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Customer LoginsFord cancels new car plant in Mexico, to invest in electrified vehicle production in US
At a plant event on 3 January 2017, Ford announced plans for 13 electrified vehicles due by 2021 and for a USD700-million investment in its Michigan (United States) plant, while cancelling plans for a USD1.6-billion Mexico plant.
- Significance: Along with announcing broad strokes for development of 13 products with electrified powertrains to come by 2021 and a supporting investment of USD700 million in a Michigan (United States) plant, Ford announced on 3 January that it has cancelled plans to build a new plant in Mexico, although production of the next-generation Ford Focus will still move to Mexico.
- Implications: Ford's announcement provided details on several of the electrified powertrain products in which the company committed in late 2015 to invest USD4.5 billion, although the cancellation of the San Luis Potosi greenfield plant project took the headlines.
- Outlook: Ford's announcement it would no longer invest into a new plant was unexpected. Ford executives indicated the change in production plans was driven by a drop in demand for small cars, as well as confidence in the pro-growth policies indicated by President-elect Donald Trump. With demand for small cars declining, Ford says it has no need for the capacity the Mexico investment would have delivered. The threat of imposing tariffs on vehicles imported from Mexico to the United States was not given by Ford as a reason for the change.
Ford has revealed changes to its forward production plan at an event held at its plant in Flat Rock, Michigan (United States). The announcement included news that Ford will cancel plans to invest USD1.6 billion into a new plant in Mexico and that it will instead invest USD700 million in a US plant. Along with announcing production investment changes, Ford laid out a road map for its path forward in electrified vehicles (including hybrids and EVs) as well as electrified vehicle services and solutions, providing an overview of 13 of 20 promised electrified vehicles by 2020.
The Flat Rock Assembly Plant will get a USD700-million investment and 700 new jobs as Ford adds production of high-tech electrified and autonomous vehicles to the plant. The investment, to come over five years, will create a "manufacturing innovation centre". Hiring new employees is expected to start in 2018, with most added in 2020. Flat Rock will continue to build the Mustang and the Lincoln Continental, as well as add an all-new fully electric small utility vehicle and be home to the company's first autonomous product. The electric vehicle (EV) is due "by 2020" and will deliver an estimated 300 miles of range and be sold in North America, Europe, and Asia.
The announcement also confirmed a hybrid version of the F-150 pickup by 2020, with availability in North America and the Middle East. The hybrid F-150 will be built alongside other F-150s at the company's Dearborn Truck Plant, also in Michigan. Ford said the hybrid F-150 will offer "powerful towing and payload capacity and operate as a mobile generator".
Ford will add a hybrid powertrain option for its iconic Mustang pony car, with V-8 power and more low-end torque. Ford said the hybrid Mustang will debut in 2020 in North America and also be built at Flat Rock. Europe will see a Transit Custom plug-in hybrid beginning in 2019; testing of that vehicle is due to begin in 2017. In addition, Ford will launch two "pursuit-rated hybrid police vehicles". The company said that one will be built at the company's plant in Chicago, Illinois (United States), but did not confirm the production location for the second vehicle or timing for either. Currently, Ford builds police versions of both the Taurus sedan and Explorer SUV in Chicago. Both the hybrid police vehicles will be upfitted with police gear at Ford's current police modification centre in Chicago.
Ford also announced that its global utility lineup will be the company's first hybrids powered by EcoBoost rather than a naturally aspirated engine. IHS Automotive forecasts Ford will revive a hybrid version of the Escape and the comments about a police hybrid suggest the next-generation Explorer will see a hybrid, although the statement did not name which utility vehicle would see the first EcoBoost hybrid.
Along with the new electrified powertrain offerings, Ford is working on EV services and solutions, including EV fleet management, route planning, and telematics solutions. Ford has been exploring and developing solutions in these areas through its series of mobility projects and pilot programmes.
While Ford announced that it is canceling plans for a new plant in Mexico, the company also confirmed that production of the next-generation Focus will still exit the company's Michigan Assembly Plant as previously announced, "to improve company profitability and ensure the financial as well as commercial success". However, instead of going to an all-new facility, the next-generation Focus will be built at Ford's existing Hermosillo, Mexico, plant.
In a statement announcing the changes and the new electrification plans, executive vice-president of product development Raj Nair said, "While some others seem to be focused on marketing claims and numbers, we're focused on providing customers even more of what they love about their Ford vehicles. This means more capability for trucks, more productivity for commercial vehicles, and more performance for sports cars - plus improved fuel economy."
Ford will begin testing its new generation of EV technology in 2017, according to its announcement. Testing initially begins in Europe of the Transit Custom PHEV, while the company is also testing a fleet of 20 Transit Connect hybrid taxi and van prototypes in New York and several major cities in the US.
According to Reuters, Ford CEO Mark Fields made several supplemental comments on the changes at the event. On why the plant was cancelled, Fields is quoted as saying, "The reason that we're not building the plant, the main reason, is because we've seen a decline in the overall demand for small cars here in the US. There is uncertainty around trade, but the biggest issue is that we've seen a decline in the demand for small cars, so we are going to use one of our existing facilities."
Regarding consumer demand for electrified vehicles, still only a small share of the US market, Fields is quoted as saying, "We're committed. We think the industry is changing. The infrastructure's starting to build and that's why our view is within the next 15 years we'll see more electrified offerings - when I say electrified, it's hybrids, plug-in hybrids, and full-battery electric vehicles - than we'll see gasoline-powered. We want to be there for that." Fields also noted that, as adoption of these new technologies grows, the industry will take market realities into account and not "push it too fast beyond what the customer acceptance is".
Outlook and implications
Ford's announcement that it is cancelling investment into a new plant was unexpected. Ford executives indicated the change in production plans was driven by changes in demand for small cars, as well as confidence in the pro-growth policies indicated by President-elect Donald Trump. With demand for small cars declining, Ford says it has no need for the capacity the Mexico investment would have delivered. The threat of tariffs on vehicles imported from Mexico to the United States was not cited by Ford as a reason for the change.
Ford CEO Mark Fields also reportedly said, "We made this decision independently on what's right for Ford but we look at all the factors and our view is that we see a more positive US manufacturing business environment under President-elect Trump and pro-growth policies and proposals that he's talking about, so this is a vote of confidence for President-elect Trump and some of the policies that they may be pursuing."The potential for Ford to begin restructuring its portfolio, and perhaps to put less emphasis on cars and more on utilities, was telegraphed in December 2016 in comments Americas president Joe Hinrichs made in an interview with Automotive News.
In addition to the potential trade and tariff issues, the trend away from cars to utility vehicles shows no signs of slowing or reversing. Sales of the Ford Focus through November 2016 shrank 17.2% to 158,547 units, as reported by Ford. The Mustang's US sales slipped 13.0%.
IHS Automotive forecasts that 2016 production at Flat Rock, with the Fusion being phased out and the Lincoln Continental added in, will come in at about 164,000 units, down from 206,591 units in 2015. Additionally, selecting the Flat Rock Assembly Plant as a centre for excellence within Ford for electrified vehicles keeps that technical expertise nearer its headquarters in Dearborn, Michigan (United States).
Initial plans for San Luis Potosi, the plant now cancelled, included C-segment hybrid and EV products. It is likely that those projects are being evolved into the products now planned for production at Flat Rock, although this is unconfirmed. Given the preference for utility vehicles in US and, increasingly, worldwide markets, creating an EV in a utility rather than a compact hatchback or sedan could improve sales, particularly with a 300-mile range.
About this article
The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.