Ford’s recent launch of the Focus Electric, and the upcoming launches of the Fusion Energi and C-MAX Energi plug-in hybrids, are major milestones for the American EV industry.
The Focus Electric claims the title of the only pure EV currently available from the Big Three US automakers, and the Fusion Energi and C-MAX Energi will mark the first time an American company adds plug-in hybrid options to some of its most popular models.
For Ford, the new powertrain choices are part of a larger story – a story of an incredible corporate turnaround.
In 2006, the company was out of cash, sales were dropping, and customer satisfaction was abysmal. New CEO Alan Mulally came on board with a mandate for serious change, but just as he was beginning to get a handle on things, the financial crisis hit, decimating sales and freezing up credit markets.
To the amazement of almost everyone, Ford not only survived – without a government bailout, thank you – but thrived, and today it’s one of the most profitable automakers (see our review of the new book, American Icon).
One thing that was obvious to Mulally’s team was that the company needed to become more responsive to its customers’ needs – buyers were demanding more fuel-efficient models, and Ford’s lineup was still heavy with big trucks and SUVs. The company decided to develop a new family of fuel-efficient cars, and to build them on a couple of common platforms in order to minimize costs and maximize flexibility. The resulting “Power of Choice” lineup includes hybrids, plug-in hybrids and our cover girl, Ford’s new Focus Electric.
On May 22nd, 2012, Moody’s Investors Service became the second ratings agency to upgrade the credit rating of Ford Motor Company and Ford Credit to investment grade, a move Fitch Ratings made in April.
The upgrade released Ford from the final restrictions of the loan terms they entered into back in 2006. In a shrewd attempt to rebuild without federal intervention, the company leveraged all of its assets, including the rights to its iconic blue oval logo, to borrow $23.4 billion.
“Five years ago we used all of our collateral to borrow money to transform our Ford, including the blue oval, and the action today is a tremendous proof point or milestone that we are creating an exciting, viable, profitably growing company based on the strength of our products and the fact that we have now repaid our loans and we are now operating at investment grade.”
Ford President & CEO, Alan Mulally
It sounds like a rare success story for both free market capitalists and EV advocates, right? Well, not everyone is convinced just yet. We who write about EVs are well aware that automakers don’t share our love for all things electric. They’re happy to sell any kind of vehicles that people will buy. In this Year of the Electric Car, everyone is talking about EVs, but some in the industry (and quite a few in the press) regard electrification as a passing fad, like tail fins, and have no intention of making a serious commitment to it.
The auto industry has a long history of developing and hyping new vehicles, then failing to make the sustained effort needed to make them successful. They’re quite capable of building a new model just to comply with the latest government regulations, then killing it once the political winds shift (alas for GM’s martyred EV1). Given the history of EVs, we’re bound to call out any automaker that fails to live up to its hype, and some of Ford’s statements and actions have fueled suspicion in the EV media.
In an interview with USA Today back in April, Ford’s global marketing chief Jim Farley said, “The marketing of the Focus Electric is to people who buy electric vehicles, not to you and me. We’re focused on the people who buy them.” Statements like this are guaranteed to raise the hackles of EV partisans.
Citing Ford’s vague and timid sales projections, Voelcker told us that “industry insiders I’ve spoken with [are] almost uniformly skeptical that Ford is committed to pushing the Focus Electric much beyond what it needs to sell to comply with California zero-emission vehicle requirements. Ford may be positioning itself to be a fast follower, which could be a sensible strategy. But there’s a disconnect between the claims about how great the Focus Electric is and the actual plans that Ford appears to have for the car.”
No one is knocking the Focus Electric itself – its specifications are, if anything, a little better than those of its logical competitor, the Nissan LEAF, and we were quite impressed when we recently took one for a test drive. The skepticism seems to arise from the way that Ford is producing and marketing its plug-in products.
There’s no question that Ford is approaching the EV market differently than GM and Nissan. Ford’s Power of Choice strategy positions its plug-in models as members of a family of fuel-efficient cars, in which the powertrain is just another option. You’ll soon be able to choose a Fusion with a gas, hybrid, or plug-in hybrid powertrain, or go all the way with a Focus Electric. While GM and Nissan run standalone ad campaigns for their plug-ins, touting the benefits of freedom from the gas pump, Ford’s marketing message presents the Focus Electric as just one option among several, all of them wonderful for the environment.
Giving customers options is always good, but the criticism is that this strategy will not maximize EV sales. Given the state of battery technology at the moment, a pure EV is bound to be the priciest member of the “family,” so unless buyers fully understand the benefits (fuel savings, instant torque, silence, lower maintenance, fewer dollars for petro-dictators), it’s the cheaper gas-powered sister that people are going to buy.
A 2011 Ford survey found that 61% of Americans are “interested” in hybrids and EVs, but few will buy one unless gas reaches the apocalyptic level of $5 a gallon. Unsurprisingly, the survey also found that most consumers don’t understand the differences among hybrids, PHEVs and EVs. Are Ford dealers really going to explain those differences to buyers? Or is the Focus Electric just a marketing tool to sell the same old (sorry, the new EcoBoost) gas-burning vehicles?
Wes Sherwood, Ford’s Electrified Vehicles Manager, who is closely involved in the company’s EV marketing strategy, responded to the criticism. “In order for a revolutionary vehicle to catch hold and resonate with the general public, it needs to be marketed differently than every other car you see on the road. We learned from the marketing mishaps of GM and Nissan. Electric cars require more explanation than a 30 second Super Bowl ad can accommodate.”
Another voice that may silence the doubters is that of Executive Chairman Bill Ford. Speaking at this summer’s Go Further With Ford conference next to his personal Focus Electric (serial number one), Mr. Ford expressed his unequivocal environmentalism and his confidence in the demise of the internal combustion engine in his lifetime. Other executives echoed the top floor’s commitment to sustainability. “Bill wants it green,” said one.
To get some details of the company’s electrification strategy, we recently sat down for a nice long talk with Nancy Gioia, Ford’s Global Director of Electrification, who addressed the issue of the company’s EV commitment head-on. In her view, the critics have it backwards – Ford’s Power of Choice strategy indicates more commitment to EVs, not less.
As Ms. Gioia explained, Ford’s strategy is to take advantage of the scale and flexibility of the “platform approach” in order to make EVs affordable. “Bringing the scale of our global production process to this is unique to Ford, and is going to be key to making the [EV] business sustainable.”
Ford’s new Fusion and Focus families each use a single production line to build cars with different powertrains. The Fusion and C-MAX hybrids and PHEVs will share many of the same components, which surely makes life easier for Ford’s many suppliers as well.
In fact, the hybrids and the PHEVs are almost exactly the same except for a few beefed-up components like the batteries (the batteries used in PHEVs are larger and use a different type of cell, as PHEVs use a deeper charge/discharge cycle).
Gioia points out that building an EV from the ground up would amount to making huge investments – a new production line, training, etc. – for one specific product. EV sales are likely to be driven by gas prices, so sales volumes may fluctuate quite a lot. But even if fickle buyers flit from gas burners to PHEVs to EVs, Ford can keep the production line humming (unlike GM, which recently idled its Volt line for five weeks to let demand catch up), and its supply base can do the same, helping the business to be sustained over the long term. She believes that this represents more of a commitment to EVs than would putting all the company’s electric eggs in one basket.
Ford has hardly been behind the pack on electrification. It was the first US maker to introduce a hybrid, the 2004 Escape which was also the first hybrid SUV to hit the market, and it added the Fusion hybrid in 2010. Now it is electrifying its two highest-volume platforms. The C platform, on which the Focus and C-MAX are built, is the basis for 10 different cars, which together sell two million units per year. The midsize CD platform, which lurks inside the Fusion, has a similar sales volume.
Automakers began using interchangeable “platforms” in the 1960s. Originally, the term referred to the physical chassis of a vehicle. Today, it’s a more inclusive concept that may include not only physical components such as the floor pan, axles, suspension, steering and powertrain, but also design, engineering, and production processes. Building multiple vehicles on the same platform saves companies money, and offers maximum flexibility – production can easily be shifted among different models, and visual styling can change to follow the latest fashion.
For better or for worse, auto sales are driven by the style of the moment, and manufacturers can have a tough time keeping up. Alan Mulally is not the only one who has observed that being slow to respond to changes in the market was one of the things that got the automakers in trouble. When SUVs fell out of fashion, car makers were stuck with lots full of them, and had to slash prices to get them moving. Nobody (except certain oil-besotted pundits) wants to see that happen with EVs.
The megatrend toward market-driven production and just-in-time delivery has not escaped Detroit’s decision-makers. Metal-bending manufacturers are never going to be as fast and flexible as software sellers, but Ford’s platform-based approach brings it closer to what you might call flavor-of-the-month production, letting it ramp up volumes of whatever model is selling best this quarter.
So is the Ford Focus Electric merely a “compliance car,” built only to satisfy California’s looming mandate for zero-emission vehicles? Perhaps the better questions is, should we care if it is?
The California Air Resources Board passed regulations which require automakers to sell a small percentage of zero-emissions vehilces this year. And, suprise suprise, that’s what they are doing.
However, the real challenge is in finding a profitable way to put millions of people behind the wheel of 100 MPGe plug-in vehicles. What the industry needs is a model for making affordable EVs and a profit, a problem that won’t easily be fixed with legislation.
During the closing session of EVS 26, Bob Lutz, the “father of the Chevy Volt,” argued that the tipping point for mass adoption of plug-in vehicles will likely occur when the amortized cost of ownership is on par with standard gas burners. Ford’s Gioia struck a similar tone when she told us that Ford plans to price its plug-in hybrids at a point that will give average drivers a payback period of four years or less, based on an average fuel price of $3.80 per gallon, and including the federal tax credits. “What we find is that if you’re under a four year payback – the premium you pay on the vehicle versus the fuel savings – the customers that are willing to consider and purchase go up significantly.”
While some EV advocates seem to want the government to issue an EV with every driver’s license, we at Charged believe that the best way to spread electrification is to bring the costs down through engineering and innovation. The risk-taking automakers that brought us the first mass produced plug-in vehicles deserve to be applauded and supported. As the EV industry evolves, newcomers that bring good ideas to the table deserve the same. Ford’s Power of Choice strategy could be a key step towards unlocking affordable plug-in vehicles for the masses.