'Existential Threat': How China Forced Ford To Get Serious On EVs

Ford's CEO and other executives got a rude awakening about how advanced China's EVs are over a series of visits to the country over the past 18 months, the Wall Street Journal reports. 

Ford is currently pushing back several new electric models and turning one large three-row SUV into a hybrid instead. 
Still, it hopes to fend off China's EVs for a few years until it can get caught up on both technology and the cost-cutting needed to be competitive. Can it succeed? 

There are two prevailing ways to look at Ford's recent decision to cancel an electric three-row SUV, delay an electric pickup and focus more on hybrids in the immediate term. The more cynical surface read is that Ford is conceding, as many headlines have put it, that "EVs just aren't working out" and that hybrids will be a better fit for American buyers anyway.

The other way to read this move is to admit that there are bigger forces at work than just what we see on American roads, and Ford isn't abandoning EVs at all—only giving itself more time and effort to come up with electric options that are truly competitive with the stuff we see coming out of China lately. And that tariffs on Chinese-made EVs will hold them at bay in our market until Ford can deliver more advanced and hopefully profitable EVs in the back half of this decade. 

I hope for Ford's sake that it's the second one. But it's still a bold and dangerous bet with no guaranteed chance of success. 

I do think Ford understands the stakes, and the statements by CEO Jim Farley and other Ford executives in a recent Wall Street Journal story help drive that home. After all, Farley seems to get how much Ford—as well as General Motors and the remaining Chrysler brands—have lost market share to so-called foreign competitors since their heyday in the 1960s. “I’ve seen this movie before" is how Farley describes potential competition from China in that story; the whole American auto industry once scoffed at the likes of Toyota and Hyundai. And look where that got them.

The WSJ story is worth a read in full, but it describes the wake-up call Ford got over a series of visits to China in the past 18 months. Here's how Farley broke the news to a board member after one such trip: 

In an early-morning call with fellow board member John Thornton, an exasperated Farley unloaded. 

The Chinese carmakers are moving at light speed, he told Thornton, a former Goldman Sachs executive who spent years as a senior banker in China. They are using artificial intelligence and other tech in cars that is unlike anything available in the U.S. These Chinese EV makers are using a low-cost supply base to undercut the competition on price, offering slick digital features and aggressively expanding to overseas markets.

“John, this is an existential threat,” Farley said. 

Presumably during that same visit, Farley—who's as much a true "car guy" as any top executive in the industry and can genuinely handle himself on a race course—got to taste the local flavor for himself. And that was the kind of "a-ha" moment that no CEO wants to get about the competition: 

In early 2023, Farley made his first trip to China since it reopened after years of pandemic restrictions. He sat in the driver seat of an electric SUV from Ford’s longtime joint-venture partner, Changan Automobile, which for years had been a middling player in China, its market share hovering around 5%.

Farley, who races vintage cars and has an encyclopedic knowledge of car models, thrashed the EV around Changan’s sprawling test track in central China, as Ford Chief Financial Officer John Lawler rode shotgun. Afterward the executives sat silently, stunned at the progress Changan had made. The ride was smooth and quiet and the cabin upscale, with easy-to-use technology.

“Jim, this is nothing like before,” Lawler told Farley after the drive. “These guys are ahead of us.”

Ford certainly deserves credit for being first to market with the first all-electric pickup truck and bold experiments like the Mustang Mach-E. Those moves have made Ford the top-selling single brand for EVs behind Tesla (although lately, the Hyundai Motor Group has surpassed it in EV sales when all three of its brands are counted together.)

It's also shown a penchant for outside-the-box tactics to entice people into its EVs, like being the first to offer access to Tesla's Supercharger network and kicking off the NACS revolution here in America. 

But Ford's EVs are getting crushed on costs. They still aren't profitable and the EV division, which Ford breaks out separately from its gas car and commercial units, will probably eat about half of its projected operating profit this year. 

That's to be expected as any automaker ramps up its EV and battery supply chain, something that's largely very different from gas cars. But Wall Street isn't necessarily giving Ford the pass it wanted there. And with EVs, the most important component is the most expensive one: the battery. China still owns that supply chain almost completely. While America is making moves to catch up—thanks in large part to incentives from the Inflation Reduction Act—China's head start is massive. Furthermore, the intense "survival of the fittest" competition among automakers within China has driven incredible advancements in cost reduction.

In other words, it's clear that as good as the Mach-E and Lightning are, they're first-draft attempts at EVs that just won't cut on the international markets or if Chinese EVs come to America. “Executing to a Chinese standard is going to be the most important priority,” Farley is quoted as saying in the story. 

That story also says the CEO sees Chinese EVs as "an immediate threat in Europe and other overseas markets, and a long-term risk in Ford’s profit engine of North America, regardless of protectionist measures." I do agree with that; anyone who says "well, Chinese cars can't come here because of the tariffs" needs to start thinking more than five minutes into the future.

Or five years, more realistically. As the Chinese automakers scale up in Mexico, it feels like fending them off forever with just tariffs and regulations will be an impossible task. 

The story closes with Farley and Doug Field, an Apple and Tesla veteran who leads EV and tech efforts at Ford, scratching their heads on how to cut $800 in cost out of an electric prototype without making the car, in their words, "really shitty."

That's what China's automakers have already figured out. Ford hopes to get there eventually too. But it's now a race against time to do it.