Cars, SUVs, and pick-ups are about to become more affordable. The reason for such good buyer news is that Ford is moving to cheaper vehicles.
When big players aim for lower prices, most other manufacturers will have to do the same to avoid falling sales. And if new car prices are falling, you can bet many used cars will also see lower sticker prices.
Prices have already been flagging, and the Ford announcement suggests the trend will continue. For example, the Kelley Blue Book reported in August that vehicle prices were 3% lower than in December 2022 and that manufacturer incentives reached nearly $3,400.
Ford is changing with the times. It described itself in July as the “No. 1 gas, No. 2 electric and No. 3 hybrid vehicle brand in the U.S.” That’s impressive. What’s also impressive is that the massive old-time auto manufacturer is losing out to Tesla.
In 2023 Ford had annual sales of $176 billion and a net income of $4.3 billion. Tesla had 2023 sales of $96.77 billion but generated $15 billion in net income — better than three times as much net income from far smaller sales. More remarkably, Tesla enjoyed such results despite lowering prices.
“Tesla sales jumped during the last three months of 2023,” reported The New York Times in January, “after the carmaker slashed prices and customers rushed to take advantage of tax breaks on electric vehicles — provisions that will be harder to come by in 2024.”
In 2024 Tesla again reduced prices on three of its five models.
The stock market has taken notice. In August, Ford stock had a market cap of roughly $43 billion versus $700 billion for Tesla.
Ford said in August that it will change the “company’s North America vehicle roadmap to offer a range of electrification options designed to speed customer adoption — including lower prices and longer ranges.”
It added that “today’s electric vehicle consumers are more cost-conscious than early adopters, looking to electric vehicles as a practical way to save money on fuel and maintenance, as well as time by charging at home. This, coupled with scores of new electric vehicle choices hitting the market over the next 12 months and rising compliance requirements, has amplified pricing pressures. These dynamics underscore the necessity of a globally competitive cost structure.”
Translation: There are only so many buyers who can afford luxury prices. Auto manufacturers need to offer vehicles at lower cost or lose market share.
While the government has pushed electric vehicles, the public has shown a growing interest in hybrids, vehicles with far better mileage than traditional internal combustion engines and superior ranges when compared with electrics. In the first quarter, according to Experian, there were 3.6 million electric vehicles in operation versus 8.7 million hybrids.
Ford has read the tea leaves and announced that it’s cutting electric car investment by about 25%.
Chinese Imports
While Tesla dominates the US electric vehicle (EV) market, a major overseas competitor is BYD, a Chinese company.
“China now has three of the world’s top 10 EV manufacturers,” said the Motley Fool in July, “but you won’t see many of their cars in the United States or the European Union. Both have recently imposed hefty tariffs on EVs made by Chinese companies.”
The US raised the tariff on Chinese electric vehicles this year from 25% to 100%, citing “unfair trade practices”.
Chinese manufacturers can sell cars cheaply abroad because they’re extensively subsidized by their government. Chinese vehicles can thus be sold at a lower price point if allowed to compete in US and European markets without tariffs.
Domestic auto plants would close, and with them thousands of supplier factories. The job losses would be huge.
In other words, traditional auto manufacturers must deal with Tesla today and state-backed foreign rivals in the future. Ford, for its part, is adopting a market strategy now to survive both realities.
Ford’s approach will mean broadly lower prices for cars, SUVs, and pick-ups. Other manufacturers will have to follow suit if they are to successfully compete. For vehicle buyers, such competition will hold down prices, a good result.