I still wonder why they won’t open the reservation list for future model years? I assume they could structure it in a way that it is more predictive of how many will actually buy.
Yeah, but it probably yields diminishing returns. A reservation list has a lot of benefits for a new product - it helps them gauge demand, helps them manage how to allocate a very limited supply of their new product, and helps generate buzz and excitement about it. And when people make their reservations very close in time to when their number gets called, they’re pretty likely to fill the reservation. But when you start stretching that into the far future, the benefits diminish - you’ll already have a pretty good bead on demand levels, you’ll have a lot more inventory (perhaps even have it pushed to dealer lots), and the people who put themselves on the waitlist 18 months ago have a much better chance of having moved on to another product.
I suspect that Ford is a little fearful.
Oh, I agree it’s deliberate - though they can retreat from folly without backing into cowardice. It’s smart to ramp up your production run of a new model line a little more slowly, rather than rushing into full capacity production right away. It gives you the chance to spot and correct issues in either the trucks or the production process before you get too buried in volume and/or dissatisfy too many customers. F will certainly produce fewer units than 150K in the next year, even though that’s their estimated annual run capacity, in part for that reason.
But Tesla will likely do the same - they’ve had a production ramp for all their new vehicles as well, and they’ll probably also take several months to go from zero to full production.
I still wonder why they won’t open the reservation list for future model years? I assume they could structure it in a way that it is more predictive of how many will actually buy.
Just a guess but with 200k reservations and only 150k '22 expected to be made (up from the original 80k they had plan to make), they don’t want to open up 2023 (2024?) model orders until they deal with the fact than many '22 orders will have to be filled with '23 models - which won’t start being built until October of this year. '22 models are already oversubscribed by 50k even after the doubling of production - and those deposits are refundable (Ford expects 80% of pre-orders to be completed). Better to deal with that before creating even more of a backlog.
Pricing! Inflation creates a lot of uncertainty in future costs making it risky to set the price now. Reservations are typically at a fixed price.
No, this isn’t always correct. Orders of vehicles, even those that take a long time to deliver, are at a fixed price. But that applies to most things, for example, if you order a piece of furniture at the store, and choose your customizations, you agree on a certain price for it, and perhaps leave a deposit, then when it is delivered months later, that is the price that you pay, despite any price increases while waiting for to arrive.
Reservations, on the other hand, have no price attached to them. For example, when I ordered my Tesla, the price at the time of order is the price that I paid, despite any price increases between order date and delivery date. But the reservation I have for a Cybertruck has no price attached to it, nor can I choose which model trim or options yet.
I thought of a few more ideas about Ford related to their F-150 Lightning production. We also have to take into account the “beancounters”, and the head honchos are always beancounters, because the beans are what counts in business. I am quite sure that there is some internal discussion, probably heated internal discussion at Ford right now along the lines of “We make $12-22k on most of the ICE F-150s we sell, and we only make $5-15k on every EV F-150 that we sell, so why on earth would we shift so much production from ICE to EV???” So it’s not only a [proper] risk aversion choice, it’s also a pure financial choice.
“But when you start stretching that into the far future, the benefits diminish - you’ll already have a pretty good bead on demand levels, you’ll have a lot more inventory (perhaps even have it pushed to dealer lots), and the people who put themselves on the waitlist 18 months ago have a much better chance of having moved on to another product.”
One more thing about Ford, they may also be delaying selling large quantities of EVs in the hopes that they can cut the dealers out somehow. That would help towards improving the financial aspects of EVs for Ford. And inventory isn’t a good thing, it’s a bad thing, at least from a financial point of view. Maybe later when EVs become generic and more or less interchangeable from brand to brand, you might need inventory for the impulse shopper, but that won’t happen until a good number of years from now.
I am quite sure that there is some internal discussion, probably heated internal discussion at Ford right now along the lines of “We make $12-22k on most of the ICE F-150s we sell, and we only make $5-15k on every EV F-150 that we sell, so why on earth would we shift so much production from ICE to EV???” So it’s not only a [proper] risk aversion choice, it’s also a pure financial choice.
That’s always been the speculation around incumbents’ manufacture of EV’s - that they were willfully trying to avoid entering the market at volume in order to avoid disruption to their existing products. It’s certainly possible, but F’s decision to double production capacity in response to strong customer demand sort of cuts against that. If they actually produce at 150K per year, that would result in nearly 20% of F-150’s being Lightnings. That’s a pretty huge take rate for the EV version - which suggests that either there’s not as big a gap on the profit margin for the EV’s or the bean counters have been satisfied that this will be profitable in the longer term.
One more thing about Ford, they may also be delaying selling large quantities of EVs in the hopes that they can cut the dealers out somehow. That would help towards improving the financial aspects of EVs for Ford.
Why? Dealers can be very good for an automaker, depending on how their financial arrangements are structured. They help bear the capital costs of inventory, provide advertising and brand visibility, and provide customers the chance to purchase cars immediately. That’s not quite so relevant when you’re incapable of producing as many cars as people want to buy, so you’ve got a constant queue for your vehicles and thus don’t need those services - but F has the resources to not get trapped leaving money on the table like that, and should be able to avoid spending too much time under-serving existing demand. Again, by ramping up to 150K production (if that’s what they’re doing) they’re signaling that they want to get to the point where they have Lightnings sitting on the lot ready for purchase pretty quickly.
No, this isn’t always correct. Orders of vehicles, even those that take a long time to deliver, are at a fixed price.
Thanks, I got my terms mixed up. But the idea stands, an order for delivery in a year at a fixed price during inflationary times is madness. Back in inflationary Venezuela estimates were good for a week or less.
I still wonder why they won’t open the reservation list for future model years? I assume they could structure it in a way that it is more predictive of how many will actually buy.
My guess as to why: uncertainty as to what price they’ll need to put on the things.
(But then they could do a high estimate, add a few thousand for safety, and take orders on the basis of “the price absolutely won’t be higher than this, and it may - or may not - be lower.” I don’t know how well that sort of move would work.)
I thought of a few more ideas about Ford related to their F-150 Lightning production. We also have to take into account the “beancounters”, and the head honchos are always beancounters, because the beans are what counts in business. I am quite sure that there is some internal discussion, probably heated internal discussion at Ford right now along the lines of “We make $12-22k on most of the ICE F-150s we sell, and we only make $5-15k on every EV F-150 that we sell, so why on earth would we shift so much production from ICE to EV???”
I dispute the idea that the head honchos are always beancounters. Boeing famously had a culture of engineers at the top for generations (until the bean counters took over). So did Hewlett-Packard. And Chrysler hired Iacocca because they needed a product guy to survive, not someone to shave the costs. And don’t even mention Disney, Apple, or Microsoft.
By the same token, “the head honchos” at Ford have realized that there is a market aborning that they need to be in, and they’ve elected to be in it with less consideration of cost than need. I’m sure there were people at Netflix who said “Why do we want to buy all these expensive servers, we have a nice thing going with the DVD by mail business?’
And inventory isn’t a good thing
Yes it’s a cost. OTOH I’ve been to two different dealers to look at an EV and neither has had one to look at - so I haven’t bought. I’m not likely to without sitting in it and seeing if I’m comfortable with it, the quality of materials, etc. Both dealers have offered to “order one for me”, but, uh, no thanks. (I acknowledge that a lot of people do, I’m just not one of them, so it’s a sale lost.)
Back in inflationary Venezuela estimates were good for a week or less.
Back in early 1990, I worked in internal audit for a Fortune 500 company and we did an audit of one of our subsidiaries in Brazil. Inflation was so bad that rates changed by significant amounts daily. The only way for them to keep workers was to pay them with food, usually bags of beans.
The accounting staff literally were bean counters.
That’s always been the speculation around incumbents’ manufacture of EV’s - that they were willfully trying to avoid entering the market at volume in order to avoid disruption to their existing products. It’s certainly possible, but F’s decision to double production capacity in response to strong customer demand sort of cuts against that. If they actually produce at 150K per year, that would result in nearly 20% of F-150’s being Lightnings. That’s a pretty huge take rate for the EV version - which suggests that either there’s not as big a gap on the profit margin for the EV’s or the bean counters have been satisfied that this will be profitable in the longer term.
There is another possibility on Ford’s F-150 L ramp. They planned from the start to go from 50K in the first year to 150K in the second year all along. First off, as others have said, to minimize risk of possible recalls, etc in the first year. But also planned to announce later that demand is so high we have to triple production! A chance for more PR and a stock bump and a relatively slow ramp to allow production line glitches to get ironed out without looking bad.
Yes it’s a cost. OTOH I’ve been to two different dealers to look at an EV and neither has had one to look at - so I haven’t bought. I’m not likely to without sitting in it and seeing if I’m comfortable with it, the quality of materials, etc. Both dealers have offered to “order one for me”, but, uh, no thanks. (I acknowledge that a lot of people do, I’m just not one of them, so it’s a sale lost.)
My Tesla test drive was an absolute delight. I scheduled a test drive online. I went to the local mall about 10 minutes before the time I was scheduled for. The dude in the [nearly empty] showroom looked at my driver’s license. Then he said go to the parking lot near Macys. Then he called me on my cellphone and told me exactly where the car was parked. I went there, and when I got to the car, he remotely unlocked it, and enabled it to drive, and told us that when we get back to park it somewhere, and as soon as we exit the car and shut the door it will lock on its own. We test drove two of their models that way the same day. A few days later (after I already ordered), my wife and daughter wanted a test drive, so they did the same thing.
But I just realized another way EVs are “sold”!!! I was at the supermarket earlier this evening, and my preferred supermarket has a few chargers outside, so I usually charge while shopping. When I got back to my car with my bags, a guy was charging his plug-in hybrid Pacifica, and while I was putting the groceries in, he asked me a bunch of questions about my car. I spent 5-7 minutes talking to him about it. I suspect he will order one pretty soon after our discussion, too bad Tesla eliminated their referral program.
And while I don’t seriously think that cars can all be sold via word of mouth, I wouldn’t be surprised if the F-150 Lightning will “sell itself” via word of mouth for the first few model years. I also suspect that there will suddenly be a glut of used ICE F-150s on the market in 2024/5. If the pricing remains reasonable (EV versus ICE), people who buy F-150s will “all” want the EV version, it’s just that much better than the ICE version. Here’s a glowing review by the reviewer (ironically he owns and drives Teslas, not Fords) I generally trust most of all - https://www.youtube.com/watch?v=CkoquiSnqbk
I dispute the idea that the head honchos are always beancounters.
I agree. When I was getting my degree, top executives tended to be marketing and sales guys. (With some notable exceptions like the ones you mentioned) Their idea of managing the business tended to be by the top line. If sales went up, everything was hunky dory. Any problems at the bottom line must be the fault of operations.
I can’t tell you how many Harvard b-school cases we had to look at where this was the downfall of the business.
Bean counters never got the top spot. Even getting to CFO was unusual.
I agree. When I was getting my degree, top executives tended to be marketing and sales guys.
I learned, in the mid 70s, that the tracks to the top were sales and accounting. Rarely does an engineer advance.
The b-school at Whatsamatta U, that I graduated from keeps sending me their magazine and pleas for donations. In one of their magazines, they talked about how the b-school has gone all in on “analytics”: ie, dump your data into the computer, the computer processes it according to the biases built into it’s program, spits out it’s recommendations, then you do what the machine says. Implicit in that process is that everything has to be quantified, so, regardless of your concentration: accounting, marketing, or management, you are forced into a beancounter mold, where only the things that can be quantified matter. You will never see an innovative product, like a Mustang, or minivan, come out of that process, only more of the same thing, with the line narrowed to only the most profitable models in the most profitable markets, because that is what can be quantified.
/rant
