Ford and VW Team Up To Scale EV Production
Developing a new high volume vehicle and bringing it to production is generally about a $1 billion investment, if you don’t have to build an entirely new factory as well. Add in the changes required to make the shift from internal combustion to electric drive and manufacture batteries, and those costs quickly skyrocket. Now consider that battery EVs (BEVs) are still a tiny niche of the market, with Tesla taking about half that segment, and the business case quickly evaporates. That’s why Volkswagen (VW) and Ford are the latest manufacturers to partner up on electrification.
What Is the Plan?
VW has developed a new flexible platform toolkit for mainstream BEVs dubbed MEB (Modularer E-Antriebs-Baukasten in German) that will underpin up to 70 different vehicles across the group’s brands by 2028. The first MEB model to come to market will be a Golf-sized hatchback called the ID3 in early 2020. VW plans to build millions of vehicles on this architecture in the next decade but it wants more to help spread the development costs, especially in the early years. That’s where Ford comes in.
Ford is already well along in development of its own similar BEV platform, which debuts in early 2020 as a Mustang-inspired performance crossover. That platform will be used for a range of vehicles in North America and other regions. The new partnership between the two automakers will see Ford develop a BEV specifically for the European market based on the MEB toolkit. That vehicle will debut in 2023 and has projected volumes of up to 600,000 units over several years.
Approaches to Overcoming Costs
The fixed costs associated with developing new technologies have to be spread over the production run of the vehicle. More production volume means fewer dollars applied to each unit built. Since Ford already has a BEV platform, why add another? Joe Hinrichs, president of Automotive at Ford, explains that the calculations of what platform to use are complex. While there are savings from scale, it’s more than just sheer volume of production.
“Manufacturing scale is largely regional,” says Hinrichs. “Purchasing and sourcing scale is actually also more regional than people believe and understand because the supplier’s capacity is regional.”
“There are two ways you can get engineering savings. One, you can utilize your global capabilities and volume can do that. For example, you design a vehicle in Europe, and you use it in China, US and Europe. But you can get similar type savings by tapping into some other global organizations and platforms or vehicle that you would on your own.”
As a result, it’s actually cheaper for Ford to utilize an architecture that is already tooled up and has a supply chain in the market where the vehicle will be sold than to replicate the same for its own internal platform. Guidehouse Insights’ Market Data: EV Market Forecasts report projects European BEV sales of over 1 million units in 2024, which will be spread over all of the manufacturers selling cars in the region.
When sales volumes increase, Ford may end up using its architecture in Europe as well. In the meantime, the lower parts costs available from using the VW component set are a net benefit to both automakers.
Further supporting the case for collaboration on areas like electric propulsion is the shrinking difference between these systems. With internal combustion, the engines and transmissions can significantly change the experience of driving the vehicle, but electric propulsion takes away much of that difference. Sharing those components and focusing on the customer experience in other areas can yield savings without reducing competitiveness, something that Hinrichs highlights.