Ford Suddenly Learns Importance of Choice After Losing $1.3 Billion on EV

There has been a fair amount of press on Ford Motor Company's immense losses ($1.3 billion) on its ‘Model e’ EV. What has not been much discussed is why this happened. There are several reasons, of course, including the political correctness of the company's CEO and the fact the market for EVs is collapsing around the world despite all the propaganda packaged as news and suggesting the opposite.

The principal reason in my view is that Ford, after avoiding government capture during the 2008 financial crisis, has surrendered to the climate corporatism and become its slave. It looked like opportunity at the outset but ended in government stranglehold.

"Leaning Tower of Pisa and closed Landmark Ford Dealership, Niles, IL" by artistmac is licensed under CC BY-SA 2.0.

The best way to understand what's happened to Ford is to read the transcript of the Ford's 1st quarter earnings call, available here. It is quite revealing. Before getting into that, though, let me some observations about our American auto industry. It couldn't be more shallow or empty.

The vehicles are ever more impressive, to be sure but, then, so are the prices. Everything has gone to large impersonal dealers operating out of Art Deco-redux buildings that appear to have been designed by a single architect who wanted to create a Flash Gordon effect. The showrooms are large empty caverns lined with cubicles for sales people and it's all so completely sterile and uninviting. When you decide to buy, you get shipped from dealer bureaucrat to another like you're a potted plant being moved from desk to desk.

There is, in short, no personality left to the car-buying procress. It’s all corporate all the time and now corporatism is destroying the industry itself. Oh, there is plenty of happy talk. Just read CEO Jim Farley’s opening remarks. Here is an example of whatt I mean:

A good example was we learned a lot when we -- in our more expensive vehicles, Mach-E, when, in February, we dropped the price 17%, our volume went up 141%. That's telling us that the more affordable we can make great product, the more attractive it is to these mainstream EV adopters. And the last thing I'd say is we're learning about the importance of choice.

Was there a 17% margin on Mach-E vehicles? I doubt it, but this is how you spin the fact few people wanted your product and you had to sell it at a loss to move out the inventory. And, then you repeatedly emphasize choice, of course, to show customer that you have other vehicles to sell if they don’t like the EVs.

Farley leaves it to John Lawler, his Chief Financial Officer, to explain the details of the losses, and it is the latter’s answer to a question posed by a Morgan Stanley analyst that tells everything (emphasis added):

Adam Jonas -- Morgan Stanley -- Analyst

I got one question for John and one for Jim. John, you were just on Bloomberg saying EVs are needed to meet compliance regulations. Now it's my understanding that Ford does not disclose penalties or ZEV credit purchases for Ford on clean air regulation. Can you confirm that? That's not disclosed, right?

John Lawler -- Chief Financial Officer

So let me clarify a few things, Adam, on that, is that it's not an option for us not to be compliant. If you don't comply with your ZEV or your greenhouse gas emissions requirements, you can't pay fines. What happens is you can't sell, and that's consistent across the industry. So it's -- that's for all OEMs.

[Note: OEM refers to “original equipment manufacturer.” It can refer to car companies themselves but the term ordinarily relates to a company making parts for new vehicles.]

All OEMs are under those rules. And so, there's really three levers that we have. We can sell EVs and hybrids. We can sell fewer ICE, or we can contract to buy credits from another OEM.

And when we do contract to buy credits, we will disclose that as we did in our 10-K at the end of the year. And so, those are the three levers. And we, I would say, monthly, if not weekly, are working to optimize across those three levers to drive the highest profitability and the highest cash flow for the company. o to continue to sell the ICE vehicles, we are going to need to sell EVs, and we're going to optimize across the profitability.

There you have it. The government has Ford positioned between a swamp and as wetland and it can only move by buying a bigger boat, the costs of which will be passed onto the buyers of conventional vehicles, which is the whole point, of course; to make all vehicles unaffordable and get us out of cars altogether. It will take a few years, of course, but no amount of happy talk will avoid it unless the government gets out of the car business.

#Ford #EVs # FordModele #Losses