Streamline personnel and reduce investment, Ford is forced to "slim down" in China?

Image source: Du Ge

As we all know, China's automobile industry has undergone tremendous changes in recent years, with the rapid development of electrification and intelligence, so that car companies stuck in the old era are at risk of being left behind at any time, and many joint venture brands are facing unprecedented difficulties.

Car companies such as Mercedes-Benz, BMW, and Volkswagen, although they are late in the promotion of electrification in China, can still rely on their strong basic market in China. However, for car companies such as Ford, which have gone downhill, they are more confused in the era of change.

Recently, it was reported that Ford China began to lay off employees, according to "N+3" to compensate, the number of more than 1,300. According to foreign media reports, Jim Farley, president and CEO of Ford Motor Company, said on the first-quarter earnings call on May 2 that he and Ford's leadership team had recently returned to the United States from China and would ultimately decide to reduce spending in China and focus only on the business areas that generate the highest returns.

Although Ford China responded on May 10, "China is a vital market for Ford Motor, and our unwavering commitment to promoting the sustainable development of its business in China remains unchanged", it is still difficult to ignore the fact that Ford lost $572 million in China last year and its sales in China have declined year after year.

"Slimming" in China, for Ford, may be a helpless move.

1

Losses in the electric business

In the first quarter of last year, Ford lost $3.1 billion, resulting in a $2 billion loss for the year. The first quarter of 2023 financial report announced by Ford Motor on May 4 this year undoubtedly conveyed some warmth to the outside world.

According to the financial report, Ford's revenue in the first quarter of this year increased by 20% year-on-year to $41.5 billion; Net income of US$1.8 billion, a significant increase year-over-year, turning losses into profits; Adjusted EBITDA of $3.4 billion increased 45% year-over-year.

Jim Farley said: "The effectiveness of the Ford+ growth plan is evident in the solid performance of the company in the first quarter of the company's solid first quarter. ”

It is reported that Ford+ is a plan proposed by Ford in 2021 to achieve sustainable growth in the field of electrification and intelligent networking. The plan states that Ford will invest more than $30 billion in electrification businesses, including battery development, by the end of 2025 and has committed to producing more than 2 million electric vehicles annually by 2026 and 600,000 electric vehicles worldwide by the end of 2023.

At the business structure level, in order to fully advance the Ford+ program, Ford has established the electric vehicle business unit Ford Model e, the fuel vehicle and hybrid vehicle business unit Ford Blue, and the business unit Ford Pro serving commercial customers.

In the first quarter, Ford Blue's business unit revenue was $25.1 billion and EBIT was $2.6 billion, double the same period last year. Ford Pro segment revenue increased 28% to $13.2 billion and EBIT of $1.4 billion, nearly tripling the level of the same period in 2022.

The electric vehicle business unit, Ford Model e, performed poorly, with a first-quarter EBIT loss of $722 million, the only segment of Ford's three separate business units to lose money.

As for the reason for the loss, according to Ford Motor official, it is because Ford Model e is accelerating the development of innovative electric vehicle products, Ford's breakthrough digital innovation technology deployed across its product line, and Ford's electric horse Mustang Mach-E is adjusting its production line, which has affected the quarterly sales and revenue of the electric vehicle business.

Ford is maintaining its full-year guidance for now, with Ford Blue expected EBIT of approximately $7 billion in 2023, up slightly from last year, based on concerns about pricing power and heightened global economic uncertainty; Ford Pro's EBIT this year is close to $6 billion, nearly double its 2022 earnings. The Ford Model e is expected to lose about $3 billion for the full year, due to Ford's plans to build next-generation electric vehicles and battery factories in North America and Canada.

In addition to the loss of the electric vehicle business unit, one of the headaches for Ford is that it is losing the Chinese market: for the whole of last year, Ford Motor China lost a total of $572 million.

As the world's largest single market for automobiles, China has always been regarded as a battleground by many car companies. Especially in recent years, with the intensification of competition in China's auto market, many overseas brands have shown favor to Chinese consumers. But brands like Ford, which thrived in the Chinese market in the early years, are now being eliminated.

The Chinese market is slowly losing, the electric business is in the loss stage, and Ford seems to be facing unprecedented uncertainty.

2

Why did the transformation fail?

In 2018, Ford began to seek electrification and intelligent transformation of its business in China.

Jim Farley has also said that China is now at the center of the global vehicle electrification revolution and will continue to lead the future. Ford is gaining a deep understanding of and actively participating in the competition in China's electric vehicle market, especially to provide customers with innovative and connected smart electric vehicles.

Although it pays lip service, it is slightly slow in action.

In November 2019, the Ford Electric Mach-E made its world debut, and the location was chosen near Musk's Space X headquarters, which seemed to smell a little provocative.

However, who would have thought that the time from the global launch to the delivery of China's first electric horse, the Mach-E, would span a year. On December 26, 2021, the first domestically produced electric horse was delivered.

The reason why it is named "Electric Horse" is undoubtedly that Ford officials want to continue the classic model "Mustang" in the era of fuel vehicles, so that consumers can quickly accept pure electric models with Ford's fuel vehicle memories.

But Chinese consumers don't seem to be buying it. According to the data of the Passenger Association, in the whole year of 2022, Ford's electric horse sold only 4,860 vehicles in the whole year, which is not as much as the sales of most new forces in a month, and even in February this year, the electric horse Mach-E only sold 84 units.

Of course, behind the dismal sales is the superposition of multiple unfavorable factors.

On a technical level, although the Mach-E is an electric car that Ford claims to have developed completely from scratch, including a new design and a new platform GE1. However, the platform is based on an improved version of the C2 architecture adopted by Focus and Winged Tiger, and is an "oil-to-electricity" product.

You know, compared with models based on the exclusive pure electric platform, "oil-to-electric" models generally have some discounts in safety structure, space utilization, and body flexibility. At present, domestic consumers' recognition of "oil to electricity" products is not high.

In terms of quality, Mach-E has also disappointed domestic consumers. In July last year, Ford Blue Mach Technology (Nanjing) Co., Ltd. filed a recall plan with the State Administration for Municipal Supervision to recall 228 Masdan Mach-Es manufactured from October 28, 2021 to March 5, 2022, and 547 Masdan Mach-E produced from July 27, 2021 to April 6, 2022.

The reasons for the recall include the failure to use the latest version of the powertrain functional safety monitoring system software, and overheating of the main relay due to differences in the design and parts of the main relay of the high-voltage distribution box of the power battery.

In terms of sales model, Mach-E adopts a direct sales model and establishes an exclusive electric vehicle sales network. However, in terms of the number of stores, it is far from the new forces, only more than 40. Of course, for the sales of electric horses in China, even if the distribution model is adopted, if the sales volume is too low, dealers are not willing to set up a separate showroom.

In addition, Ford's marketing model is even more elusive. In August last year, Ford announced a free upgrade of the 8155 chip for users. Supposedly this should be a good thing, but there is a prerequisite for changing chips: at least 5 friends are recommended to register for Ford Electric Horse membership, and 1 friend is recommended to complete the first test drive.

"In order to upgrade the chip, you have to help Ford sell cars." Many netizens complained.

It can be said that in recent years, Ford has indeed not been fully prepared for the Chinese new energy market, especially in the shaping of product selling points, without the "muscle sense" of Ford Mustang.

3

Forced to do subtraction

With sales declining and losses, Ford began to think about the next path in the Chinese market.

During the Shanghai Auto Show, Jim Farley said, "We're going to have to rethink what the Ford brand means in places like China." ”

Just when everyone thought that Ford would choose to take a drastic turn, Jim Farley tossed the other side of the coin: "We will conduct lower-investment, leaner, more focused and higher-return businesses in China." ”

According to Bloomberg, Ford is restructuring its business in China, with a new strategy focused on commercial vehicles, electric vehicles and exports. According to the call, Ford plans to use its business in China as an "export hub" and export lower-priced electric vehicles and commercial vehicles to markets such as South America, Australia and Mexico.

On May 10, in response to rumors that "Ford China will lay off more than 1,300 employees", Ford China responded that its unwavering commitment to promoting the sustainable development of its business in China has always remained unchanged, and the company is building a more streamlined and flexible organizational structure, investing resources in core businesses with advantages, and striving to achieve business goals in China.

In fact, for the Chinese market, Ford has not made efforts in recent years.

In 2019, Ford announced the "Ford China 2.0" strategy and put forward a new development concept of "more Ford, more China", trying to develop the Chinese local market with a richer product matrix, more avant-garde design concepts, and intelligent network technology.

At the end of 2021, Ford launched a new model, the EVOS. The selling point of the car is that it has a new generation of electronic and electrical architecture created by Ford, and even plays the slogan of global OTA upgrade capability unique to models in the same class, as well as the L2 function that claims that the intelligent driving assistance experience is not inferior to the new forces.

It's just that the results are not ideal. EVOS sold only 5,942 units last year, ranking 51st among midsize SUVs.

The reason for this can be attributed to the intelligent experience on the oil truck. Since its own differences are destined to not be comparable to the intelligent experience of electric vehicles, its proud OTA upgrades cannot bring too much incremental experience to car owners. In addition, the EVOS manufacturer's guidance price is 199,800-259,800 yuan, which has entered the field of many best-selling models of Volkswagen and Toyota, and the brand is in a competitive disadvantageous position.

Ford EVOS is just a microcosm, and the new generation of Mondeo, Sharp, Explorer and other models are facing the same embarrassment.

Of course, the most fundamental reason for Ford's failure in China in recent years is to rely on the advantages of existing fuel vehicles, and miss the best opportunity for electrification transformation, and also miss the opportunity to build an intelligent competitive highland.

Products and brands in China are not strong enough, and it is not surprising that they choose to back down in a changing environment.

Author | Ancient Moon

Source | Car Visibility

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