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The 5.5 billion reasons why Ford just made a smart decision for investors

It’s easy for companies to make dramatic claims and promises about future strategies, but when new information becomes available, they must be just as willing to adjust those promises. That’s the scenario Ford Motor Company (NYSE:F) is confronting its electric vehicle (EV) strategy in Europe, where it once made quite a dramatic claim.

But this is why the country has 5.5 billion reasons to change that strategy, and it looks like it will.

Dramatic promise?

In 2021, Ford announced its goal to sell only electric cars in Europe by the end of 2030. That was ambitious compared to the European Union’s own goal of having only electric cars sold after 2035.

But with new information available, companies must remain flexible for the health of their businesses and their bottom lines. That new information includes higher interest rates and declining demand for electric vehicles.

Ford appears to be backing away from this promise, now admitting that it will continue to sell vehicles with combustion engines beyond 2030 if there is demand for them. According to Automotive NewsMartin Sander, head of Ford’s passenger car division in Europe, said: “If we see strong demand, for example for plug-in hybrid vehicles, we will offer them.”

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Why is this good news?

Ford’s withdrawal of its European EV target is good news, because the biggest drag on the company’s profits is easily its Model e unit, the EV division. That unit is expected to lose $5.5 billion by 2024.

A source told Bloomberg that Ford is losing more than $100,000 per EV in the first quarter, which is more than double its loss from the previous year. That’s a high price to pay to sell electric cars in a difficult and competitive market.

In addition to cutting back on its targets in Europe, Ford is also doing other things to reduce those losses. Although the costs on the vehicles have been reduced, the price wars have begun Tesla’The company’s aggressive pricing tactics have largely offset any gains from cost savings.

Ford has also adjusted plans for its EV battery factory in Marshall, Michigan, and it will now be much smaller than originally thought. It has also cut spending on electric cars, postponed new electric cars, lowered prices and taken other measures, resulting in about $12 billion in savings.

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What it all means

Perhaps the biggest takeaway here is that management is no longer as arrogant and idiosyncratic as in decades past, when it ignored trends and stayed on its own path. Rather than repeat these years of mistakes, management is now clearly willing to change its approach to meet the market, and that’s great news.

That $5.5 billion in losses is reason enough to delay the EV approach and rely on the traditional business and the high-growth commercial business, Ford Pro, until the time is right to pour resources into the EV future. pumping. And this should all be welcome news for investors.

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Daniel Miller holds positions at Ford Motor Company. The Motley Fool holds and recommends positions in Tesla. The Motley Fool has a disclosure policy.

The 5.5 Billion Reasons Why Ford Just Made a Smart Decision for Investors was originally published by The Motley Fool

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