Central planning isn’t easy.
In a recent Capital Letter, I wrote this on the topic of the current “forced” (the degree of coercion varies from jurisdiction to jurisdiction) switch to electric vehicles (EVs):
A willful determination to enforce a transformation on this scale, regardless of what markets signal, consumers want, and manufacturers can produce, is an invitation to disaster.
The creation of a mass market for EVs in the West was never going to be straightforward, which is why it would have been better to let one develop naturally (or even with a little government help here and there: it’s not unknown for government to play some role in the development of innovative technologies). Instead, Western governments have embarked on a rushed transformation away from the internal-combustion engine without taking much heed of the consequences other than so far as the climate is concerned. (And switching to EVs won’t make too much difference to the climate in the short term, or perhaps even longer, either, but shhhh . . .)
It would be wrong to expect a smooth road ahead as the switch proceeds (carmakers have been warning that the proposed speed of the transformation may give rise to severe difficulties), but the nature of some of the bumps we are already seeing is at least worth noting. One of those has been evidence that some EV manufacturers, their coming production quotas possibly in mind (or maybe they are looking for early-mover advantage, or both), have been overproducing. As I noted a week or two ago, inventories of some EV models have been piling up. Sales of EVs, broadly speaking, are accelerating, but production of EVs is increasing by more. It will be worth watching to see if such mismatches persist.
Meanwhile (via CNBC, yesterday):
Ford said Thursday pushed back production targets for its electric vehicles, citing slower-than-expected adoption.
Ford now expects to be building EVs at a rate of 600,000 per year sometime during 2024, a delay from earlier estimates that it would reach that level by the end of 2023. The automaker had previously targeted a rate of more than 2 million per year by the end of 2026, but now says it doesn’t know when it’ll achieve that volume.
“The transition to EVs is happening, it just may take a little longer,” CFO John Lawler said following the automaker’s second-quarter earnings results. . . .
But Lawler emphasized that Ford’s EV spending plan and its profitability goal for its electric vehicle unit haven’t changed. He said that Ford is still targeting an 8% operating margin for its EV business, and that it isn’t planning to reduce its capital spending on the vehicles.
“We’re going to find a way to get to that 8%,” Lawler said.
In a statement, CEO Jim Farley argued that the more gradual ramp-up of electric vehicle production could be a boon for Ford.
Let’s hope the central planners find that slower pace . . . acceptable.
Meanwhile Ford’s Model e EV unit posted an operating loss of $1.8 billion.
And the red ink doesn’t stop there.
Making electric vehicles is expensive. In addition to upgrading Ford’s existing factories, the company is also constructing several new facilities: a $3.5 billion battery facility in Marshall, Michigan; two additional battery factories in Kentucky; and a mega-campus vehicle assembly plant in Tennessee, which combined will cost $11.4 billion (a cost that Ford is sharing with SK Innovation).
And for Ford, the costs keep mounting. The company now expects to lose a total of $4.5 billion on its EV business for the entire year of 2023, up from a previous prediction of $3 billion in losses.
Oh yes (via Jalopnik; emphasis added):
CEO Jim Farley said that the price EV buyers are willing to pay has come down, which has impacted the company’s ability to realize the revenue growth it’d planned to for the Mustang Mach-E and F-150 Lightning. Several price increases to the Lightning have had a predictable effect on consumer enthusiasm for that vehicle, causing Ford to cut prices across the range two weeks ago. Today, the electric pickup is cheaper than it’s been, though still not as inexpensive as when it first came out. It’s almost like the sub-$40K Lightning was a vehicle built for publicity, not for people to actually buy.
During the call, Farley confirmed that a refreshed F-150 is due to be revealed at the Detroit Auto Show in September. The gas-burning kind, though — the kind that’s been making Ford all its money.
That’s money (along with quite a bit of taxpayer help) that’s going to be needed to fund Ford’s investment in EVs. But it’s not difficult to see how the EPA’s proposed new regulations might cut into those “conventional” profits before Ford is able to replace them with profits from EVs.
What happens then?
Central planning isn’t easy.