Ford: Battery Plants Would be Pointless Right Now
Citing outgoing Ford CEO Jim Hackett during the company’s second-quarter earnings call, Automotive News helped make the brand’s strategy a bit clearer.
“The supply chain has ramped up since Elon [Musk] built his Gigafactory, and so there’s plenty there that does not warrant us to migrate our capital into owning our own factory,” he said. “There’s no advantage in the ownership in terms of cost or sourcing.”
The divergent strategies have huge financial implications. Tesla’s stock jumped last week after CEO Musk hinted that the automaker would reveal improved battery capacity in September. Wall Street analysts have spoken glowingly about GM’s Ultium technology and its potential to support a spinoff EV business.
Sam Abuelsamid, a principal e-mobility analyst at Guidehouse Insights, says both strategies have advantages.
“I don’t know that there is a definitively better path,” he said. “If you source your own, you’ll have a guaranteed supply, but you’re potentially stuck with that supply if you can’t sell them. If you source from suppliers, if there’s a technology breakthrough, you’ve left yourself flexibility and haven’t made a big investment in something that may be prematurely obsolete. It’s a bit of a crapshoot either way you go.”
By not bothering to build an extravagantly priced battery production facility, Ford may actually find itself in a better situation than its peers when the next major technological breakthrough occurs. Yet it could lag behind them if EV demand balloons over the next couple of years. Ford is prioritizing electrics and making plenty of noise about its Mach-E crossover, but it’s also pursuing a mixed approach to vehicle production by attempting to scale down internal combustion powertrains and modifying its fleet to include more hybrids.
In contrast, Volkswagen is more focused on converting its lineup to become entirely dependent on electricity, and will soon offer up that technology to the Blue Oval thanks to a previously established EV partnership. That means VW can take additional risks by betting the farm on electric cars while Ford takes a more mixed approach. Of course, Ford doesn’t get to enjoy the same preferred treatment on Wall Street now that the stock exchange has decided anything that can be construed (or, sometimes misconstrued) as environmentally friendly deserves to have truckloads of money blindly thrown at it.
Still, what works with investors may not play well with customers. General Motors has committed to transforming Cadillac into a luxury EV brand, which seems like a colossal risk for it to take. Granted, the transition only happens if GM feels there is sufficient demand, but that may still leave the brand with a confusingly lineup of vehicles. Hasn’t Cadillac’s identity been muddled enough already?
Ford doesn’t think EV demand will be strong enough to warrant total commitment.
“We don’t have that volume initially to justify that capital expenditure,” Hau Thai-Tang, Ford’s head of product development and purchasing, told analysts earlier this month. “There’s insufficient scale for any one OEM, other than somebody who’s a full-line battery-electric manufacturer like Tesla, to justify that spending.”
He also noted that content requirements in North America and China further complicate the issue, and that Ford would need to sell somewhere between 100,000 to 150,000 EVs annually to rationalize building its own battery factory. However, we’re under the assumption that its more of a cost issue than a supply factor. Volkswagen Group has encountered problems in getting enough power cells for its first round of EVs, despite having just cut its teeth on the segment. And Ford has already stated it will probably have to limit sales of the Mustang Mach-E in its first year specifically because it might not be able to source enough batteries.
[Image: Ford Motor Co.]