Ford Asks Suppliers to Engage in Cost-Cutting Strategies for Boosting EV Profitability

May 17, 2024 12:16 AM EDT

(Photo : PEXELS/Julissa Helmuth)

Ford is seeking assistance from its electric vehicle suppliers to enhance the profitability of its EV division by producing electric vehicles that can better compete with both domestic competitors in the U.S. and emerging rivals from China.

Ford: Cost-Cutting Efforts for EV Profitability

As per reports from The Truth About Cars, Ford has faced substantial financial setbacks within its electric vehicle sector. In a communication obtained by Crain's Detroit Business/Automotive News, Ford is aiming to reduce expenses in collaboration with its suppliers.

The automaker has reached out to its partners to assist in decreasing material expenses, emphasizing a shared investment in the success of the EV business where mutual gains or losses are intertwined.

The memo from Ford referenced the company's existing electric vehicles, such as the F-150 Lightning, Mustang Mach-E, and E-Transit, along with two upcoming models, the P800 electric truck and a sizable electric SUV.

In its outreach to suppliers, Ford expressed a readiness to consider all proposals for cost reduction, even those that may have been previously turned down. The letter emphasized an open approach to exploring all potential avenues for cutting costs, stating that "Everything is on the table."

The request for cost reductions from suppliers, spanning small businesses facing challenges in the EV industry to larger corporations like Magna, reflects a broader trend within the automotive sector. While Ford has scaled back its EV plans due to customer demand not meeting expectations, other major automakers like Stellantis and GM have also been aggressively cutting costs and scrutinizing supplier relationships.

This industry-wide shift underscores the complexities and risks associated with investing in electric vehicles. As per a report by Reuters, Ford has been compelled to respond to aggressive discounts and significant price reductions by rivals, including Tesla, in order to maintain consumer interest during periods of elevated interest rates.

Analysts suggest that to revitalize demand and counter competition from Chinese automakers like BYD, electric vehicle manufacturers must introduce more cost-effective options accessible to a larger audience. The report further shared Ford, in addressing a comment request, emphasized its dedication to establishing a lucrative electric vehicle enterprise.

The company stated that it appreciates the partnership with its suppliers and has encouraged them to provide suggestions for reducing costs, as per a statement issued.

Ford Competitors

While Chinese competitors such as BYD,NIO, and Li Auto face challenges entering the U.S. auto market due to substantial tariffs, American automakers like Tesla, General Motors, and Stellantis are expanding their product ranges with highly competitive pricing strategies.

According to Seeking Alpha, Door reportedly emphasized the importance of offering cost-effective electric vehicle options to customers, highlighting the need for enhanced material cost efficiency within the company's product lineup. Additionally, she requested additional proposals for reducing costs specifically for the F-150 Lightning, Transit EV, and Mustang Mach-E SUV models.

The IJR Journal Review reported that Ford has initiated a reduction in orders from battery suppliers due to the declining electric vehicle market, as indicated by Bloomberg. While this maneuver is anticipated to yield benefits in the long term, Ford will face challenges from its electric vehicle initiative. According to sources cited by Bloomberg, Ford suffered losses exceeding $100,000 per electric vehicle in the first quarter of 2024, more than double the deficit from the prior year.

This situation aligns with the overall slump in the national electric vehicle market in 2024. An analysis by The Associated Press highlighted that electric vehicle sales showed a modest growth of only 3.3 percent in the initial quarter of the current year, a notable decline from the 47 percent growth observed in the previous year.