By Fitch Solutions
- Ford’s announcement that it will seek to completely electrify its European passenger vehicle (PV) range by 2030 evidences two realities; the policy environment in Europe is effective in driving industry change, and automakers will continue to find value in internal-combustion engine (ICE) vehicles in markets with a slower pace of adoption, namely the US, and developing markets with greater barriers to decarbonisation.
- The commitment to electrify (coupled with our expectation of similar commitments from other automakers over the coming quarters) will further elevate demand for EV batteries in Europe, which we expect Ford to procure from its external suppliers, rather than develop internally.
- We do not expect Ford’s USD1bn investment to transform its European headquarters in Germany into the ‘Ford Cologne Electrification Centre’ to immediately threaten operations at Ford’s other facilities in Germany, Spain, Romania or the UK.
- We expect the collaboration between Ford and Volkswagen Group to share the latter’s MEB electric architecture to be replicated by other automakers who can limit risk and reduce production costs by consolidating EV platforms.
Ford Motor Co. became the latest automaker to commit to electrifying an extent of its vehicle fleet this decade – the original equipment manufacturer (OEM) will seek to ensure that its European passenger vehicle (PV) product line-up will be zero-emissions capable by the middle of 2026 and fully electric by 2030. In practical terms, this means that Ford’s European PV range will consist of plug-in hybrid electric vehicle (PHEVs) and pure battery-electric vehicles (BEVs) exclusively after H126. On the commercial vehicle (CV) front, Ford expects its European fleet to be entirely zero-emissions capable by 2024. We note that the aforementioned announcement pertains exclusively to Ford’s European fleet. This reflects both the conducive policy and consumer outlooks that will facilitate an advanced pace of EV adoption in this region, and Ford’s awareness that internal-combustion engine (ICE) vehicles will remain revenue drivers in its home market of the U.S and in other key global export markets for the foreseeable future.
Ford will invest USD1bn to renovate its European headquarters in Cologne, Germany, with the existing assembly plant (which makes the Ford Fiesta) transformed into the ‘Ford Cologne Electrification Centre’, producing its first European-built all-electric PV in 2023. This new model will be built on Volkswagen Group’s MEB electric architecture (used by the ID 3 and ID 4), following a strategic platform sharing agreement between the two automakers. Ford has the option to build a second new model on this platform and expects to make further announcements on that front in the coming quarters. Ford expects its electrification strategy to facilitate the acquisition of greater European market share – In 2020, it accounted for approximately 5.5% of European PV sales (see chart below).
In the most practical sense, this announcement will be most impactful for Ford’s global supply chains. Though demand for low-value components used in the manufacture of both EVs and ICEs (such as glass, plastics and tyres) will remain stable, there will be exponential growth in Ford’s demand for EV batteries. The announcement excludes reference to the supply chain, though we expect Ford’s primary battery-cell manufacturing partners (SK Innovation and LG Chem) to support this electrification strategy. This opportunity is of particular significance for SK Innovation especially, given the recent ruling from the US International Trade Commission (USITC) that will ban imports of SK Innovation’s batteries to the US for a period of 10 years, following a trade dispute with rival LG Chem.
If the ruling is not overturned on appeal, SK Innovation will only be permitted to import components for domestic production of lithium-ion batteries and other parts for Ford’s EV F-150 for four years and Volkswagen of America’s MEB EV product line-up for two years. We expect the European market, which will surpass Asia as the largest regional EV market by sales in 2021, to become increasingly important to SK Innovation over our forecast period (2021-2030), and note that this affords Ford strength in negotiating favourable future supply agreements that will translate into lower production costs. Though Ford has publicly stated its intention to vertically integrate EV supply chains where possible over the long term, informed by its success in integrating the motor supply chain for the E-Transit electric van, we do not expect it to begin internal battery-cell manufacturing in a timeframe or at a rate that would support the electrification of its European CV range by 2024 or PV range by 2026.
Ford’s announcement evidences the efficacy of European policy-making in support of the decarbonisation of mobility at the national and inter-governmental levels. We expect European EV sales to reach almost 1.9mn units in 2021, representing growth of 43.8%, following estimated growth of 128.1% in 2020. This means that Europe will overtake Asia (where we expect sales to reach just over 1.6mn units in 2021) as the largest regional EV market by sales, at least temporarily. We attribute Europe’s advanced pace of adoption to a range of factors, including the endogenous, such as higher average household incomes and a broadly environmentally-conscious populous.
However, we contend that the most important and practical factors driving adoption can be traced back to policy decisions, including; purchase and tax incentives for personal consumers and business fleet renewal, investment into EV charging network infrastructure and the development of a localised EV battery supply chain. An extent of the conducive European sales environment can be attributed to the European Union (EU) and its innumerable decarbonisation initiatives, though a major non-EU market such as the UK announcing that it will phase out ICE sales by 2030 will no doubt have factored into Ford’s decision, and equally importantly, will implore other governments to follow suit. Ford’s PV sales in the UK contracted by 35.3% in 2020, reaching 152,777 units, from 236,137 previously, owing to the weak global automotive sales environment largely attributable to the Covid-19 pandemic. That being said, Ford maintained a relatively similar market share in this segment (9.4% in 2020 from 10.2% 2019). The importance of the UK and other major European markets, which will surely announce a similar phasing out of ICEs over the coming quarters and years, will doubtless have informed Ford’s electrification strategy, evidencing policy-makers’ ability to drive industry change with bold initiatives and regulation.
We expect Ford’s partnership with Volkswagen Group and its MEB electric architecture to fuel further platform sharing agreements between automakers in the future. We highlighted EV platform consolidation as a key theme for the global automotive industry in 2019. The strategy enables automakers to share the burden of risk and decrease production costs, which are important considerations given that the European EV market will be flooded with competitively priced new models over the coming years as more and more automakers accelerate the shift toward electrification. As it pertains to the impact of this announcement on Ford’s European product line-up, the future of the Focus, Puma and Kuga (which are built in Germany and Romania respectively) remains unclear, though again, Ford committed to manufacture its first European-built all electric PV model in Germany in 2023.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 (‘FSG’). FSG is an affiliate of Fitch Ratings Inc. (‘Fitch Ratings’). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.
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