Ford this week took a $19.5 billion writedown, effectively shelving its all-electric F-150 Lightning – a vehicle once touted by CEO Jim Farley as “the truck of the future.” The move comes as the automaker’s “Model e” division has accumulated over $13 billion in losses since 2023.
Ford Scales Back EV Ambitions
The company’s retreat from its initial aggressive EV plans was met with a positive reaction from Wall Street, with Ford shares rising after Monday’s announcement and increasing nearly 40 percent this year. Analysts, like Eric Ause of Fitch Ratings, anticipate the restructuring will “enhance the product portfolio, simplify operations and improve margins and free cash flow,” with only approximately $5.5 billion of the writedown resulting in immediate cash outflows.
Farley acknowledged that western automakers are in a “fight for our lives” against growing competition from Chinese EV manufacturers. However, he maintains that a shift towards hybrid vehicles will allow Ford to generate profits to reinvest in future EV platforms when market conditions improve.
Challenges to EV Adoption
The shift in strategy comes amid a changing landscape for EV adoption. The recent elimination of a $7,500 consumer tax credit for EV purchases by the Trump administration, coupled with proposed cuts to fuel efficiency requirements, raises concerns about future government incentives. Steep inflation, higher interest rates, tariffs, and insufficient charging infrastructure in the US have also hampered EV sales.
Analysts suggest that initial projections for EV demand were overly optimistic, fueled by a post-pandemic consumer spending surge. Tom Narayan, an analyst with RBC Capital Markets, stressed, “The EV slowdown is not Ford’s fault.”
Specific factors related to the F-150 Lightning contributed to Ford’s losses. The vehicle’s weight and power demands required a large, expensive battery pack with elevated fire risks. Furthermore, Ford’s reliance on a single battery supplier, SK On, meant it missed out on federal manufacturing credits that could have offset costs.
What’s Next for Ford?
Ford is scrapping its joint venture with SK On, repurposing an EV plant in Tennessee to build gasoline-powered trucks and converting a Kentucky battery plant for energy storage. The next F-150 Lightning will be an “extended range EV” hybrid. The company is also developing a new platform for smaller EVs and partnering with Renault in Europe, aiming for profitability in its Model e division by 2029.
Industry experts warn that a prolonged slowdown in EV adoption could leave the US behind other global markets. Tim Bush of UBS cautioned that the US risks becoming the “Galápagos Islands of internal combustion engine vehicles,” lacking the innovation seen elsewhere. Tu Le, of Sino Auto Insights, added that automakers “have much less time than they seem to think” to address growing competition, particularly from low-cost Chinese rivals.
Frequently Asked Questions
What prompted Ford’s $19.5 billion writedown?
The writedown was a result of losses exceeding $13 billion within Ford’s electric vehicle division, “Model e,” since 2023, and a reassessment of the company’s EV strategy.
Is Ford abandoning its commitment to electric vehicles?
No, Ford is not abandoning EVs entirely. The company is shifting its focus to hybrid vehicles to generate profits while continuing to develop future EV platforms. They are also working on a new platform for smaller EVs and a partnership with Renault.
What factors contributed to the F-150 Lightning’s financial struggles?
The F-150 Lightning’s large battery pack, high production costs, reliance on a single battery supplier, and a lack of available federal tax credits all contributed to its financial difficulties.
Given the evolving market conditions and increased competition, how will Ford balance its short-term financial needs with its long-term vision for sustainable transportation?
