Ford has announced price decreases on one of its most popular electric vehicles (EVs). That is after it raised prices on the same car just a few months ago. The number two U.S. car company has jumped into a price war started by Tesla. Ford’s margins are likely to decline as part of the process.
Ford announced that it would reduce the prices of its highly popular Mustang Mach-E. In August, it raised them by between $3,000 and $8,000, depending on the model. “Significant material cost increases” were to blame. It is hard to imagine this problem completely reversing itself in less than six months.
Ford’s material cost increases spread beyond the Mach-E last year. It also sharply raised prices of the electric version of its flagship F-150, which is called the F-150 Lightning. In both cases, profit margins were cited as the reason. (Click here for the most efficient cars on the market.)
As it made the price move, Marin Gjaja, chief customer officer for Ford Model e, said, “We are not going to cede ground to anyone. We are producing more EVs to reduce customer wait times, offering competitive pricing and working to create an ownership experience that is second to none.” Tesla’s move changed Ford’s stated pricing direction.
The difficult truth is that car companies believed that EV prices and production costs would make them a strong profit center. Price wars change that in nearly every industry. The change could cost the entire industry billions over the next several years. Raging EV demand will not be enough. Too many manufacturers want Tesla-sized sales levels. Elon Musk’s company will sell as many as 2 million vehicles this year.
Price cuts by Tesla have turned the industry on its head. The EV maker has signaled it will accept lower margins. However, it claims it will create production efficiencies to keep those margins high. It will take a few earnings reports to show if that is true. Tesla continues to surprise with earnings and unit sales. Even though its chief executive is under siege, Tesla continues to speed forward.
Ford has a long way to go to create a large fleet of EV models. Some financial wizard inside Ford probably told management that these vehicles were the answer to Ford’s future revenue and profits. The profits part of that calculation just got more difficult. The gamble on EVs was viewed as less than risky. The math to support that has changed.
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