Tesla Creates Headaches for Ford

Tesla Creates Headaches for Ford

One year after Ford confirmed construction of the Rouge Electric Vehicle Center in Dearborn, Mich., the first Ford F-150 Lightning pre-production units begin leaving the factory. Pre-production model shown. F-150 Lightning available starting spring 2022.

The legacy carmaker went after the disrupter. But in recent months the hunter has become the hunted.

Oh, Ford!

The legacy carmaker has never hidden its ambition to sharply and rapidly challenge Tesla for the title of the world’s leading electric-vehicle maker.

Currently, the place to look for a serious rival of Elon Musk’s group is China. And the main name to find is BYD  (BYDDY) , the world’s leading clean-vehicle group with electric vehicles and hybrid cars.

But Ford has always relied on its experience to catch up. Unlike EV upstarts like Rivian  (RIVN) – Get Free Report and Lucid  (LCID) – Get Free Report, Ford is used to making cars, and ramping up production is no problem for the Dearborn, Mich., automaker. Although this time around, the toughest task lies in developing the battery packs, a task that falls to suppliers.

Ford can also count on its legendary brands and models, and it’s developing electric versions to entice environmentally conscious consumers and everyone else.

The carmaker first launched the Ford Mustang Mach-E, an electric SUV that rides on the Mustang legend. Since last year, Ford has also been producing the F-150 Lightning pickup truck. This vehicle is the electric version of the iconic F-150, the bestselling vehicle in the U.S. for many decades.

Ford and Tesla: Price War and Role Reversal

Ford Chief Executive Jim Farley also decided to reorganize the company  (F) – Get Free Report into something of a startup, to eliminate red tape and become more agile in an auto industry where every second counts. For example, software updates are regular and fixes are issued remotely and promptly.

In summary, Ford was in the comfortable position of the hunter, with Tesla the hunted. But within months, Tesla  (TSLA) – Get Free Report and Musk turned things around. Ford and Farley are now the hunted, a situation they had not anticipated.

This big change stems from Tesla’s six price cuts on its cars this year.

The price of the Model Y SUV, the direct rival to the Ford Mustang Mach-E, has fallen sharply. The price of the Model Y Long Range has dropped by $16,000. The model, which was sold at a base price of $65,990 on Jan. 12, currently is base-priced at $49,990. Knock off the federal tax credit of $7,500 on the vehicle and the base price becomes $42,490.

The base Model Y is even cheaper. Its base price is currently $46,990. Subtract the $7,500 federal credit and the price drops to $39,490.

An electric SUV of this standard has never been so cheap.

Compare: The initial price of the Ford Mach-E basic version is $45.995. Subtract the federal tax credit of $3,750 applied to this model and the price drops to $42,245. The Ford Mustang Mach-E thus costs about $3,000 more than the Model Y.

Ford also finds itself with its back to the wall because Tesla has a large network of charging stations, an important consideration for potential buyers of EVs. The Model Y therefore has three big advantages over the Mach-E: the name, the price and an unrivaled charging network.

What to do now to avoid a drop in sales volumes? This is the key question that faces Farley and his team.

“We are always monitoring the market to remain competitive in the industry,” said Martin Gunsberg, a Ford spokesperson, without providing further details.

When Tesla first lowered prices in January, Ford retaliated by lowering the price of the Mach-E.

“Price wars are breaking out everywhere. Who’s going to blink for growth,” Farley reportedly said at a charity event in Detroit last week. He added that Tesla is turning some EV models into commodities.

What Will Ford Do to Battle Tesla?

He added that Musk was using the strategy that Henry Ford employed when the executive, seeking to protect the Model T’s market share, halved the price of the vehicle. But Farley concluded by saying that tactic didn’t work out as Chevrolet eventually got the upper hand.

Asked about the subject during Tesla’s first-quarter-earnings’ call, Musk assured investors and analysts that he did not want to eliminate the competition.

“We want all EVs to succeed too,” the tech mogul said. “We’re like opening up our superchargers [network], we’ve made up patents available for free. So it’s like we’re trying to be helpful here, so we’re not trying to just destroy competitors or anything like that. We’re trying to help competitors, frankly, in any way that we can.”

If Ford lowers prices again to align the Mach-E with the Model Y, the legacy carmaker risks further reducing its profit margins, which are in the red in the electric-vehicle segment. Sales of the Mustang Mach E increased 45% to 39,458 vehicles in 2022.

Morgan Stanley analyst Adam Jonas said Tesla’s price-cutting strategy, amid the economic downturn, may force rivals to slow their investments in EVs.

“We are questioning whether this is the ‘moment’ where the boards of the legacy [original equipment manufacturers] can reconsider dialing back the magnitude and timing of their EV [capital spending] and R&D plans,” Jonas wrote in a note.

Ford can console itself with the idea that for the moment the F-150 Lightning pickup truck has no direct competitor at Tesla.

That’s at least until Tesla delivers the Cybertruck, its first pickup truck, which is expected at the end of the third quarter. Some experts see it as a potential cash cow for Tesla.

News source

Leave a Reply

Your email address will not be published. Required fields are marked *

Pin It on Pinterest