The Dearborn, Mich., automaker said Wednesday it is canceling plans for an electric, family-hauler sport-utility vehicle that Chief Executive Jim Farley once touted as a “personalized bullet train.” The move added to the drumbeat of news from carmakers of delayed or scrapped investments into EV models, factories and battery projects.
General Motors, Volkswagen, Mercedes and other automakers also have curbed their EV ambitions in recent months. Taken together, the walked-back plans are an acknowledgment that the big investments outlined at the start of the decade got ahead of the consumer’s appetite for a full switch to EVs.
While surveys have shown that as many as half of U.S. consumers are open to buying an electric car, their relatively high prices and concerns over charger availability are dissuading many. EV sales in the U.S. and other regions are still growing, but the pace of the increase has decelerated sharply, despite many new models hitting the market.
Delaying some EV investments will conserve cash and buy automakers time to lower their battery costs and other EV-related expenses, analysts say. The moves also will hurt major parts suppliers, which have to adjust their businesses.
The cost of batteries is so high that most big automakers are losing money on their electric offerings. Ford’s EV business is on pace to lose about $5 billion this year. In the quarter ended June 30, it lost an average of about $44,000 per electric vehicle sold.
Instead of offering the larger electric SUV, Ford said it would offer hybrid, gas-electric versions in the future as well as focus on smaller EVs. It also delayed for a second time the opening of a new EV truck factory being built in Tennessee, the largest investment in its 120-year history, which is now set for a 2027 opening, two years later than initially planned.
“This is clearly a tough decision in the short-term, but we think makes sense in the medium- to long-term given what will likely be subpar economics,” in the market for electric SUVs, Bank of America analyst John Murphy said in an investor note.
Despite the uncertain demand picture and heavy losses, auto executives say they aren’t walking away from the EV market. Two forces are prodding them to continue: toughening government emissions rules and the rapid global expansion of both Chinese EV makers and Tesla.
In the U.S., for example, new federal emissions rules adopted this past spring will in effect require a heavy dose of electric cars by later in the decade. Many automakers also have said that, to comply, they will need to introduce more plug-in hybrid vehicles, which operate in electric mode for a number of miles before reverting to a gas engine.
“If you don’t meet your emissions requirements, you can’t sell vehicles,” Ford Chief Financial Officer John Lawler said Wednesday.
Meanwhile, China’s BYD and other EV makers are leveraging the country’s low-cost supply chain—notably cheaper batteries—to offer electric models that routinely undercut their competitors on price. Ford’s news release Wednesday outlining its revised EV plans and efforts to reduce costs referenced market-share pressure from China’s EV companies.
Western automakers must find ways to compete against their Chinese rivals, while also calibrating their electric rollouts to match more tepid EV demand in their home markets, analysts say.
Betting on smaller EVs
To help reverse heavy losses on electric cars, Ford is betting on smaller vehicles to avoid the cost of the massive battery required to propel a larger SUV, like the one the company just canceled.
The focus on smaller EVs is a strategic shift from a few years ago when Ford made the F-150 Lightning electric pickup truck a core piece of its strategy. Big trucks have long been the profit engine for Ford, GM and Chrysler-parent Stellantis, all of which have prioritized pickups as they move into EVs.
Ford’s battery-powered truck generated early buzz and customer wait lists, but it has suffered from pricing pressure as consumer demand for EVs waned, and the company’s losses on electrics have worsened.
Last month, Farley explained to Wall Street analysts that EVs have scrambled a long-held economic principle in Detroit: that bigger vehicles reap bigger profit margins.
“It’s exactly the opposite for EVs,” Farley said. “The larger the vehicle, the bigger the battery, the more pressure on margin because customers will not pay a premium” over a gas model simply because it is electric.
A Ford team has been working on a new, smaller mechanical layout of battery cells, motors and other components that it says will serve as the foundation for several new EV models. The company on Wednesday confirmed that a midsize pickup truck will be among the first vehicles to use that new system.
Aakash Arora, a partner in the automotive practice at Boston Consulting Group, said more car companies in the U.S. and Europe are likely to focus on fully electric systems for small- and midsize vehicles, and hybrids for larger ones.
“That is a multidecade journey for U.S. customer preferences to shift” away from bigger vehicles, he said.
Impact on suppliers
Meanwhile, the industry’s cuts to planned EV output have sent ripples through the automotive supply base.
Magna International, one of the world’s largest auto-parts suppliers, had been gearing up to make battery trays, seats and other parts for Ford’s now-scrapped electric SUV. Earlier this year, after Ford pushed back the model introduction timing, Magna rushed to find other customers and vehicle lines to salvage its capital spending for the SUV, Chief Financial Officer Patrick McCann said.
Dana, another large supplier serving Ford and Stellantis, had expected sales of battery-cooling systems and other EV-related components to jump by about a third this year. This past month, Dana shaved that forecast, telling investors to expect minimal growth.
Timothy Kraus, Dana’s chief financial officer, said during an Aug. 7 investor call that the company still believes EVs and hybrids will become significant parts of the U.S. industry.
“Like most things that are new or disruptive, a lot of times forecasts and expectations can get ahead of some of the practicalities,” Kraus said.
Write to Mike Colias at mike.colias@wsj.com and Christopher Otts at christopher.otts@wsj.com