Curbside Newsstand: “Mustang Mach-E Is Not Profitable And Is Not Going To Be Profitable” But Ford Is Cutting Its Price Anyway – The Model T Effect?

I run an automotive history site, but the first thing I read every morning is The industry is going through one of the greatest disruptions ever, and it’s a show I love watching unfold, in real time. Of course I’m referring to the transition to EV’s, and Tesla’s outsized impact in driving that and influencing it. Things have been quite exciting enough, but then Tesla announced massive price cuts of up to 20% on all of its models on Jan. 13.

This is a huge deal, not just because it stimulates Tesla’s demand, but because Tesla is following Ford’s Model T strategy, dropping prices because they can. Tesla has very fat profit margins ($15k gross profit per car) due to their rapidly growing production volume and their relentless drive to improve production efficiencies. Meanwhile, essentially everyone else is losing money building EVs. Seriously; but no one in the industry likes to talk about that ugly little fact any more than necessary. Marin Gjaja, chief customer officer for Ford’s EV unit did so this past weekend at an industry conference.

Ford’s price cuts on the Mach-E are significantly less than Tesla’s ($600 – $900 for the Select Standard Range versions, peaking at $5,900 for the $70k GT ), but they had to do something.

We have to compete,” Marin Gjaja, chief customer officer for Ford’s EV unit, told Automotive News this weekend at the NADA Show in Dallas ahead of Ford’s announcement. “It’s a competitive marketplace, and it just got a lot more competitive because of what Tesla did. We’re not going to cede ground to anyone.”

“Mustang Mach-E is not profitable and it’s not going to be profitable, although by trim series it does vary a little bit,” he said. “We’d like to be more profitable, and we’re working furiously to get the costs out of these vehicles.”

Ford is also increasing production of the Mach-E, to some 130k units in 2023, roughly half of which are destined for Europe, where the EV market is much larger than in the US and where Ford is desperate for product until its own VW-based EVs come on line. Speaking of Europe,  Teslas Model 3 and Model Y were the #1 and #3 best-selling cars in Germany in December (the whole market, not just EVs).

Globally, in 2022 Tesla’s Model Y was the #4 selling car (759k), just behind the Ford F-Series, and up 88% over 2021. The Corolla was still #1, but down 2%, the RAV4 was #2, down 14%. The Camry was #5, down 3%, the Honda CRV was #6, down 18%, and the Tesla Model 3 was #7, up 3%. The Model Y is currently on a trajectory to be the global #1 best selling car in 2023.

Tesla’s Austin, TX. and Gruenheide, Germany plants are still in the ramp-up phase, and Tesla projects some 1.8-2 million total production in 2023, the overwhelming majority being the Y and 3. Meanwhile, Tesla’s per unit car costs to build the Y and 3 has been dropping steadily, not just because of the sheer volume but also because Tesla is steadily finding ways to lower their production costs.

All this is to say that Tesla undoubtedly made every car company CEO very unhappy on January 13. And that unhappiness is not going to go away for possibly quite a while. Ford is already re-engineering  the Mach-E trying to find ways to simplify it and reduce costs, as is everyone else, undoubtedly. But as Gjaja said, all they can hope to do is to reduce the losses on the Mach-E.

What about Ford’s F-150 Lightning, which has the EV pickup market largely to itself for now, as Rivian’s production numbers are still very small (and don’t even ask about their profitability; they’re expected to burn through another $4-5 B in losses this year), and GM’s numbers are also still very small yet. Ford had to massively jack up the prices of the Lightning this past year, increasing the base Pro from $40k to $56k in two big steps. The XLT long range is now $81k and the Platinum is $97k. But Ford’s CFO told investors in 2022 that Ford would not see any profits on its first generation EV trucks.  The current Lightning is heavily based on the regular F-150; the next generation will be designed from the ground-up as an EV, as are Rivian,  GM’s EV trucks, and the Tesla Cybertruck, which will be going into production this year, and ramp up in 2024.

Ford keeps saying that the launch of the Lightning is “A Model T moment”. But it’s the conventional F-Series that’s generating all the profits to offset the Lightning’s losses.

In the meantime, lithium ion battery prices have actually increased over the past year, after ten straight years of declines. The global average for battery packs is up to $151/kWh, meaning that the pack in the long range Lightning (131kWh) alone costs some $20k.

Since we’re on the subject of the big changes in the global automotive market, China is set to overtake Germany as the #2 global exporter of cars (Japan is #1). A number of Chinese EV brands such as Xpeng have opened store and are selling in rapidly growing numbers. The UK and Belgium are currently taking some 70% of Chinese EV imports, but sales in other European countries is set to grow rapidly in 2023.

Chinese EVs were almost certainly going to come to the US too. BYD, the world’s second largest EV maker after Tesla, spent considerable amounts in researching and developing a major push into the US market this past year, but the IRA act has made EV imports essentially unfeasible, as all the new federal tax credits require US sourcing and production of batteries. Protectionism is alive and well; the Europeans and Koreans are quite upset too. So they’ll all start building battery plants in the US; some already are at it.

We live in interesting times, and companies like Tesla have made industry watching a whole lot more interesting yet. Will Tesla replicate the Model T’s success, through relentless increases in volume and production efficiencies, thus depriving everyone else any profits from EVs? So far, it quite apparently is.

Tesla has had a “Project Highland” (undoubtedly named after the Model T’s Highland Park factory) going for almost two years, to redesign the innards of the Model 3 and revamp its production facilities in Fremont, CA. for further cost reductions. The resulting Model 3 V2.0 is expected later this year, and will allow Tesla to either lower prices further or just bank larger profits, depending on what the market seems to suggest to Elon Musk. It’s another key chapter of the Henry Ford playbook. Meanwhile, the competition is spending mega-billions developing and building more unprofitable EV models.

Elon Musk’s personality traits do mirror Henry’s to some degree or another. Both were the richest men in the world in their times, which undoubtedly played havoc with their egos. Henry’s big mistake was  staying with the Model T for too long. Will Elon make the same mistake? Does that even apply?  By the way, Elon Musk has a Model T in his small car collection. Presumably he knows its history well.