The Expert Podcast

For the electric vehicle market, this is huge news. This was actually the front headline on The Wall Street Journal today about electric vehicles. Now, it may not seem like a big deal that a company is cancelling an electric vehicle model, but it really is like a canary in a coal mine. You know, companies put their money where their mouth is, and companies have to invest large amounts of money in new models and take losses if they abandon them. Well, that's what's happening here. Ford had planned for an electric SUV, and they had started development, engineering, planning, and distribution. They're cancelling that model.

The cancellation is going to cost them 1.9 billion in write-offs. What does that mean? That means that they figure it's cheaper to give away 1.9 billion today rather than what they would lose trying to sell that vehicle in the future. That's a huge indicator of their knowledge of the market. They're insiders; they're one of the largest auto manufacturers. They know what the market is, they know what people are wanting to buy at dealerships, they know what their dealers are telling them, and they know what the economies are of selling vehicles at certain price points. More importantly, they know what the demand is for certain vehicles. They've had a lot of experience selling the Mustang Mach-E for the last couple of years, and they know what the demand is, meaning it's not that much. If they come out with an SUV, they know what they're going to lose trying to sell it, so they figure two billion dollars—let's throw that away rather than chase this red herring.

That is probably one of the most clear indications of what the smart money, or the big money, thinks is going to happen with electric vehicles. There's certainly a place for them, there's certainly a market for them, and there's certainly a future for them. However, probably not in the pathway that has been envisioned up until now. People are not using these as their primary everyday vehicle. Most people are using them either for a second vehicle, as a status symbol, or as a cheaper alternative to paying for gas. But they're finding that it doesn't cost that much less—the electricity costs about the same—and it's hard to keep them charged. It interrupts their lives.

The backlash is now being realized by dealers. Dealers also had the influence of the government saying, "We're giving you incentives; you have to do this." They put mandates that you can't sell gas vehicles after 2030 or 2035. Manufacturers are now realizing that's probably not realistic, so they're cutting back on their all-in approach to electric vehicles. I suspect that there will be more pieces of news like this in the future, with less commitment to pure electric vehicles. Certainly, every manufacturer will have some EVs—that's not an issue. Some manufacturers will have plug-in EVs or plug-in hybrids, and some of them will have one or two models. Obviously, Tesla is all EVs. The market will determine how many electric vehicles are needed in the marketplace. The market will determine that based on how good they are for the price and how they can be used in life.

When something tries to come in and influence the market, like government mandates or excess exuberance about how the market's going to respond to it, this is what happens. It costs you two billion dollars, and other manufacturers are doing the same thing.

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