Ford Motor: all products must be bigger and more expensive

Investment Analysis Clubs Macro Economic Trends and Risks
21

That is the biggest pile of MBA buzzwords and garbage that I have heard in a long time. The last time Ford was blathering like that, it was about selling their assets in India to Mahindra, then pasting blue ovals on Mahindra cars. That was before Mahindra pulled out, seeing no value in the deal, and Ford exited India entirely. It is as nonsensical as Jim Hackett’s blathering about the “Ford brand” in Europe and “fitness”. Important bit there: “Ford brand” does not necessarily mean Ford designed and built product, It could as easily be other people’s product, with a blue oval pasted on it.

Speaking of pasting a blue oval on other people’s product, Ford’s first two EU market EVs will be built on a platform licensed from VW. Within the last couple months, Ford has talked about creating their own EV platform in house. With Ford NA dropping smaller CUVs like the Escape (Kuga in Europe), Ford NA is not going to be working on anything small enough to be relevant in the EU. That would push the amortization costs for EU only EV platforms up.

The final bit: Does Ford EU have enough volume to stay alive in the passenger vehicle market?

EU market share, 2022:

VW 24.67%
Stellantis: 18.22%
Renault: 9.41%
Hyundai/Kia: 9.24%
BMW: 7.24%
Toyota: 7.12%
Mercedes: 5.92%
Ford: 4.85%

Trying to pay for an in house EV platform, without volume of same size products in North America, South America, or India, to help amortize the cost, with a sub-5% EU market share, does not look like a winning proposition.

Will China save them? Ford sales in China in 2021 were all of 248,202, or 1.18% market share. Ford sales in China collapsed before the plague, from 951,396 (4.03% share) in 2016. Volume dropped to 383,485 (1.65%) in 2018, Jim Hackett’s first full year as CEO, to 232,555 (1.10% share) in 2019. Hackett left in late 2020, Thanks a lot Jim Hackett /sarcasm. Farley is apparently following Hackett’s business model.

Outside of North America, Ford is a dead man walking, and they want to throw away half their volume here, to chase ATP and GP per vehicle.

“creating shareholder value”

Steve

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22

I’m pretty sure the phones are Android

23

BREAKING NEWS!!!*

The new J D Power vehicle owner service satisfaction survey broke today.

Guess what? Ford zux. As we know, quality and customer service cost money, and that hurts profits.

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24

This article has the full rankings.

Lincoln score 835, ranking 12th out of 14 luxury brands.

Ford score: 832, ranking 13th out of 18 mass market brands.

And that all conquering F-150? score 823, tying with Ram for the worst trucks on the market.

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25

Maybe. But Lexus, Acura, and Infiniti proved that a well made car can overcome that kind of hesitation. (Acura was developed jointly by the Japanese and English. Two versions, identical except the nameplate - the Great Britain version was Sterling, which was debuted first and never heard from again.)

Might say the same thing for the first Japanese name plates: Datsun, Toyota, etc. That was at a time when Japanese goods weren’t thought of as particularly good, but a cheap “just car” swept through the market, so…

Never say never.

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26

I agree. The domestic production requirement for the tax credit pretty much precludes a competitive Chinese BEV in the US, particularly at the entry level.

The EU will likely be under some pressure to adopt something similar to protect its own industry. Biden and EU president are meeting to negotiate a deal that would likely grant the EU status as an American trade partner, like Canada and Mexico, thereby extending the tax credit to EU produced cars (sorry UK).

We are fairly rapidly moving toward an economic cold war with China, West vs East. Anyone else concerned about the similarities with US policy to Japan in the years prior to Pearl Harbor?

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27

Do you know how customizable Android is by the phone manufacturer?

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The tax credit may not last long enough to really be a factor in Chinese entry into the U.S.

The budget cost of that tax credit is going to get very large, very quickly, as the shift towards EV’s continues. It’s going to be a big, fat juicy target for Republicans to grab as a paygo offset for when next they have a majority and need to juice their CBO score on their tax cuts. And that’s if the domestic preferences don’t get stripped out or weakened first as a result of pressure from other countries (unfair trade practice) or U.S. greens (slows the adoption of EV’s and we’ll soon be spending more on car subsidies than federal transit dollars).

In any event, it only runs to 2032, and is unlikely to then be renewed. If it lasts through the next GOP trifecta, it might forestall Chinese imports by a few years.

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For the new vehicle $7.500 tax credit, how large do you expect it to go? If somehow we get to 2 million EVs a year, then the maximum it could be that year is $15B. But it only goes to North American produced vehicles. And since it is not a refundable credit, the full credit only goes to those who pay $7,500 a year in federal income tax (and MFJ+2 needs to earn well over 100k to pay that much). So even if all 2 million EVs a year qualify, it’ll still be a tiny portion of the federal budget. Heck, even if 10 million EVs are sold it’ll be a very small portion of the budget.

If in 2032, buying an EV becomes the “default”, or even an equal choice with ICE, then there SHOULDN’T continue to be a special tax credit for them!

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30

US EV sales last year were about 800K, up more than 60% from the year before. You might see sales of about double that (1.6M) in a few years’ time. Not all will qualify/receive the credit (and some are PHEV’s that get half the credit), but I don’t think it will take too long before the credit tips past the $10B per year mark.

That’s small relative to the federal budget, but it’s a pretty big chunk relative to typical tax/reconciliation bills. $10B per year translates to $100B over the ten year budget horizon of a tax bill. It’s bigger than almost any single program in the BBB/IRA bill from last year. It’s as big as 100% typical annual federal transit spending. Killing that subsidy would generate a huge amount of offset for any tax reform (though there would only be 7 years left on it if we’re talking an effort after the 2024 elections).

I think the domestic preference gets even more endangered if you don’t see a qualifying low-cost EV in the next few years as well. If the credit is, in fact, mostly being claimed by high-earning families because there isn’t a viable <$30K EV available for lower-income folks, there will be some pressure to allow cheaper imports to drive down prices. If Tesla gets held up bringing their new platform to market quickly, or it ends up being a more expensive car than they expect, we might see the protectionist aspects of the IRA dialed back for the cheapest cars.

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