Ford’s (F) latest quarterly results out Tuesday were the latest to underscore the challenge facing an auto industry moving towards an electric future — high prices.
“We learned that as you scale EVs to 5,000, to 7,000 units a month, and you move into the early majority customer, they are not willing to pay a significant premium for EVs,” Ford CEO Jim Farley said on Tuesday’s earnings call.
Farley added that as subsidies for EV purchases rolled off, pricing for EVs “quickly converged to hybrids.”
“Now, Tesla (TSLA) found out this first but we were right behind that … But we learned very quickly, and I want to say that no one will be immune to this reality,” Farley said.
Farley’s comments come as Ford reported quarterly results that saw revenues and profits top expectations, while the company forecasted increased losses in its EV-focused unit as it gets more competitive on pricing.
Ford shares were up as much as 4% on Wednesday.
The conversation about pricing power — or a lack thereof — from automakers looking to turn their fleets toward EVs continues to be the biggest theme in the industry in 2023.
“I just can’t emphasize enough how important cost is,” Tesla CEO Elon Musk said back in the fall. “…We have to make our products more affordable so people can buy [them].”
According to data from Bank of America published last month, of 62 electric vehicle models currently sold in the US, only 20 have a starting manufacturer’s suggested retail price below $45,000.
“A lack of affordability, limited choice and ‘range anxiety’ are likely key reasons for the relatively sluggish mass market EV adoption,” the firm wrote.
Their findings also show “hybrid vehicles are bridging some of the gap to full EV transition, while the choice and affordability of EVs should improve from here.”
The demand for gasoline-powered vehicles has, in part, prompted energy companies to continue their oil and refined fuels production, while at the same time investing in technologies for the energy transition.
Last year, ExxonMobil (XOM) announced a lithium initiative to become a major provider of the critical metal used to make electric vehicle batteries.
“We see an opportunity to supply approximately 1 million electric vehicles per year by 2030,” said ExxonMobil CEO Darren Woods during the company’s earnings call last week. “With economically advantaged production, it has a much smaller environmental impact than today’s supply.”
The transition, at least in the US, is also not evenly distributed geographically, creating additional dynamics for the company to work through.
In the fourth quarter, for instance, sales of the F-150 truck, Ford’s best-selling vehicle, saw a 50/50 mix of hybrid or EV vehicles and internal combustion engine (ICE) vehicles. In Dallas, Farley said the split in favor of ICE vehicles was more like 85/15. “Hybrids will play [an] increasingly important role in our industry’s transition, and will be here for the long run,” Farley told analysts on Tuesday.
Ford is also betting that giving customers more choice will be crucial in the transition away from traditional ICE vehicles and towards EVs, both in terms of price and performance.
“All of our EV teams are ruthlessly focused on cost and efficiency in our EV products because the ultimate competition is going to be the affordable Tesla and the Chinese OEMs,” Farley said.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.