How Ford can challenge powerful a Chinese EV maker’s potential entrance in the U.S.
Forget Tesla, the real competition for electric cars are low-cost Chinese automakers. That’s what Ford CEO Jim Farley told Wall Street recently. He said he had a plan because an electric car manufacturer wanted to break into the United States. If the speculation is correct and the Chinese automaker does build an electric vehicle factory in Mexico, BYD (short for “Build Your Dreams”) could pose a threat to Ford and other U.S. automakers. According to a Nikkei report in mid-February, the factory can serve as an export hub to penetrate the U.S. market and help avoid high import tariffs on transportation vehicles from China. Farley commented last year on the threat posed by Chinese automakers, specifically praising Warren Buffett’s Berkshire Hathaway’s stake in BYD, which it has reduced. “I like BYD,” Farley said at the Morgan Stanley Summit. “Vertically integrated, aggressive… very, very impressive company. And they’ve always been committed to electrification.” Speaking at a Wolf Research investor conference earlier this month, Farley said the electric vehicle market Its success lies in being able to compete with Chinese companies whose cars have saturated the Chinese and European car markets. “If you can’t compete fairly with the Chinese around the world, then 20 or 30 percent of your revenue is at risk,” the CEO said. Even if the U.S. government steps in to limit access for Chinese automakers, Farley hopes be prepared. He said creating a “skunkworks team” of new talent at Ford dedicated to creating affordable electric vehicles was “the biggest, smartest decision we’ve ever made as a team.” He declined to make any predictions about when the team, which was formed nearly two years ago, might be able to do something viable. “I’ve been in the forecasting business for the electric vehicle industry. It hasn’t been a great journey,” he explains. RBC Capital Markets analyst Tom Narayan said BYD’s entry into the U.S. market would be a “net negative” for Ford, “but not catastrophic.” While Chinese OEMs like BYD are expected to successfully enter the U.S. and could pose a threat to EV rivals, their presence won’t “gobble up big chunks” from the Detroit Three, which includes Ford, General Motors and Chrysler. Market share” – explains owner Stellantis, Narayan. Ford’s Blue internal combustion engine (ICE) and hybrid vehicle division and Ford Pro fleet business and software division are operating the unprofitable Ford Model e electric vehicle unit. Many automakers, including Ford, have reported slowing sales of electric vehicles as consumers hesitate to switch from gasoline to electric. As a result, everyone, including Tesla, is lowering the price of electric vehicles to stimulate interest. Ford Model e lost $4.7 billion in 2023. Last week, Ford cut the price of its electric Mustang Mach-E by $8,100 after sales dropped in January. Ford also decided last month to reduce production of its F-150 Lightning all-electric pickup truck to achieve “the best balance of production, sales growth and profitability,” according to the automaker. Last week, Ford confirmed that the 2024 Lightning pickup truck has some quality issues. “Car companies are investing tens of billions of dollars in electric vehicles while also cutting back on traditional carbon engines,” Jim Cramer told the CNBC Investment Club’s second annual meeting on Saturday. Internal Combustion Engines The big prospect is that the transition to electric vehicles will take longer and be met with stronger consumer resistance. That’s why Ford, following Jim’s call, has been putting more effort into high-margin hybrids. About BYD BYD has become the world’s largest electric vehicle manufacturer by expanding its influence in international markets while taking a dominant position in China, the world’s second-largest economy. In an effort to increase exposure, BYD on Sunday unveiled a new electric supercar called the U9, which can reach a top speed of more than 190 miles per hour. The supercar is part of BYD’s luxury brand “Yangwang” and is worth more than US$233,000 or 1.68 million yuan. It has been compared to other traditional supercar brands like Ferrari. Deliveries of the U9 are expected to begin this summer. Whether there’s a market for BYD’s supercar remains to be seen, but it certainly boosts the company’s profile around the world. The Chinese automaker’s global sales exceeded 3 million vehicles in 2023, according to its annual sales report. BYD said exports to 70 countries on six continents grew 334% last year. Like Ford, BYD sells hybrid vehicles. Last year, the company sold 3 million electric vehicles, about 1.4 million of which were hybrids. BYD’s rapid success has helped it expand into every major market around the world. The company recently announced its expansion into Indonesia, where it plans to build an electric vehicle factory. The automaker has reached a deal to invest in factories in Hungary (its first factory in Europe) and Thailand. Given its continued growth ambitions, it makes sense for BYD to set its sights on Mexico. It is one of the world’s largest automobile manufacturing centers and exporters. Most of the cars made in Mexico are exported to the United States. Many of the world’s top automakers have chosen to partner with companies in Mexico to take advantage of lower production, labor and energy costs. Since Mexico is a regional trading partner of the United States, automakers have unimpeded access to the North American market and can easily expand exports to regional markets. Ford’s Strengths While its electric vehicle strategy continues to evolve, Ford does have a strong foothold in internal combustion and hybrid vehicles, as well as in the commercial market. RBC’s Narayan calls the Ford Pro a “profit center” for the company. Ford’s Farley said at the Wolf conference that the Pro has a number of surprising advantages. “If you’re looking at the future of the auto industry, stop looking at FDS (fully self-driving) and Tesla and look at Ford Pro,” he said. “We haven’t reached peak Pro yet.” Still, to combat the competition, Ford continues to innovate by expanding its F-Series vehicles. The automaker is preparing to produce a second-generation electric pickup truck in 2025 and a three-row electric SUV in 2026. Jeff Windau said Ford’s emphasis on hybrids also gives it “extra leverage” to make up for the loss of the Model e. Analyst at Edward Jones. He explained that the company’s trucks and SUVs are more popular with consumers and generate higher profits for the company. To be sure, the profit potential of Ford’s electric vehicle business continues to come under pressure. Ford said it expects Model e losses to widen to between $5 billion and $5.5 billion in 2024 from $4.7 billion last year due to pricing pressure and investments in next-generation vehicles. Farley said that while he did not provide updated guidance on electric vehicle losses, gross margins will improve this year and will be close to breakeven. Analysts said that as Ford actively adopts lithium iron phosphate (LFP) batteries for its electric vehicles, lower battery costs will also help reduce the losses of electric vehicles. Narayan said this is a more “cost-competitive” option for electric vehicles and will help improve the economics of Ford’s electric vehicle manufacturing and production. Ford remains committed to its goal of producing 2 million electric vehicles globally by the end of 2026. Outlook Ford investors don’t have to worry in the short term, as Chinese EV competitors won’t enter the market overnight. Narayan estimates that BYD will pose a greater long-term threat to the U.S. electric vehicle market. “It takes time. They have to produce in Mexico, build factories and potentially face tariffs. There could be a lot of offsetting things that happen,” the analyst said. The United States is unlikely to stand by and allow Chinese automakers to enter the U.S. market through Mexico. “I don’t think any presidential candidate would let that happen in an election year,” Jim said at the club’s annual meeting on Saturday. To that end, a group of lawmakers urged the White House to raise tariffs on Chinese cars and find One way is to “prepare for the coming wave of Chinese cars” through other U.S. trading partners. The Biden administration is considering restrictions beyond tariffs on Chinese cars regardless of where they are assembled, according to a recent report from Bloomberg. Narayan also said Ford Model e’s financial position should get better when BYD becomes a competitive threat in the United States. Production costs will become more efficient, making Ford’s electric vehicle products more competitive and potentially profitable. Edward Jones’ Windau also highlighted the industry’s ongoing “long transition period from internal combustion engine vehicles to electric vehicles.” The slowdown in the growth of electric vehicles in the United States does not bode well for electric vehicle companies, and it will undoubtedly have a negative impact if BYD wants to compete in the U.S. electric vehicle market. The analyst noted that hybrids are “increasingly popular.” But this is where Ford can gain traction. (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’ll get Jim Cramer receives trade alerts before placing a trade. 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The logo of automaker Ford is photographed in Inwood, New York on February 5, 2024.
Charlie Triballo | AFP | Getty Images
forget TeslaThe real contenders for electric vehicles are low-cost Chinese automakers.That’s it Ford CEO Jim Farley recently told Wall Street. He said he had a plan because an electric car manufacturer wanted to break into the United States.
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