A recent newsletter article by Steve LeVine in The Information highlights how Ford CEO Jim Farley sees the future of Ford as an automaker committed to building a $30,000 electric vehicle (EV). Farley believes this is the only way to compete against the growing competition from Chinese automakers. He’s putting “all of Ford’s capital toward developing smaller, affordable EVs.”
The cheaper EV strategy may be useful in driving Ford vehicle volume, but is this enough to grow Ford’s valuation? It will not! Consider that Elon Musk is now positioning Tesla as an AI or robotics company rather than just an automaker. Musk has described Full Self-Driving (FSD) technology as the “difference between Tesla being worth a lot of money and being worth basically zero.”
It might be easy to dismiss Musk, but he is correct that just offering a low-priced EV, which increases vehicle sales for an automaker, is not a strategy that drives significant incremental valuation for a car company. It seems that even General Motors recognizes this as well. Despite the safety challenges GM has faced with its own robotaxi division (Cruise), the company still plans to invest an additional $850 billion in the subsidiary. This investment could one day provide an entirely new business revenue stream disconnected from vehicle volume.
Additionally, as LeVine stated in his newsletter, there seems to be an “article of faith” for many automakers that the magic price for affordable EVs needs to be $25,000. Yet, in a Money article last year, Pete Grieve reported that just 4% of new vehicles cost $25,000 or less. Ford seems to be treating the EV category differently than their internal combustion engine (ICE) portfolio only because Chinese automakers are coming.
This is not the first time legacy automakers have faced competition from companies offering cheaper alternatives. Chasing volume with low-priced, low-margin cars is not the answer for driving company valuation.
What are your thoughts on Ford’s strategy? Is betting the company on a low-cost EV to take on the Chinese the right move? Are Tesla and GM chasing an autonomous business future that will never pay dividends? Or is it more useful to focus on both strategies given the uncertainties inherent in the automotive category?
Disclaimer
TaaSMaster, LLC is not a registered investment advisor or broker/dealer. All investment opinions expressed by TaaSMaster, LLC are from personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur.