicles this year.

In the US Ford divides its company into: Ford Pro for commercial vehicles; Ford Blue for combustion engine cars and SUVs; and Model e for its EVs.

The Q1 revenue results for Ford Pro were up by 31 percent with the division bringing in A$4.5 billion globally, while Ford Blue was down by 13 percent but still brought in A$1.4 billion for the first three months of the year.

Then we come to the Model e division which experienced a revenue drop of 84 percent and lost the company A$1.98 billion. A number like that puts a dent in Ford’s balance sheet that won’t buff out. And if you know accountants like I know accountants they’ll ask you immediately if this is a necessary expense. 

In the case of Ford, it is a necessary expense if the company wants to compete with the likes of Kia and Hyundai, along with the Chinese brands such as BYD that are offering impossibly affordable EVs.

So what caused the loss of income from the Model e division? 

Ford’s Chief Financial Officer John Lawler cited industry wide pressure pricing as the cause. Basically, Ford’s losing money on its EVs in trying to lower its prices to compete with rivals.

“Ford Model e generated a loss of $1.3 billion (A$1.98 billion) as significant industry pricing pressure more than offset flat costs as wholesales declined 20%,” Lawler said. 

“In the quarter, we took action to bring down inventory levels. For example, after being at a price premium to competition in 2023, we lowered pricing on Mustang Mach-E in the U.S. by 17%, bringing us in line with the 2-row crossover segment. “

In Australia brands such as BYD and MG have appeared over the past two years with EVs priced well below their competitors. 

BYD’s Atto3 small SUV and Seal small sedan come with impressive driving ranges, styling and list for less than $50,000. Meanwhile MG offers its MG4 hatch for under $50K, too.

The electric world used to be all Tesla’s and we’ve seen this company react to the budget upstarts by slashing its prices. Twice last month Tesla reduced the price of its entry grade Model Y - first by $4500, then by $3000 - with buyers now being able to get into one from $60,900.

Ford’s electric vehicle range in Australia consists of the Mustang Mach-E SUV that starts at $72,990 and the E-Tranist van, which is $104,990. 

The Mach-E isn’t particularly overpriced, it’s just not as affordable as rivals such as a Model Y. Ford isn’t the only one feeling the price pressure - Kia and Hyundai are also feeling it.

Hyundai’s Chief Operating Officer John Kett shared his insight into how the Chinese brands are able to price their EVs so competitively with

“I don’t think we’ll ever be able to [have] price points like them,” he told CarsGuide.

“BYD has their own battery supply chain. And if you don’t have a supply chain, then you’re leaning on a government body or CATL, and so they’ve got scale and they’ve definitely got a price advantage over us.”

Kett said that other Chinese car brands sell so many combustion engine vehicles globally that they’re able to absorb the losses of selling all their vehicles including EVs so cheaply.

“As much as we talk about their EV credentials, and it's very strong, I think up until September this year they’ve exported out of China more than two million cars and 75 per cent of those cars are ICE (internal combustion engine) cars,” Kett said. 

“So all this excess capacity and amortised transmission and engine facilities, that’s why they can price so aggressively in their ICE cars and then complement them with their EVs.”

So what’s Ford’s solution for survival in an electric future? Well, they might be able to take a lesson from Kia which is building its upcoming EV5 SUV in China and sourcing its batteries from BYD. Pricing is yet to be announced, but the industry is anticipating it to start with a sub-$60,000 price tag, allowing the mid-sized SUV to undercut Tesla Model Y and even take on MG and BYD.

Alternatively, Ford could go it alone and do it themselves and this appears to be the plan with the company recently resuming work on a lithium-ion phosphate battery plant in the US.

“We still expect BlueOval Battery Park Michigan to be the first of Ford’s battery plants of this kind when it begins producing LFP battery cells starting in 2026,” Ford said in a statement at the start of the plant’s construction.

Will it be enough and soon enough? Perhaps Ford, like other car manufacturers are thinking that combustion engines vehicles will be here for longer than we all thought a couple of years ago. And it is true that there is a downturn in EV uptake in overseas markets, a trend which has yet to reach our neck of the woods but is expected to arrive in time.

But don't count Ford out yet. We're talking about a company whose yearly sales of just its line of F- Series pick up trucks is larger than the entire number of cars sold in Australia annually. The rumour is that Ford has assembled a small specialised team under the leadership of former Tesla engineering lead Alan Clark with a mission to develop an adaptable EV platform that will suit small SUVs and pick-ups with the sole intention of fighting off cut-price brands.

It's a case of wait and see.