Ford Motor (F) has settled on Spain as the production hub for its next-generation electric vehicles (EVs). The Wall Street Journal reports that the production of EVs using the company’s technology will begin later this decade at the Valencia plant. The automaker will also start producing electric cars for the European market next year at its facility in Cologne, Germany, using Volkswagen AG (VWAGY) licenses.
Spain’s EV Production Edge
The US automaker settled on the Valencia plant for its next-generation EVs because of Spain’s low wages and abundance of renewable energy. In addition, the Spanish government has been wooing automakers with subsidies.
Germany’s higher wages and energy costs worked against Ford’s choosing Saarlouis. However, the US automaker is still committed to Germany as the headquarters for its European operations. Additionally, Volkswagen AG plans to invest €10 billion to build a battery plant in Spain, which is expected to begin production in 2026. It also plans to convert its Martorell and Pamplona plants to produce electric cars.
While Ford has struggled with profitability in Europe, a shift to electric cars could help restructure its business in the region. It has already moved production to lower-cost sites such as Turkey and Eastern Europe. Part of the restructuring also involves significantly reducing the workforce at the company’s plants in Spain and Germany. The company employs 41,000 people in Europe, with 6,000 in Valencia and about 20,000 in Germany.
Growing Demand for EVs
Demand for EVs in Europe is on the rise, accelerated by high prices at the pump. In addition, the European Parliament has already voted in favor of banning internal combustion engine (ICE) cars by 2035, a move expected to accelerate EV adoption.
Citing AlixPartners in its annual Global Automotive Outlook briefing, Reuters reports that global electric vehicle sales are expected to reach 33% by 2028 and 54% by 2035, owing to accelerated demand in major markets such as Europe. As a result, automakers and suppliers are poised to invest close to $526 billion in EVs and batteries over the next four years to address the growing demand.
However, the EV sector still faces economic and supply chain hurdles amid the transition from ICE vehicles. Some hurdles include the high cost of raw materials for EVs, which is more than that of ICE. In addition, a successful transition will require a drastic change in the operating models, not just plants and people.
Wall Street’s Take
The Street is optimistic about the stock, with a Moderate Buy consensus rating, based on seven Buys, nine Holds, and one Sell. The average Ford price target of $18.81 implies 63.9% upside potential from current levels.
TipRanks data shows that financial bloggers’ opinions are 88% Bullish on F, compared to a sector average of 69%.
Key Takeaway for Investors
Ford’s settling on Valencia as a hub for its next-generation electric vehicles is a strategic move given Spain’s low energy and labor costs. While the automaker is expected to benefit from cost cuts, it also stands to take advantage of the region’s high EV demand, fuelled by a regulatory clampdown on ICE cars.
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