Ford Motor Company(NYSE: F) investors can't seem to catch a break. The company faces numerous challenges in improving vehicle quality (it's led the U.S. industry in recalls for three straight years), increasing electric vehicle competition and price wars, emerging well-built Chinese EVs, and now a Japanese alliance among automakers hoping to advance their position in the global EV market. Let's dive into what's happening and how Ford plans to respond to the new challenge.
What's going on?
Most investors have rightly turned their focus to emerging Chinese companies that are well-kfunded, produce well-built EVs, and are planning to expand globally. Global automakers and governments are taking the Chinese EV ambition very seriously, with Europe introducing stiff tariffs to help protect domestic automakers while they work on bringing price and costs down to a more competitive level.
The United States is also considering tariffs, though depending on upcoming policy adjustments and potential presidential election ramifications, it's possible Chinese EV makers could produce vehicles in Mexico to avoid tariffs sooner, rather than later. But there's now a new threat, and it comes in the form of a recent Japanese automaker alliance.
Japanese alliance
Nissan, Honda(NYSE: HMC), and soon Mitsubishi Motors are creating an alliance focused on bringing to market next-generation EVs with improved software in an attempt to challenge rivals Tesla and new low-cost challengers from China. Keep in mind that as things currently stand, U.S. EVs cost on average about double that of their Chinese counterparts, thanks in part to the latter's government subsidies. Further, China accounted for nearly 62% of the 10.4 million battery-powered EVs that were produced globally in 2023.
More specifically, Nissan and Honda will research a joint software operating system in the near term with the goal of putting it into mass production after 2027 -- so there's some time for Ford to respond. The Japanese alliance will immediately begin working on electric motors and inverters before moving to e-Axles, and the long-term goal by the end of the decade is to develop common specs for EV batteries so the products can be interchangeable among the companies' brands.
The Japanese automakers are already studying how to manage supplies between companies and have reached an agreement on what models to jointly supply in specific regions, which will help drive increased scale and split/lower cost burdens.
"If companies cannot cope with the circumstances, they will not survive," Honda CEO Toshihiro Mibe said, according to Autonews. "We have to make the move right now or we won't be able to catch up. ... This cooperation between the three will be a strong weapon," Mibe added.
This alliance development isn't something investors should overlook as software operating systems for EVs are critical to catching the impressive innovations from Chinese autos -- these systems cost trillions of yen, or billions of dollars.
Ford's upcoming response
While Ford may lack a similar alliance with its other Detroit-area automakers, the company won't be completely caught flat-footed when it comes to Japanese alliances or China's expansion. In a move that looks brilliant with hindsight, Ford has had a small team working on substantially less expensive EVs for the past two years. Initially, it was a small group with top engineers and operated separately from Ford's main operations, but it has since grown and become a priority.
Ford plans to introduce the first vehicle built on its low-cost platform as early as 2026, with a price target around $25,000 -- well below the current threshold that analysts believe will open the doors to mainstream consumers and faster EV adoption.
For long-term Ford investors, these overseas threats are to be taken seriously. Management will need to execute on the development and ramp up of its lower-cost platform, and quickly, while juggling its traditional business, a blossoming Ford Pro business, and quality concerns.
It's not time for investors to panic, but it is time to pay extremely close attention to overseas developments, as the next two years could be make-or-break for the company's near-term EV growth and profitability.
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Daniel Miller has positions in Ford Motor Company. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
