Ford’s newly revealed Mustang Mach E will start producing profit “on vehicle number one,” said Ford CEO Jim Hackett in an interview with Bloomberg after Ford’s Sunday Mach E reveal event.
Hackett specified that the car’s cost of production will be lower than the revenue gained from its sale (“contribution margin”) right from the beginning. The vehicle line will still have to cover the initial cost of R&D before it becomes “profitable” for the company, but this is true of any vehicle line.
Hackett mentioned that this should surprise many people because “electrics have not had a history of making money.” We’ve heard this from other manufacturers before. Many make the excuse that they’re dragging their feet on electric cars because “nobody’s making them profitably.”
But in fact, Tesla turned a profit even on the original Roadster. Since Tesla has grown rapidly since then, the positive margins they make on their cars, along with as much cash as they could raise, has gone back into growing the company, which is currently running quite profitably.
Even other vehicles that do produce a per-unit “loss” for their company are often worthwhile projects for various reasons. If they weren’t, the companies probably wouldn’t be selling them.
One, electric cars help bring a company’s fleet emissions down, which protects them from regulatory penalties for harming public health (which is better for society, obviously).
Two, these programs help companies position themselves strategically for the inevitable electric future. Long-term planning is important.
So all this talk about profit is a little superfluous, but it’s good to see Ford dispelling the myth that EVs can’t be made profitably. The fact that the company has taken this car from concept to production in less than three years, and is going to be able to do so profitably, is extremely impressive.
Hackett was also asked why the Mach E will be built in Mexico. This is interesting, as we recently reported on Ford’s union agreement that stated that “Mustang derivatives” would be built in Flat Rock, Michigan. We assumed at the time that this included the Mach E, but apparently Ford will take some time to scale up their electrification efforts in US plants.
They’re going to need to move quickly, since Hackett stated in the interview that Ford plans to be carbon neutral by 2030. The company has big plans to start selling more electric cars in China and Europe in addition to the US.
When manufacturers claim that nobody is making electric cars profitably, they often discount Tesla by saying that they’re engaging in some sort of voodoo math (also known as “growing the company at a rate of 50%-plus per year, which tends to be costly”).
But speaking of voodoo math, manufacturers and media often come up with voodoo math of their own to convince themselves that EVs aren’t turning a profit. Just a couple of months after the original Volt came out, a headline stated that Chevy was losing $40,000 per vehicle, which was an absurd amount.
Of course, the claim itself was absurd, because it divided the cost of all the vehicle’s R&D over just the first few thousand units. Every vehicle (and indeed, basically every “widget” of any type) ever made has had some amount of R&D cost baked in, which has to be paid off before you start making money. Only after you’ve been selling the item for a while do you manage to bring in some profit.
Fiat’s former CEO Sergio Marchionne made similar claims about the Fiat 500e, which he said lost $14,000 per car sold. If this was indeed the case, why did he keep selling them? Perhaps because his company would have been less profitable if he hadn’t sold them, since he would have been penalized (even more) for running the least-efficient automaker in the US — which means that the 500e didn’t actually lose his company money after all, in a holistic sense.
Incidentally, Marchionne also said Fiat could have a Model 3 competitor on the road within 12 months if the car turned out to be profitable. Marchionne isn’t around anymore to hold back his company’s EV efforts, but unfortunately we still haven’t seen that car, despite Tesla proving the Model 3 could be profitable just over 12 months ago.
I’d like to offer a different reason, though, as to why Ford is able to make this car profitably: because they’re actually trying.
When other manufacturers state that they can’t make cars profitably, it’s usually because they dump a bunch of money into an incompetent Frankenstein of a car. They wedge expensive, low-volume components into already-built vehicles, with all the design and packaging compromises that go along with that.
Then, surprise, the cars are unattractive to consumers, and the company doesn’t bother to try selling them anyway. They wonder why nobody wants the car they barely put any thought into making, then pour some token money into greenwashing campaigns in one state only (California), which happens to be one of the more expensive media markets in which to do that.
And the cost of all that R&D and marketing gets split up among the few thousand cars they barely scrape by selling, because they don’t actually try very hard to sell the car in the first place. No wonder they “don’t make money” on the cars; they seem to be actively sabotaging their ability to do so.
It’s not just about electric cars, it’s about any change in the auto industry whatsoever. They’re so obstinate about the evolution of the auto industry that they’ll tank their own efforts by lobbying against one change, then lobbying against the change they lobbied for, then changing their mind a third time. Thankfully Ford, BMW, Honda, and VW all finally came to their senses and embraced the obvious change that’s coming.
Toyota is a pertinent example in this realm. They claim to be developing many EVs, but run science-illiterate anti-EV ads. Then they lobby against fuel economy standards in contrast to their false “green” image. They’re doing their best to make their own job harder, merely because they are stubborn and would rather that no change ever happen in the automotive industry.
So many of the major automakers would rather just keep making the same cars, with a 1% improvement in some meaningless metric every model year, and never actually be forced to step off the impossibly narrow path they’ve built for themselves over decades of complacency.
And that’s the problem with the whole auto industry in a nutshell — except, apparently, Ford. By actually putting some effort into making a good car, with a good brand attached, and thinking ahead about marketing and production and sales and customer support, they’ve managed to come up with a car that they can be confident will work well for them, and that consumers are responding well to, and will even make them some money.
Much remains to be seen, as there’s still a lot of ground between now and late 2020 when this car hits the road. But it looks like Ford has picked another great idea to steal from Tesla: the idea of actually trying to make a good car. Who would have thought?
FTC: We use income earning auto affiliate links. More.