Why Ford is OK losing money in Tesla price war
After Ford Motor Co. announced price cuts on the Mustang Mach-e, industry analysts and car enthusiasts took to social media to shower the Dearborn automaker with praise. But some skeptics wondered publicly how a price war makes sense if electric vehicles being sold aren’t making a profit.
So we asked the automaker to explain the strategy in the rapidly evolving industry. On Monday, Ford announced it’s dropping the price of the 2023 Mustang Mach-e SUV by $600 to $5,900 depending on the model, which now can range from $46,000 to $64,000.
Marin Gjaja, who joined Ford last year as chief customer officer for Ford Model e after 25 years at the Boston Consulting Group, revealed the thinking behind the headlines. His comments have been edited for length and clarity.
Is Ford Model e making money?
“We are not profitable at this moment. We’ve committed to being profitable in ‘26,” Gjaja said. “We’re currently on plan. Ford, as a whole, is profitable and throwing off cash that enables us to make that investment. We’re investing in a new part of our business . ... We’re investing in new products. We will do that and we can do that.”
Is this path sustainable?
“I don’t think any business can lose money forever. We don’t plan to lose money forever,” Gjaja said. “We plan to make money and we’re working very hard to make money for our shareholders and deliver great products for our customers. What we’re doing is quite sustainable in its current form because it’s part of the path to profitability that we’ve defined. It’s $50 billion total that we’re investing and we then need to return a profit on . ...
“In this startup mode, there really aren’t that many profitable EV manufacturers in the world,” he said. “As you’re starting out, the first few years, you’ve really got to hang in there.”
Why were Mach-e SUVS priced higher initially?
“The industry is transitioning to EVS. And so we have to compete as hard as we can, move as quick as we can to develop EVS, to build EVS and then market and sell them to our customers,” Gjaja said. “”Last year ... we were struggling to scale production and
we were facing commodity crunches, so ultimately we had to adjust our price up more than we wanted to, because we had to offset the cost.”
When did Ford plan to lower Mach-e prices?
“We really didn’t have that much capacity down (at the plant) in Mexico,” Gjaja said. “We were looking ahead as this is the year we’re going to scale (up) the Mustang Mach-e. This is before ... Tesla price moves. We had plans and were shutting down the plant, literally right now, in January. That has been our plan all along. So this first principle of scale in automotive is what has been driving us. Just think about the math.”
(The plant is expected to reopen in the first quarter after production upgrades have been completed.)
How is scaling up production, selling more for zero profit OK?
“I have a factory and I can suddenly make twice as many units coming out of that factory. If I’m buying twice as many widgets from a supplier, I can get a better price,” Gjaja said. “We knew this was the year we were going to start to hit real economies of scale. That’s what you heard when we talked about going from 78,000 to 130,000 (Mach-e vehicles built per year). We think, over time, we can stretch that further. We hope.”
Is the supply chain crisis done?
“The commodity pressures are still there and there are still some challenges in the supply chain,” Gjaja said. “But we’re seeing better and more consistent performance in terms of availability. We don’t believe we’re going to lose out on capacity the way we have in
the past. You get shut down if a supplier can’t provide for you and then you can’t recover because you can’t catch back up. We aren’t seeing that.”
Is Ford jealous of Tesla love on Wall Street?
“We’re gaining ground,” Gjaja said. “I think we’re starting to get respect for the great products we have. I think people are starting to understand the way we’re thinking about our business. And I think we’re getting credit for EVS. But the proof is all in the execution.”
“We’ve talked a great game. We’re starting to show glimmers and signs that we can deliver on that,” Gjaja said. “Wall Street cares about ‘Are you delivering results?’ We’re still in the process of trying to deliver those results.”