Why Is Ford Increasing Focus On Electric Vehicles?
A global electric vehicle outlook report published in 2013 suggested that the goal of 15 countries that are part of the Electric Vehicles Initiative (EVI) is to have 20 million electric vehicles on the road by 2020. [1] The report states that, as countries seek to address future energy requirements, achieving sustainable transport has emerged as an important mission. Electric Vehicles have emerged as one of the most promising solutions to increase energy security and reduce emission of pollutants. Ford Motors‘ (NYSE:F) announced on December 10th that it will invest an additional $4.5 billion in electrified vehicle solutions by 2020 to answer the increasing global trends calling for cleaner and more efficient vehicles. [2] Although the cars segment in North America along with Lincoln cars and SUVs accounts for less than 10% of Ford’s valuation, as per our estimates, focusing on trends which will drive the industry in future will ensure that Ford maintains its market share in this segment.
Focus On EVs Necessary To Stay In The Game As The Landscape Gets Competitive
Ford is adding 13 new electrified vehicles to its portfolio by 2020. It plans to commence production of the new Ford Electric late next year. The vehicle features a new DC fast charge capability that can deliver 80 percent charge in an estimated 30 minutes, two hours faster than the current version of Focus Electric. This move appears to be aimed at competing with Tesla’s Model S, which has a similar charging capability using the company’s Supercharger network. A report by Frost and Sullivan states that electric vehicles will see a surge in popularity by 2020 as consumers looking to promote environment sustainability will lean towards electric vehicles, especially in the luxury segment. [3] Several auto players are entering this space in order to capture this trend. While Tesla Motors has been successful in introducing luxury electric vehicles, BMW, Daimler and Volvo are expected to introduce new models by 2017. As the electric vehicle landscape gets increasing competitive and companies launch new models in the next five years, Ford’s focus is essential to remain relevant. As per our estimates, Ford’s market share in the North American car market will remain stable around 10% over our forecast period. Success in the electric vehicles space can potentially increase this market share by 100-200 basis points.
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China Could Drive Demand For Electric Vehicles In Future
Ford plans to expand its electric vehicles offering to emerging countries such as Taiwan, Korea and China. On the back of growing pollution concerns and government initiatives, sales of electric vehicles have surged in China. A forecast released by the China Association of Automobile Manufacturers (CAAM) predicted that Chinese consumers will buy 250,000 electric and gas-electric plug-in hybrids in 2015 which is more than 200% higher than the 75,000 electric and partially electric vehicles purchased in 2014 from domestic car makers. [4] While the electric vehicle market in China is dominated by local players, if Ford is able to capture a moderate market share in this region, it can boost its international car segment revenues.
Ford’s investment in electrified vehicle solutions is also aimed towards enhancing user experience by more efficiently organizing the technology of its vehicles. It is working on “experience-led design” which brings together marketing, research, engineering and design in a new way to create meaningful user experiences. Ford’s additional investment is aimed at capturing the growing trend towards cleaner vehicles and improving user experience. We believe this should enable the company to sustain its market share in the U.S. and international car segment.
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- Global EV Outlook, Understanding the Electric Vehicle Landscape to 2020, Iea.org, April 2013 [↩]
- Ford Investing $4.5 billion in Electrified Vehicle Solutions, Reimagining How To Create Future Vehicle User Experiences, Ford Press Release, December 10, 2015 [↩]
- Electric vehicles poised for popularity by 2020: report, Luxurydaily.com, August 2015 [↩]
- Chinese Consumers Bought Nearly 300% More Electric Cars This Year Compared To 2014, International Business Times, December 2015 [↩]