Historic turning point! Ford (F.US) goes from all-in to retreat: provisions of $19.5 billion to abandon pure electric vehicles, strategy intensifies for hybrids and energy storage.

Ford Motor Company announced on Monday that it will set aside $19.5 billion in expenses for its investment in electric vehicles, marking the most obvious sign in the automotive industry so far of a departure from electric vehicle technology that car manufacturers wholeheartedly embraced at the beginning of this century. Most of this amount will be used to pay for the expenses related to the cancellation of fully electric vehicle models that took several years to develop. Ford is now shifting its focus to expanding the market for traditional fuel vehicles and hybrid vehicles to better cater to the preferences of American car buyers. Some notable aspects of Ford's announcement include: What are the specific details? About $8.5 billion is related to costs associated with the cancellation of multiple future electric vehicle projects, including a large pickup truck that was originally planned to be produced in Tennessee. Additionally, Ford is taking a $6 billion write-down due to its joint venture battery business with Korean company SK-On - last week, SK-On announced the termination of their partnership. SK Innovation's subsidiary SK On announced last Thursday that it had reached an agreement with Ford to terminate their joint venture. The two companies will split the assets: Ford will own and operate two battery factories in Kentucky, while SK On will operate a factory located at the BlueOval SK Park in Tennessee. Four years ago, Ford Motor Company and Korean battery manufacturer SK On reached an agreement to establish a joint venture and invest $11.4 billion to build factories in Tennessee and Kentucky to produce batteries for the next generation of electric F-series trucks. Ford is allocating an additional $5 billion "for project-related additional expenses." Out of all these expenses, only about $5.5 billion will impact cash flow, with Ford stating that these expenses will occur next year and in 2027. However, Ford stated that due to the continued strong business foundation and cost improvement, the company is raising its adjusted EBIT forecast for 2025 from the previous $6-$6.5 billion to $7 billion. Soft electric vehicle sales prompt investment withdrawal Ford has actually abandoned all next-generation electric vehicle projects, including large pickup trucks and some commercial vehicles. When the details of the manufacturing facility were announced in 2023, Ford envisioned that the factory in Tennessee would eventually produce 500,000 electric trucks, but now it will instead produce fuel trucks. Ford has stated that in North America, it will replace the planned electric commercial vehicles with "affordable" hybrid and gasoline commercial vehicles that will be assembled at Ford's plant in Ohio. This means that Ford's focus on electric vehicles is shifting towards a range of more affordable models developed by a so-called "secret development team" in California. The company stated that the first model in this range will be a midsize truck expected to be launched in 2027, with a price of around $30,000. Ford Motor Company reported U.S. sales of 164,925 vehicles in November, a 0.9% decrease year-over-year. Electric vehicle sales were 4,247 units, a significant 60.8% decrease. In terms of brands, Ford F-150 Lightning sales were 1,006 units (-72%), Ford Mustang Mach-E sales were 3,014 units (-49%), Ford SUV sales were 55,888 units (-3.7%), and Ford Bronco sales were 11,045 units (+7%). This is in stark contrast to the first three quarters of this year, when Ford reported its best-ever sales pace for electric vehicles. During this period, Ford sold a record 30,612 electric vehicles, a 30% increase year-over-year. The goal is to reduce losses Since the introduction of the Ford F-150 Lightning, the electric vehicle industry has faced many challenges. Tesla, Inc. has launched a fierce price war to combat declining sales, further eroding the already slim (or even negative) profits of traditional car manufacturers. Trump's re-election and Republican control of Congress led to the reversal of many subsidies under the Biden administration aimed at encouraging electric vehicle sales. Like almost all traditional car manufacturers, Ford has continued to lose money in the electric vehicle business - losing $5 billion in 2024, with losses likely to increase by billions of dollars this year. Industry executives attribute this mainly to the high cost of batteries, with the decline in battery costs far below expectations. In fact, the company is reducing losses by setting aside huge expenses. Reducing investment in the loss-making electric vehicle sector should help improve its profits in the coming quarters. Ford stated that all these measures will help improve its profit margins. Ford's electric vehicle division Model e is expected to start generating revenue next year and achieve profitability by 2029. The Model e division has incurred losses of tens of billions of dollars in recent years. New strategy focuses on hybrid models: transforming the Lightning model into an Extended Range Electric Vehicle (EREV) Despite the challenging development of electric vehicles, hybrid vehicles remain a bright spot for the company. Hybrid vehicle sales increased by 14% in November, and Ford Motor Company has sold 205,497 units so far this year, with a growth rate of over 19%. Ford stated that hybrid vehicles (combining a gasoline engine and a battery to enhance power and fuel efficiency) will drive growth in the coming years. The company expects that by 2030, hybrid vehicles, extended-range electric vehicles, and all-electric vehicles will account for 50% of its global sales, up from the current 17%. For example, the Ford F-150 Lightning, an all-electric truck that was launched in 2022, is set to be transformed into an extended-range electric truck. The model will be equipped with a gasoline generator that can charge the battery while driving, allowing the driver to travel 700 miles without needing to charge or refuel. New strategy focuses on investing in battery energy storage to catch up with the trend Ford will produce batteries for energy storage services at factories in Kentucky and Michigan, which are in high demand due to the thriving data center industry driven by artificial intelligence. The company describes this as a new business that encompasses sales and service, and plans to invest $2 billion over the next two years to launch this business. Ford has conducted in-depth research in this industry and will leverage its advanced battery technology, authorized by CKH HOLDINGS, to start producing energy storage units within 18 months, enabling the company to seize a growing share of the US market for battery energy storage systems. Ford currently plans to deploy at least 20 GWh of energy storage capacity annually by the end of 2027.