For decades, US car manufacturers have pursued global strategies based on global platforms and global supply chains. Ford’s decision to take a $US19.5 billion ($30 billion) writedown of its electric vehicle assets and investments represents a major retreat from that strategy.
In effect, Ford has decided to walk back from its plans to compete with China for the EV future of the industry and instead focus on building vehicles for the US domestic market. General Motors, which has already written off $US1.6 billion of EV investment, and other US manufacturers will inevitably follow suit.
An exit from the EV market isn’t quite what Ford has outlined.
In taking the writedown, killing off existing production of its larger EVs and its plans for more models and converting its battery-making facilities to an energy storage business the company said it would still make some smaller EVs alongside its traditional internal combustion models.
Its emphasis on new generation technologies would now, however, be hybrids, or vehicles with electric powertrains whose range will be extended by small petrol-powered generators.
Ford is bowing to a reality whose shape changed dramatically with the re-entry of Donald Trump to the White House.
The Biden administration, with the $US7500 tax credit for EV purchases that dates back to 2008 and emissions and fuel efficiency standards within its Inflation Reduction Act, had tried to create a bridge for the vehicle industry so that it could scale up to an EV future.
Trump’s One Big Beautiful Bill Act killed off most of the key elements of the Inflation Reduction Act, including the tax credits.
Trump, who has labelled climate change a “con job” and, falsely, the measures within the Inflation Reduction Act a “mandate” to force US consumers to buy EVs, has relaxed emissions standards and wiped out the fines car makers used to have to pay for breaching fuel-economy standards.
The US car makers were already struggling with the economics of EVs, where take-up in the US has been far slower than in some other markets. Ford has been losing $US5 billion a year on its EVs.
The Trump administration has effectively made the economics of US EVs, which were already fragile, impossible.
While there was a rush earlier in the year to buy EVs before the tax credits were withdrawn at the end of September, last month EV sales in the US plunged about 40 per cent.
Ford’s decision to reverse course on its strategy for larger EVs that would compete directly with China was therefore rational, as is its strategy for switching its emphasis to hybrids, where the take-up by US customers has been stronger than that for pure EVs.
As Ford’s Jim Farley has said, the market had really changed in the past few months and Ford had responded to that customer-driven shift in the market.
In future, Ford will produce a mix of internal combustion, hybrid and (smaller) pure electric-powered vehicles, with the share of non-traditional powertrains in that mix rising from 17 per cent today to 50 per cent by 2030.
The shift to hybrids emulates an often-questioned, but relatively successful Toyota strategy, which sees hybrids as a logical transition technology – one more easily accepted by customers worried about range and charging facilities than selling pure EVs.
What it means for Ford and, inevitably, GM, however, is that the old strategy of using global platforms and supply chains will be fragmented.
Ford has a joint venture with Renault in Europe to produce small EVs and other co-operative arrangements with EV component suppliers, but the scale benefits of having global EV platforms and supply chains that leverage off a vast domestic consumer base in the US will be lost.
The US manufacturers, with help from Trump, are effectively vacating the global EV market, leaving it to the Chinese companies now flooding much of the world (the US, with its massive tariff wall against EV imports, is an exception) with their cheap EV exports.
It’s not just the US struggling to make sense of the economics of EVs.
The European Union, having built some relatively porous tariff barriers against Chinese imports, has also recently had to recognise that the combination of slower-than-anticipated consumer take-up of the vehicles and its own climate-related rules were threatening to destroy its automobile industry.
In 2022 the EU had introduced a requirement that, by 2035, all new cars and light-utility vehicles manufactured in the bloc had to have zero emissions.
With the growth rate in EV sales slowing while demand for internal combustion-powered vehicles remained strong, and European car makers reducing their investments in EVs, the EU is looking to drop the ban on new internal combustion-engine vehicles.
Instead, exhaust pipe emissions will have to be reduced by 90 per cent by 2035, but will need to use low-carbon or renewable fuels and “green” steel in their vehicles to offset the increased emissions.
Without the economic of global scale and volumes, US and European car manufacturers will struggle to compete with their Chinese counterparts, who can leverage off their vast domestic customer base and the government incentives, procurement policies and the trade-in incentives that have helped drive EV sales to roughly half of all new vehicle sales.
In the EU, EVs account for about 25 per cent of new vehicle sales and in the US, clearly the laggard among the developed economies, were only about 10 per cent before Trump’s policies abruptly halved that rate.
Global EV domination is a key element of Xi Jinping’s national economic plan. China dominates the supply chains for the rare earths that are vital for EV batteries and magnets and Chinese battery technologies are world-leading.
The Trump administration has effectively made the economics of US EVs, which were already fragile, impossible.
Extreme competition in a massive domestic market with far too many competitors and significant over-capacity has bred continuous innovation and driven the rising tide of exports, which adds to China’s scale advantages.
The legacy car manufacturers retreat from pure EVs to hybrids and their internal combustion businesses makes sense in today’s context and probably for the next decade or so, but leaves them vulnerable in the longer term as the range of EVs range keeps extending and charging station networks expand.
There are a host of reasons why EVs are the industry’s future, but without the generous government-funded incentives and coercive emissions and fuel standards that were in place in the US before Trump’s return, and similar settings in Europe, there’s no financially viable transition path for the legacy car makers to ensure they are there and competitive when that future arrives.
As long as the US tariff wall against Chinese EVs is in place and Europe continues to increase protection for its own vehicle industry, the legacy car makers in those economies can survive and generate decent profits from their internal combustion and hybrid vehicles. That could, however, leave them hostage to a pure (and Chinese) EV future.
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Stephen Bartholomeusz is one of Australia’s most respected business journalists. He was most recently co-founder and associate editor of the Business Spectator website and an associate editor and senior columnist at The Australian.Connect via email.
