According to Ford's Q1 2023 financial results, the EV division lost $700 million (before interest and taxes), which was 42% of the company's overall profit for the quarter ($1.66 billion). Only 12,000 EVs were sold in Q1, and the average loss per EV sold was $58,000 as a result. Ford further estimates that its EV division will lose up to $3 billion in 2023, an increase of $900 million from its 2022 loss of $2.1 billion. Given the current situation and the fact that Tesla has already built more than 17,000 Superchargers across the United States, it would be more appropriate for Ford to join Tesla's Supercharger network. This would allow Ford to reduce costs, avoid duplicating investment, and focus on developing its own EV products, such as introducing CATL technology to invest in LFP battery plants in the United States.
General Motors (GM) has been investing heavily in raw materials for its EV portfolio. Earlier this year, GM entered into a partnership agreement with lithium supplier Lithium Americas (LAC) to invest $650 million in the development of the nation's largest lithium mine in Nevada. The investment gives GM the right of first refusal and a 10% stake in Lithium Americas for future lithium feedstock. The mining site is expected to supply batteries for 1 million EVs per annum, and production capacity is expected to begin in the latter half of 2026. GM is also continuing to invest in Ultium, a new platform composed of batteries, motors, software, and other units that will help the company outperform competing traditional automakers and numerous EV startups. Given the benefits of this investment, it is no wonder that GM followed Ford to join the NACS charging camp in order to focus on its own EV platform Ultium and enhance its core competitive strengths. Incidentally, both GM and Ford have set ambitious EV sales targets. GM expects to sell 1 million EVs in North America in 2025, surpassing Tesla in sales volume, and to sell 2 million EVs worldwide in the same year. Ford expects to sell 2 million EVs worldwide in 2026. In an effort to provide a clearer breakdown of its EV division's revenue, Ford has even changed the way it presents its financial results this year. The company now reports its results on a divisional basis, not on a regional basis anymore, with Ford Blue representing its traditional petroleum fuel vehicle division, Model e representing its EV division, Ford Pro representing its commercial and official vehicle division, and Ford Next representing its next-generation technology division.
At its Investor Day on March 1 and shareholders' meeting in mid-May this year, Tesla, the world's leading EV manufacturer, not only outlined various action plans to implement its "Mater Plan Part 3" vision of net-zero carbon emissions, but also announced its enterprising goal of producing 20 million Tesla vehicles by 2030. Of all the departmental reports I reviewed, the one that caught my attention the most was the manufacturing department's proposal to adopt a radical new manufacturing process termed the "unboxed process." This fishbone method, developed by Tesla, breaks away from the traditional automobile assembly line method that has been used for over 100 years. Instead of assembling cars on a long, continuous line, the unboxed process disassembles cars into six major parts and manufactures each part separately.
Tesla was able to do so primarily thanks to the innovative 6,000-ton die-casting machine supplied by Italian manufacturer Idra Group for the Tesla Model Y and subsequently, the 9,000-ton die-casting machine that will support the production of the Tesla Cybertruck. The 6,000-ton die-casting machine used to manufacture the Model Y rear chassis eliminates the need for 70 welding processes by robot. Instead, high-temperature (1,500 degrees Fahrenheit) aluminum fluid is directly injected into the die-casting machine, where it is then die-cast into a single piece, the complete rear chassis. The chassis is then removed by a robot arm for assembly into the vehicle body. Tesla's new "unboxed process" is a novel way of manufacturing compact cars for its third chassis platform. It streamlines the actual production process and changes the human manufacturing process, resulting in a production cost that is estimated to be only about half of that of the current Model 3. Tesla's new manufacturing processes not only make its claimed sub-$20,000 price tag possible, but they also allow the company to receive up to $7,500 per car in U.S. government subsidies under the current IRA (Inflation Reduction Act).
The emergence of the giant die-casting machine has created a new manufacturing process that could put existing traditional car manufacturers at a disadvantage. Developing a new manufacturing process from scratch would be time-consuming and expensive, so the only way for these manufacturers to keep up with Tesla is to redesign their plants to accommodate the giant die-casting machine and adopt a fishbone production process. This would allow them to produce EVs at a lower cost, just like Tesla.
Traditional carmakers are facing an insurmountable challenge in reducing manufacturing costs and increasing production capacity under the current production model. Due to the significant difference in manufacturing costs, traditional manufacturers have lost flexibility in their pricing strategy for EVs. Tesla, on the other hand, has a cost advantage and sets the market price. This is why Tesla's announcement on Investor Day, March 1 of this year, that it would be introducing a new way of manufacturing at its new Mexican plant came as a shock to the auto industry.
In addition to its new manufacturing method, Tesla has also proposed a plan to replace the current manual assembly with robots. This will not only save costs, but it will also make it possible to build giant car factories with an annual production capacity of 2 to 3 million units. It is already being planned for the new Mexican factory, which is expected to be completed in three years. The current factories in Shanghai, China; Berlin, Germany; as well as Texas and Fremont, California in the U.S. will also be able to reach an annual production capacity of 1 million units, without much effort, after production line optimization and expansion. This is in stark contrast to the current situation, where traditional petroleum fuel car manufacturers consider reaching 200,000 units a year to be a major milestone.
At present, most automobile brands have their own factories to design and produce their own vehicles. However, certain automotive components must be produced locally by suppliers to meet cost efficiency requirements (such as car seats, tires, batteries, etc.) due to their size, weight, safety, and other considerations. If an existing one-stop assembly line production operation wants to double its rated production capacity, it can only add another production line to fundamentally resolve the bottleneck in production capacity. However, this would require additional factory space, especially for the coating plant and the outfitting plant.
Ergo, although EVs could theoretically be produced on a separate production line with a new production model created to reduce costs due to the enormous reduction in parts and components, traditional automakers are using existing production lines and processes, mixing EVs with petroleum fuel vehicles, or even using petroleum fuel vehicle chassis to save on development costs and ensure the adaptability of production lines. Their consideration is that there are still a large number of petroleum fuel vehicles in production. In the short term, this approach ensures that if a newly launched EV does not sell as well as expected, the factory can still produce petroleum fuel vehicles to maintain basic production rates. In the meantime, the cost of developing an EV can be immensely reduced.
However, Tesla has accumulated development and manufacturing experience over the past 10 years. It has also invested heavily in research and development and manufacturing innovation. As traditional automakers make a U-turn and attempt to close the gap with Tesla in EV design and manufacturing, the challenge will become increasingly daunting. Whether the conservative approach of traditional automakers will be acceptable to consumers who are already thinking about EVs in a new way is a serious question that these brands will need to answer, and that's what I'd like to discuss in my next article.
About the author - Kenny Liu
Graduated from Dept. of Aeronautics and Astronautics, Cheng Kung University in 1988, started his auto industry career since July 1990 after two year military service. Starting as a service engineer and a temp technician, product marketing specialist in Peugeot/ Daihatsu, marketing and dealer channel specialist in VW LCV from March 1992, then field manager in GM Taiwan from Feb. 1994, sales and service / parts head in Ford Lio-Ho from Sep. 1998 till retirement in May 2019. Kenny then started to work for JLR Taiwan as sales/service head and consultant/ lecturer. After that, he was invited to work at a Suzuki dealer of Taipei as the general manager until April 2022.