Ford cancels plans for all-electric large SUV in US writing off $1.9bn

[st13phil]

If Ford can't make EV numbers add up against Chinese competition, the obvious question is which western manufacturer can? VW and Renault have already scaled back their plans for EV's against a backdrop of stalled sales growth and rising costs while Chinese manufacturers continue to make rapid inroads into western markets.

On this project, Ford will initially write off tooling costs for the vehicle of $400m (£300m), plus another $1.5bn (£1.15bn) in extra costs in the future, commenting that “Chinese competitors leverage advantaged cost structures including vertical integration, low-cost engineering, multi-energy advanced battery technology and digital experiences to expand their global market share.”

If Europe and the advanced western nations persists in their net-zero march that will ban ICE sales then it looks like they'll be handing one of the world's largest industries to China, at huge industrial cost together with all the wealth it creates and the jobs it supports.

More here:

Ford writes off $1.9bn as it cancels plans for all-electric large SUV in US

Carmaker opts to produce hybrid version due to profitability concerns, citing pressure from Chinese EV competition

www.theguardian.com

 

[MikeInWimbledon]

If Ford can't make EV numbers add up against Chinese competition, the obvious question is which western manufacturer can? VW and Renault have already scaled back their plans for EV's against a backdrop of stalled sales growth and rising costs while Chinese manufacturers continue to make rapid inroads into western markets.

On this project, Ford will initially write off tooling costs for the vehicle of $400m (£300m), plus another $1.5bn (£1.15bn) in extra costs in the future, commenting that “Chinese competitors leverage advantaged cost structures including vertical integration, low-cost engineering, multi-energy advanced battery technology and digital experiences to expand their global market share.”

If Europe and the advanced western nations persists in their net-zero march that will ban ICE sales then it looks like they'll be handing one of the world's largest industries to China, at huge industrial cost together with all the wealth it creates and the jobs it supports.

More here:

Ford writes off $1.9bn as it cancels plans for all-electric large SUV in US

Carmaker opts to produce hybrid version due to profitability concerns, citing pressure from Chinese EV competition

www.theguardian.com

(Pulls “Bean counter” cap on)

You CAN count $400 million if you’ve already spent the tooling costs but….

You can NOT count $1,500,000,000 as “write off” if you were planning to spend some money in the future, but haven’t actually spent it and aren’t about to spend it either.

This isn’t EV rocket science.

 

[st13phil]

You can NOT count $1,500,000,000 as “write off” if you were planning to spend some money in the future, but haven’t actually spent it and aren’t about to spend it either.

That caught my eye too. Not sure what’s “got lost” in the journalism, but Ford have definitely said they’re writing off $1.9bn.

My guess is that they will write down the asset value of design & development costs already incurred if they aren’t “reusable”.

 

[MikeInWimbledon]

That caught my eye too. Not sure what’s “got lost” in the journalism, but Ford have definitely said they’re writing off $1.9bn.

My guess is that they will write down the asset value of design & development costs already incurred if they aren’t “reusable”.

If Ford haven’t spent that money, they can’t write it off.

At face value this sounds like sensationalist journalist nonsense.

 

[MikeInWimbledon]

And be sceptical about the money they claim to have spent.

It will include “overheads” which will have been incurred regardless.

 

[st13phil]

If Ford haven’t spent that money, they can’t write it off.

Agreed. But if they capitalise design, research & development (I’d be surprised if they didn’t) then they’ll take an impairment on it if the product is killed.

Anyway, we’re getting too far into the weeds. The main point is that they’re writing off a significant sum having killed the large battery SUV they’d been developing as they’ve decided it’s unviable in the current market.

 

[MikeInWimbledon]

Agreed. But if they capitalise design, research & development (I’d be surprised if they didn’t) then they’ll take an impairment on it if the product is killed.

Anyway, we’re getting too far into the weeds. The main point is that they’re writing off a significant sum having killed the large battery SUV they’d been developing as they’ve decided it’s unviable in the current market.

No, you can’t “capitalise” $1,500,000,000 if you haven’t spent it.

If you’ve actually spent $400 million on tooling you could have “capitalised” it as a fixed asset, but yes, you would write THAT off to P&L when you decide to throw it into the bin because you’re not going ahead with the project.

The headline should be that Ford has written off $400 million, not $1.9 billion

It’s dopey journalism

 

[Petrol Pete]

Agreed. But if they capitalise design, research & development (I’d be surprised if they didn’t) then they’ll take an impairment on it if the product is killed.

Anyway, we’re getting too far into the weeds. The main point is that they’re writing off a significant sum having killed the large battery SUV they’d been developing as they’ve decided it’s unviable in the current market.

'Current' market.. I saw what you did there , nice.

Should this not be in the 'EV fact' thread ? or is it more about finance ?

 

[st13phil]

No, you can’t “capitalise” $1,500,000,000 if you haven’t spent it.

We agree 100% on that. You can only capitalise what you’ve spent.

My point was that design and development of a saleable product is spend and that they have already incurred it. That it is spend on IP and not physical parts is irrelevant. Assuming that they capitalised that spend and didn’t write it to P&L, then they will have to take an impairment and write off the IP asset that is the already incurred, capitalised, Design + R&D spend if they kill the product. In just the same way as writing off the physical tooling that they won’t be using going forward.

It was common practice in the company I worked for that we capitalised all design and development costs associated with the introduction of a new machine and then wrote down its value on the Balance Sheet over the lifecycle of the product. I’d be astonished if Ford didn’t do similar, but it will depend upon their accounting practices.

 

[MikeInWimbledon]

We agree 100% on that. You can only capitalise what you’ve spent.

My point was that design and development of a saleable product is spend and that they have already incurred it. That it is spend on IP and not physical parts is irrelevant. Assuming that they capitalised that spend and didn’t write it to P&L, then they will have to take an impairment and write off the IP asset that is the already incurred, capitalised, Design + R&D spend if they kill the product. In just the same way as writing off the physical tooling that they won’t be using going forward.

It was common practice in the company I worked for that we capitalised all design and development costs associated with the introduction of a new machine and then wrote down its value on the Balance Sheet over the lifecycle of the product. I’d be astonished if Ford didn’t do similar, but it will depend upon their accounting practices.

Yes, Ford will be doing the same. If there's no lifecycle to the product it's a hit to this year's P&L.
,
That said, Accountants, and particularly German Accountants, will find ways of putting that cost into yearsand tax jurisdictions, where they want it to be.

 

[Bobby Dazzler]

Ford acknowledged it was struggling with competition from China. It said: “Chinese competitors leverage advantaged cost structures including vertical integration, low-cost engineering, multi-energy advanced battery technology and digital experiences to expand their global market share.”

The word “Chinese” is irrelevant to all but the “low cost” comment in the above statement.

The rest are weak excuses in my humble opinion, especially for one of the largest and longest established car manufacturers. They were just caught napping like many other western manufacturers and are now struggling to catch up.

Ford are fortunate that the US Government will actively support them to react to some of these threats. The Chinese manufacturers are even more fortunate that the Chinese Government will help them to proact, even more.

 

[st13phil]

The rest are weak excuses in my humble opinion, especially for one of the largest and longest established car manufacturers.

I slightly disagree.

EV’s might look like ICE cars, but the underlying technology and manufacturing processes annd supply chains are quite different.

This gives new entrants an advantage in that they can focus their efforts on creating manufacturing styles that aren’t compromised by what went before; the extant ICE manufacturers have to struggle with reconfiguring what were previously optimised supply chains and manufacturing facilities to do things differently.

So not napping, more turning ships around.

 

[markjay]

One other issue might be the different ROI models for ICE and EVs.

With ICE, the manufacturer can expect a steady income over a number of years from the sale of genuine service parts. Additionally, the dealer network is kept happy thanks to the income from regular servicing, and they are available to carry out any warranty work.

With EVs, there's little income from sale of service parts, and the dealers may be reluctant to carry out endless time-consuming software updates, recalls, and warranty work, for which they only get paid minimum amounts from the manufacturer, and with no significant income from servicing.

This occurred to me on Wednesday when I had a recall carried out at the Hyundai dealer, I realised that in the 3 years that I had the car I visited the dealership 5 times, but only one of them for a chargeable job (the biannual service in year 2), and even that was half the annual cost of the servicing of the Merc.

I am assuming that the dealer charged the manufacturer for the other visits (recalls and software updates), but they would typically be paid much less than they could charge owners.

The manufacturers may be seeing a pushback from their dealer network, who are expected to carry out warranty work while not having much income from servicing.

 

[Harrythedog]

Were they not flogging a dead horse anyway thinking the Good ole Boys would swap their V8’s for an electric one?

 

[Bobby Dazzler]

I slightly disagree.

EV’s might look like ICE cars, but the underlying technology and manufacturing processes annd supply chains are quite different.

This gives new entrants an advantage in that they can focus their efforts on creating manufacturing styles that aren’t compromised by what went before; the extant ICE manufacturers have to struggle with reconfiguring what were previously optimised supply chains and manufacturing facilities to do things differently.

So not napping, more turning ships around.

I slightly disagree.

Ford and the other major western manufacturers knew this day was coming, and have done so for many years. They underestimated the threat, and probably didn’t see the opportunity for what it was for them or for their new competitors.

Of the reasons cited by Ford in that article, Ford were just as able to compete with Chinese manufacturers on “vertical integration”, “multi-energy advanced battery technology” and “digital experiences”. Being a Chinese business nor a new entrant offers a real advantage in those area.

New entrants always have an advantage, but established players always have an advantage too. The winners are the ones who understand what there advantage is, and make best use of it when it’s most relevant for success.

 

[SmartAmg]

If Ford haven’t spent that money, they can’t write it off.

At face value this sounds like sensationalist journalist nonsense.

As always, concerning EVs.

 

[SmartAmg]

'Current' market.. I saw what you did there , nice.

Should this not be in the 'EV fact' thread ? or is it more about finance ?

No, it's more about, Bullshit.

 

[MikeInWimbledon]

No, it's more about, Bullshit.

And the car industry as a whole, including the usual Xenophobia about Johnny Foreigners who dare to make motor ve-hic-les using cheaper land, labour, and technology in a legal and regulatory environment that gives them greater flexibility and faster time to market.

"How dare they make smaller, more powerful and cheaper computers than IBM and DEC which are closer to customer needs and don't need dedicated air conditioned rooms for the mainframe?"

 

[markjay]

And the car industry as a whole, including the usual Xenophobia about Johnny Foreigners who dare to make motor ve-hic-les using cheaper land, labour, and technology in a legal and regulatory environment that gives them greater flexibility and faster time to market.

"How dare they make smaller, more powerful and cheaper computers than IBM and DEC which are closer to customer needs and don't need dedicated air conditioned rooms for the mainframe?"

How they dare, indeed, do it to us again:

 

[SmartAmg]

How they dare, indeed, do it to us again:

Mmmm, they've come a long way since that.