Here are the questions we have for Ford and its CEO Jim Farley about their latest EV price cuts
We’re surprised by Ford (F)’s new price cut on its popular electric pickup. The move appears to challenge the automaker’s claims that the F-150 Lightning is in high demand. Ford announced Monday that it will cut prices on the Lightning by 7% to 17%, depending on the model. The original base price of $59,000 will now be reduced by $10,000. When the F-150 EV debuts in April 2022, it will start at $39,974, and prices have since risen due to supply constraints and a sharp rise in the cost of the minerals used in batteries. The automaker said it can offer lower prices to customers because it has increased factory capacity and lowered production costs while raising battery costs. Jim Cramer called Ford’s price cuts “counterintuitive” given strong demand for the F-150 Lightning so far this year. “It’s hard to believe that while you’re cutting prices, there’s a long line of people who want the F-150 Lightning,” Jim told an investment club morning meeting on Monday. The market also seemed confused by the move, with Ford shares on Monday It fell more than 5 percent to about $14 a share. In July, Ford reported quarterly growth in U.S. auto sales in the second quarter of 2023, but electric vehicle sales fell 2.8% in the quarter. Still, demand for Ford’s electric pickup remained strong, with sales of the F-150 Lightning up 119%. In early June, Ford raised its production target for electric pickups to 150,000 from a target of 130,000 by the end of 2023 to meet customer demand and reduce wait times. Ford has overcome a number of challenges this year. In February, the company had to suspend production and shipments of its electric pickup trucks due to potential battery issues. It follows a chaotic fourth-quarter performance for Ford as it transitions to a new electric vehicle business structure. But recently, the U.S. car company has turned to strategic partnerships to accelerate its position in the hotly contested electric vehicle space. At its Capital Markets Day in May, Ford unveiled agreements with some of the world’s biggest lithium producers to ramp up production of electric vehicles. Club Holdings surprised investors last month by partnering with Tesla (TSLA) to acquire Elon Musk’s company’s Supercharger network. Ford will secure a historic $9.2 billion loan from the government in a joint venture with a South Korean battery maker to fund three new U.S. battery manufacturing plants. Among pickups, the R1T surpassed the F-150 Lightning to become the best-selling electric pickup this year. Ford invested in Rivian back in 2019 to collaborate on electric vehicles. The partnership ends when Ford liquidates most of its stake in the electric vehicle startup in 2022. Meanwhile, more competition is brewing as Tesla announced over the weekend that it has finally built its first Cybertruck. Powerful players in the EV market are vying for more market share. That could mean that Ford may see lower EV prices as a way to prop up more demand as vehicle prices fall. According to an analysis by Kelley Blue Book, the average price of a new car purchased by Americans in June increased by 1.6% year-on-year and only 0.3% month-on-month. It was the smallest year-over-year increase since the pandemic began. Meanwhile, prices for new EVs have dropped 20% this month, driven by Tesla’s price cuts earlier this year. Slowing electric vehicle sales and rising inventories are a “new reality” for Tesla’s EV rivals that “could force a ‘recalibration’ of traditional auto EV strategies earlier than expected,” Morgan Stanley said on Monday. “All of this is happening despite the fact that the Tesla lineup is fairly old and ahead of a lot of new capacity coming on stream from Tesla and other automakers,” the analyst noted. Ford said its popular F-150 The price reduction is to take advantage of increased factory capacity and continued efforts to expand product and cost. However, we wondered whether demand was also a factor. Now that people have more choices of pickup EVs they can buy, Ford will naturally become more competitive on price to maintain demand. Looking back at the history of the F-150 Lightning, Ford raised prices significantly last year when supplies were scarce. Now, in anticipation of ramping up production capacity at a lower cost, Ford is dropping prices closer to where the Lightning was when it first hit the market. Keep in mind that economies of scale and lower battery costs are two of the top three swing factors for Ford’s margins to fall 40% in 2022 to grow 8% by the end of 2026. In some ways, the news that Ford’s cost structure is improving due to increased efficiency, scale and lower battery costs is more important in the long run than short-term price volatility. We still wonder why the price needs to be lowered if there is theoretically sufficient demand. We worry that a round of price cuts will lead to more price cuts in the future. However, we don’t want to lose sight of the fact that Ford’s costs have fallen as production has tripled. Under Chief Executive Jim Farley, the automaker has made strides in turning around its business and accelerating its transition to electric vehicles. Forward-looking moves with lithium producers to reduce battery costs, a tie-up with Tesla to give Ford EV customers access to more charging stations and a record U.S. government loan to help ramp up EV production are all positives. (Jim Cramer’s charitable trust is Long F. For a full list of stocks, see here.) As a subscriber to Jim Cramer’s CNBC Investing Club, you will Get trade alerts before Jim Cramer trades. Jim waits 45 minutes after a trade alert is sent before buying or selling stock in his charitable trust portfolio. 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Ford CEO Jim Farley poses for a photo during the unveiling of the all-new electric Ford F-150 Lightning pickup at the Ford Rouge Electric Vehicle Center on April 26, 2022 in Dearborn, Mich.
Bill Pugliano | Getty Images
we raise our eyebrows ford‘s (F) has a new price cut on its popular electric pickup truck. The move appears to challenge the automaker’s claims that the F-150 Lightning is in high demand.
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