The Mach-E will make a profit “on vehicle one,” he said in a Bloomberg TV interview. “That’s surprising a lot of people because electrics have not had a history of making money. This will.”
Hackett said it will turn a profit because the vehicle “creates the passion that follows with Mustang” and prices start in the mid-$30,000 when U.S. subsides on electric cars are factored in. “So it’s attractive to customers.”
Ford is building it in Mexico because it had an open factory there and it needed to be overhauled to build an electric vehicle, Hackett said. “As we start to adopt more electric vehicles — we had capacity down there, we had no capacity in the United States — we’re going to have electric capacity here in the United States. They’ll be building other electric platforms.”
Still, it’s a high-risk gambit. The Mustang is Ford’s signature sports car, having sold more than 10 million units since it debuted in 1964 with simultaneous cover stories in Time and Newsweek. When Ford decided to abandon the traditional passenger-car business last year, it spared only one model: The Mustang.
Sports cars, pickups and SUVs represent the high margin portions of the auto industry. Many traditional manufacturers are racing to get electric SUVs and sedans into the market to compete with Tesla. Today’s Ford announcement is obviously aimed at competing with the Model 3, while Tesla’s debut for its pick-up, on Thursday, is aimed at competing with the F-150. The disruption in the auto sector is forcing massive investment in new manufacturing capacity and not all will survive. From listening to what Jim Hackett had to say about profitability, it sounds there is some creative accounting in making the claim the electric Mustang will be profitable on car one.
The bigger macro question is how quickly electric can ramp up to compete with internal combustion engines. I was in Denver Colorado over the weekend for a fencing tournament with my daughters. The price of gasoline was $2.69 a gallon compared to average of $3.92 in California. When I mentioned that to one of our Uber drivers, he stated the only time he had seen prices that high was back before the credit crisis.
That brings home the point that oil spikes lead recessions because they are a tax on consumption. California gasoline price is approaching the peaks set in 2008 and 2011 through 2014 because of additional taxation. Even a modest appreciation in oil prices would see California gas prices hit a record which at a minimum would have a psychological effect on consumers.
That further emphasises the urgency in getting more electric vehicles on the road. There will undoubtedly by additional forms of taxation on vehicles as gasoline tax totals decline but the volatility in car ownership costs would likely moderate. The greater the market share of electric vehicles the less influence oil prices are likely to have on the wider economy.
The vast majority of manufacturers are planning on phasing out internal combustion engines and aim to field fully electric product lines within five years. That suggests mass adoption before the next decade is out.Back to top