Ford's electric car misery
When things go from bad to worse at the car company Ford
A few weeks ago, the CEO of Ford (a company that sells cars in the US) announced that the company’s earnings (or profits) had declined quite a lot. He stood with a sullen face and announced that many things had gone wrong with the company’s strategy. That he had a sullen face was not a surprise, given that he had bad news to share. Worse still - those who owned the company’s stock had an even more sullen face (if you are wondering what does owning a company’s stock mean, hold that question for a minute and I’ll explain in a bit). For now, let’s focus on sullen faces and bad surprises.
Ford’s stock price declined 13% on the day he announced the bad news (bad news often leads to stock price behaving poorly aka a child who sulks after being told the bad news that all screen-time for the month was canceled!)
What’s wrong with one of the world’s largest car manufacturers - Ford? In this week’s story on Lighter Side, we turn towards a business story for a change. It is also a story that explores the changes seen in cars on the roads of America and everywhere else in the globe. Hope you enjoy reading it!
What does owning a company’s stock mean
It’s sort of like owning a small part of the company itself. For e.g. imagine a company worth $100 million. Not a lot of people have $100 million lying around in their bank to buy the whole company. But many will have $1 or even $100 with them. So companies break their full value into tiny parts called stocks or shares, so many people can buy their shares / stocks. In this example, let’s imagine a company breaks its $100 million value into 1 million shares. That means, if you buy one share, you pay $100. That share price is what changes when good or bad news about a company comes in.
Ford’s problem 1 - too many warranties
When people buy cars, they expect them to run smoothly on roads. They expect the steering wheels to listen to their command. They would like the brakes to bring the vehicle to a halt especially if there is a herd of cows slowly crossing the road. They would definitely like the doors to open when asked to. Most cars adhere to these standards. However, some may decide to act truant. For example, some Ford cars recently refused to turn on when the driver pressed the ON button (i.e. the engines failed). Ford was forced to recall these cars (or ask customers to return their cars to the nearest dealers). Customers got a temporary car till the dealer was able to fix the engine issues and return the car. Two of their models called Escape and Maverick were recalled between 2020-2023 owing to engine failures.
In another instance, Ford’s model called Bronco Sport was found to leak fuel. Before any serious damage occurred to any customer, Ford identified this issue. But it was again a messy affair when the company had to recall the vehicles and fix all of these models with new fuel injectors.
In each of these instances, the customers who buy the car often pay a small warranty cost each year. Ford assures them that in the event of damages, ALL costs would be borne by it (while Ford crosses its fingers and hopes that its cars would be flawless and would never come to it for repairs). Most of the time, this works well for both parties - the customer pays a small price and goes home singing a happy tune, and Ford pockets this small price and hopes to never have to repair the car.
Except, when all hell breaks loose. Like it did with the engine failure and the fuel injector failure I wrote about earlier. Ford has had to spend in the billions of dollars in recalling and fixing its damaged vehicles. These costs have ballooned out of hand. This has been one of the main reasons for the declining profits of Ford recently.
What next? Ford CEO has appointed a highly experienced hand to supervise and run the company’s quality control department. If Ford can check every single car thoroughly before it even gets out of its factory, the company reckons that it won’t have to ever repair these vehicles and bear these high warranty costs. That’s why Ford is betting big on this man called Josh Halliburton who has come on-board to look over its quality department with a keen and thorough eye.
For'd’s problem 2 - Bet on electric vehicles isn’t going right
Ford has been announcing for a while that it wants to bring a few eco-friendly car options to the world. The company wants to be seen doing the right things (not just manufacture black-smoke spewing, petrol consuming, climate unfriendly vehicles). Alas! other electric car companies seem to have gotten there faster than Ford. For example, the largest electric car maker in the US is Tesla - and Tesla’s cars are deemed better by many US consumers. As a result, Tesla has sold more than 1 million electric vehicles in 2023. Whereas, Ford managed to sell only ~72,000 electric vehicles in 2023. Worse still, Ford faces competition from Chinese electric car makers as well. China’s BYD is the world’s largest electric car maker and this company managed to sell more than 3 million electric vehicles in 2023.
As you can see, Ford’s not been able to break into the stronghold of electric vehicle makers. This means that not a lot of money is coming in from sale of these electric cars. But it has been spending a lot of money on research and development of cars (Ford spends about three times as much money on research as Tesla does). You can see how Ford isn’t able to make a lot of profits - not many cars sold BUT lots of money spent on researching and developing!
What’s next - miracle or magic? Ford’s got to come up with a battery for electric cars that’s far better AND cheaper than Tesla and BYD. That’s a miracle that can help the company improve its electric car sales. We’ll keep a close watch if a magic wand comes into the hands of Ford CEO.
Podcast this week
How often can I have french fries in a week?
What food helps me grow taller (and brag about my height with my friends)?
Why are parents annoying and focusing on healthy food all the time?
Two kids throw a bunch of questions to a food technologist Sarika Singh in this podcast episode. Click below to listen to her answers (hint: she’s cool with kids having a little bit of junk food)
Stories you’ll find interesting
How did Sudha Murthy turn into a writer?
The story of vanishing lakes in Bengaluru
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