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Ford Makes a Major Change

The legacy automaker has just made a decision that will affect consumers buying its electric vehicles via a lease.
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Ford  (F)  CEO Jim Farley is clear: The automaker's big rival is Tesla  (TSLA)

This means that the legacy automaker aims to become the market leader in electric vehicles currently dominated by Tesla, the manufacturer of the Model 3 sedan and the Model Y SUV. This ambition sometimes involves copying formulas that work at Tesla such as carrying out over-the-air software updates that add new features and enhance existing ones over Wi-Fi.

Over-the-air software updates introduce new features and updates to your car and software updates occur on a rolling basis, Tesla says.

Ford, which carried out a radical and in-depth reorganization this year by separating the operations of gasoline cars from those of electric vehicles, took over this originality from Tesla whose merit is to have the vehicles up to date with technological innovations and to fix bugs or any faults or security problems as quickly as possible.

The End of Lease Buyout Option

The carmaker just copied yet another change made by Tesla. Indeed, Ford has just ended the option given to Ford electric vehicle customers to buy out the car at the end of the lease.

The new change affects binding contracts or lease agreements in 38 states. It will be deployed throughout the country by the end of the year. It affects all arrangements made starting June 15. 

Ford customers who had a lease before June 15 are not affected. This means that they will still have the option to buy out the car at lease end.

The decision applies to the three Ford electric vehicles currently on the market: The F-150 Lightning pickup/truck, an electric version of the best-selling F-150, the Ford Mustang Mach-E sedan and the E-Transit van.

Ford says that this big change is due to the fact that the firm wants to manage the recycling of the battery and other materials well and also the need to make affordable the prices of electric vehicles.

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"Ford wants to make electric vehicles more sustainable, drive down the cost for batteries, and ultimately help make electric vehicles accessible and affordable for more Americans," said Margaret Mellott, a spokeswoman for Ford Credit, Ford's financial arm, in an emailed statement.

"Ford’s battery strategy includes recycling and localizing battery production, and Ford Credit’s plan for EV leasing enables customers to replace their vehicles with the newest model at lease end while keeping the vehicle in the Ford network longer so Ford can better manage battery recycling and materials."

In its $30 billion investment in electrification by 2025, Ford plans to establish a global battery center, Ford Ion Park, in Romulus, Mich., aimed at "driving high-volume battery cell delivery, better range and lower costs for customers."

Will It Boost Ford's Profits?

But Ford's decision to no longer give its electric vehicle customers the option of buying out the vehicle at the end of their lease comes at a time when the prices of vehicles and in particular electric cars have risen sharply. 

Indeed, the market for electric vehicles is benefiting from several factors: the explosion in the price of a gallon of gasoline at the pump fueled by the Russian war in Ukraine has completely given a boost to demand. The disruptions caused to supply chains by the Covid-19 pandemic have also encouraged consumers to give electric vehicles a second chance. This increase in demand, which translates into full order books, has prompted car manufacturers to increase their prices.

By withdrawing the buyout option, Ford indirectly encourages its customers to buy a new vehicle, which is beneficial for the automaker because the new vehicle costs much more.

"Starting June 15, 2022, for new leases on F-150 Lightning, Mustang Mach-E and E-Transit Van EVs, customers will be able to return the vehicle at lease end and renew into a new vehicle, or they may return the vehicle at the end of the lease," Mellott said.

Last April, Tesla made a similar decision. Elon Musk's group announced that it was no longer possible to purchase a leased car at the end of the lease since April 15. 

"All Tesla vehicles delivered on or after April 15, 2022, are not eligible for purchase. Third-party dealerships and third-party individuals are not eligible to purchase leased vehicles," the company said.