In Ford’s transition to electric vehicles, cost cutting takes center stage – Techdoxx

Deepak Gupta February 4, 2022
Updated 2022/02/04 at 2:22 AM

Ford has made cost cutting a key part of its EV strategy as the company works to improve profit margins while meeting what CEO Jim Farley called the “incredible demand” of its new vehicles. electric vehicle models.

During the company’s fourth-quarter and full-year earnings call on Thursday, Farley said Ford has assembled a task force dedicated to reducing the bill of materials for its battery-electric vehicles (BEV) “above and beyond usual declines in materials. costs.”

“For example, on the Mustang Mach-E just last month, our team found $1,000 of opportunity per vehicle, and this is deliberate through design simplification, vertical integration, and leveraging our scale with the bespoke supply chain. that we increased production,” Farley said. “And this team is just getting started.”

Notably, Ford isn’t waiting for a second-generation vehicle to make changes that will lead to cost reductions or better efficiency.

Through the Mach-E production process, Farley said the company learned how to capture profit opportunities by better integrating its engineering, supply chain and manufacturing segments. For example, Farley noted that the Mach-E’s cooling system has four engines when it probably only needs two; it has 60 or 70 hoses, when it can probably work fine with a third of that.

“These are the opportunities we’re looking for and we’re not going to wait for next year,” he said. “Let’s not wait for a small change. We will re-engineer that vehicle from time to time and use that experience for Lightning and E-Transit and of course all of our electric platforms.”

Ford CFO John Lawler noted that the company’s BEV margins need to improve.

“We have an opportunity, but we need to do it through scaling,” Lawler said. “We’re going to want to have a strong lineup where we can support each other with leading vehicles in high-volume segments, as we are today with the Mustang Mach-E and Lightning, and in our commercial vehicles, with the E-Transit, we’re going to reduce complexity. .”

The Ford F-150 Lightning truck and E-Transit van are not yet on the market, although deliveries of the van are expected to begin later this month. For now, Ford’s BEV portfolio consists of one vehicle: the Mustang Mach-E. Sales of the EV crossover have accelerated since it hit the market last year. Only in January Mach-E sold 2,370 unitsagainst 238 in the same month of the previous year.

Scaling operations is an obvious way to reduce costs, but it can come with a lot of upfront investment.

Ford and battery maker SK Innovation plan to spend $11.4 billion to build two campuses in Tennessee and Kentucky that will produce batteries, as well as the next generation of F-Series electric trucks — a project the companies said will create 11,000 new jobs. Ford is contributing $7 billion to the project, the largest single manufacturing investment in its 118-year history. The investment is part of Ford’s previously announced plan to invest $30 billion in electric vehicles by 2025.

Ford is also prioritizing cost savings in its internal combustion engine vehicle business, which Farley distinguished as a separate business from the company’s burgeoning EV business, despite having models like the Transit van that will span both fuel segments. . This is an important distinction to make, as Ford’s profitability still comes primarily from its ICE models.

“In the ICE business, we’re going to leverage in-vehicle computing to really drive down manufacturing costs and leverage that computing to simplify what we do down the line and bring that to the bottom line of the vehicle,” Lawler said, noting that the company is also investigating. ways to work with partners to lower distribution costs with manufacturers.

The stated objective behind continuing to invest in a healthy ICE business is to fuel the growth of a healthy BEV business, Farley said, noting that future manufacturing of ICE vehicles is primarily focused on optimizing cash returns that can be injected from back on the market. Ford electrification.

Ford reported fourth-quarter net income of $12.3 billion, a reversal of the $2.8 billion loss reported in the 2020 period. Ford’s profit included $8.2 billion of gains from its investment. in the electric vehicle startup Rivian, which went public in November. Once the gains from its holdings in Rivian were removed, the company made an adjusted profit of $2 billion in the fourth quarter. Fourth-quarter revenue increased 5% to $37.7 billion.

For the full year, Ford posted net income of $17.9 billion, up from a loss of $1.27 billion in 2020.

Ford shares fell 4.37% in after-hours trading as the company’s results did not meet analysts’ expectations.

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