Science and Tech

Raw materials have become so expensive that the electric Ford Mustang is no longer profitable: it’s just the beginning

If car manufacturers want to survive they have to become mining companies.  Stellantis knows it well

Just over a year ago, in August 2021, the chief financial officer of Ford Motor Company came to the fore to brag publicly of what he considered to be all news: its first 100% electric SUV global, the Ford Mustang Mach-E, was a good deal. “It’s profitable,” noted John Lawler. His contribution margin is positive and profitable already today”.

One year later the situation is quite another.

During a conference organized by Deutsche Bank In June, the manager acknowledged that rising costs have undermined Mach-E profits. Not even the price increase has helped alleviate it. “We had a positive bottom line when we launched it. The costs of raw materials have annihilated it”, reflected Lawler in statements collected by Bloomberg.

The key: rising costs

The key would be in cost increase of materials, a scenario that does not facilitate the shortage of semiconductor chips. Although the company with the blue oval perceives that the demand for the new Ford and Lincoln still outbidof price increase that the Ford Mach-E has experienced throughout this year and that the company itself has managed to reduce the assembly “invoice”, the model has seen its profitability seriously affected.

Today, the multinational calculates in fact that manufacturing a Mach-E vehicle costs about $25,000 more than shaping the SUV. ford edge combustion. “We are working to achieve a positive contribution margin in all our vehicles,” he highlights.

The scenario, logically, does not only affect Ford or its electric model.

A report published a few days ago by alixpartners concluded that during the pandemic the bill for EV raw materials has doubled. And with a vengeance. According to your calculationsIn March 2020, manufacturing an electric vehicle entailed an average cost of $3,381 in raw materials. Since May, the data would already be at 8,255, which reveals a remarkable rise of 144%.

The increase is explained in part by the drift of materials such as cobalt, nickel or lithium, essential for the manufacture of EV batteries. The report also notes a significant increase in the specific costs related to electric cars. Something similar would happen with materials for combustion vehicles and materials such as aluminum or steel.

Some Ford suppliers have already announced that they will increase their prices as make raw materials more expensive and there are those who already predict that the bill for the batteries of electric cars will increase their costs up to 40% in the medium term, in a horizon of barely two years.

The positive, or at least optimistic, reading is that Ford has yet to see demand for new vehicles drop. In fact, it continues to exceed a very conditioned offer even due to the shortage of components. However, Lawler specifies, the company also detects a worrying sign. Your finance department, Ford Creditwould have detected an increase in delinquency.

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