The Fuse

Ford’s Big Bet on EVs

by Nick Cunningham | October 01, 2021

Image: Ford

Ford announced that it would spend $11.5 billion to build four new factories to produce electric trucks and the batteries that go into them. The investment is the company’s largest in its 118-year history.

The decision also marks a decisive move to jump all-in on electric vehicles, the latest in a series of very serious moves by major automakers to move on from fossil fuels to and into the age of electrification.

Ford’s $11.5 billion bet on EVs

Ford said on September 27 that it would build three new battery factories along with a new electric truck plant, spread across Kentucky and Tennessee. The company said it would employ 11,000 new people over the next four years.

The new capacity would translate into one million EVs per year when fully online. “I think the industry is on a fast road to electrification,” Ford’s executive chairman, William C. Ford Jr., told the New York Times. “And those who aren’t are going to be left behind.”

Electrifying the F-150 could accelerate to transition away from the internal combustion engine.

Ford was slow the electric vehicle game, but has since ratcheted up its ambition. It debuted the electric F-150 earlier this year in a splashy announcement that added significant momentum to the EV race. As the most popular vehicle by sales over the past several decades, electrifying the F-150 could accelerate to transition away from the internal combustion engine when it goes on sale next spring.

Ford received over 150,000 reservations for the F-150 Lightning, a huge vote of confidence in interest from the public. As a result, in mid-September, Ford said that it would add 450 new jobs across three Michigan facilities to ramp up manufacturing capacity of the Lightning. “We knew the F-150 Lightning was special, but the interest from the public has surpassed our highest expectations and changed the conversation around electric vehicles,” Bill Ford said in a statement. “So we are doubling down, adding jobs and investment to increase production.”

But the new $11.5 billion investment in four new plants raises the bar even further.

“This is the single largest economic development project in the history of our state and this project solidifies our leadership role in the future of the automotive manufacturing industry,” said Kentucky Gov. Andy Beshear.

The EV race is now picking up pace. EV sales are expected to capture 9 percent of the auto market this year, triple the 3 percent share it had in 2019. In Europe, the shares are much higher. Norway, the global leader, is phasing out the internal combustion engine by 2025, but is so far along on that pathway that it could happen much sooner. New car sales for diesel or gasoline are only grabbing less than 10 percent of the market in Norway these days.

Top global automakers, including GM, Ford, Volkswagen, Toyota and BMW have all laid out goals to have EVs make up at least 40 percent of their total sales by the end of the decade. Just two days after Ford’s announcement, luxury automaker Rolls-Royce said it would go all-electric by 2030.

Overall, the Biden administration has a goal of 50 percent EV sales in the U.S. by the end of the decade. Those targets would have seen wildly unrealistic just a few years ago, so it also seems reasonable to assume that they could be ratcheted up in the years ahead. Volkswagen, for instance, sees its sales hitting 50 percent in the U.S. by 2030, but 70 percent in Europe by the same date.

The automakers’ capex decisions on EVs offer evidence of how serious they finally are.

While these medium- to long-term targets are important, decisions made today are also important to note. As Bloomberg Green wrote in August, the automakers’ capex decisions on EVs offer evidence of how serious they finally are. Spending levels are not simply wishes, or aspirations, or goals. They reveal where automakers plan on going.

Volkswagen is spending 58 percent of its budget on EVs, GM is at 51 percent and Ford is at 47 percent. As Nat Bullard at Bloomberg Green put it: “Sales targets are a signal of what a company thinks. Research and development is a vector, a direction the company is exploring. Capital expenditure is more than that. Capex is destiny.” In other words, with EVs capturing more than half of capex at major automakers at this point, there is simply no going back.

U.S. at a crossroads

The highly contentious negotiations underway in Congress right now on the bipartisan infrastructure deal and the much more ambitious budget reconciliation package will greatly influence the future of the transportation sector. The bipartisan deal has a few billion dollars for EVs and for EV recharging infrastructure. But by no means is it a game changer.

On the other hand, the larger budget bill that most Democrats (save for two Senators) are planning could be transformational. Among the long list of priorities in the package are enormous new incentives for EVs. Existing federal tax credits of $7,500 have a sales cap for automakers once they hit 200,000. The proposals under consideration lift those caps so buyers of all EVs could receive them. Plus, another $4,500 is tacked on if the vehicle is made in the U.S. by union labor. Together, a potential buyer could snag a new EV with tax credits totaling as much as $12,500. Used EVs would be eligible for a $2,500 tax credit.

The oil industry is not happy about this and other energy provisions in the budget bill, and lobbyists are spending millions to kill it. The outcome is far from clear, but with the climate crisis accelerating, the race to electrify the transportation sector is critical. The stakes could not be higher.

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