Impact of Ford's Electric Vehicle Launch on US Macroeconomics

This report provides a comprehensive macroeconomic analysis of Ford's strategic shift towards electric vehicles, focusing on the launch of new products like the Mustang Mach-E. The study examines the impact of this launch on key economic indicators, including GDP, foreign exchange rates, aggregate demand and supply, unemployment, and inflation within the US economy. It delves into the interplay of government policies, household behavior, and business decisions in the context of resource allocation and market mechanisms. Furthermore, the report assesses the effects on trade, productivity, and overall economic growth, considering factors such as price elasticity, scarcity, and the business cycle. The analysis also incorporates discussions on Keynesian and Classical economic principles, providing a holistic understanding of the macroeconomic implications of Ford's electric vehicle initiative. The report concludes with an evaluation of the outcomes and implications of Ford's strategic move in the evolving automotive industry, with emphasis on the role of government incentives and market dynamics.

Running head: MACROECONOMICS
Macroeconomics
Name of the Student
Name of the University
Author note

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EXECUTIVE SUMMARY
The aim of this study is to analyse a new product launch by a US firm for reviving its ailing
business. Here, the new product launch such as electric vehicle by the Ford is analysed. In order
to revive the performance of the company, Ford shifted its focus from ailing gasoline based
vehicles to electric vehicles. This paper examines the effects of the GDP, foreign exchange,
aggregate demand, unemployment, aggregate supply and inflation on the new product. This
paper also emphasizes on the effects of the new product on the trade, productivity and economic
growth of the US.

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Table of Contents
Introduction......................................................................................................................................3
Interaction of resources between government, households and business....................................4
Scarcity, price elasticity, foreign exchange, gross domestic product (GDP) and market
mechanisms..................................................................................................................................6
Productivity and trade................................................................................................................10
The business cycle, unemployment and inflation......................................................................12
Keynesian and Classical economics and aggregate demand and supply...................................15
Conclusion and outcome................................................................................................................16
References......................................................................................................................................18

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Introduction
Ford Motor Company is one of the largest multinational automakers of the United States
on America (USA) (Ford.com, 2020). It is also known as Ford. Moreover, headquarter of the
company is situated in a suburb of Detroit named Dearborn of Michigan. It was established in
16th June 1903. The products offered by the company are commercial and automobiles vehicles
and luxury cars. The commercial and automobile vehicles are sold under the brand Ford. In
addition, the brand under, which the luxury cars are sold is Lincoln. The organization also
possesses shares in other companies such as Aston Martin, Troller and Jiangling Motors. It was
second best performer in the US automobile market after the General Motors in 2015 (Noori &
Tatari, 2016). However, higher market competition and various economic issues lowered the
profit level and share price of the company. As a result, it slashed global workforce in order to
solve the problem of the declining profit level. To enhance the earnings in 2018, it went through
a cost cutting measure, where it planned to reduce cost by 3 billion US dollars.
Furthermore, it also planned to curtail cost of salaried workforce by almost 10% in North
America and Asia. On 25th April 2018, the decreasing profitability and demand of the passenger
cars forced the company to discontinue its passenger cars in the market of the North America
over the next four years. However, the service of the Mustang was only continued in the North
America market (Yang et al., 2016). As of 2018, the company generated revenue of 160.33
billion US dollars. Thus, the company also shifted its focus towards the emerging market of the
electric vehicles to increase profitability and market share in the industry. Electric vehicle
industry is one of the vital industry of the automobile sector. The vehicles produced under the
electric vehicles are powered with electric motors. Thus, these are not gasoline based vehicles,

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which helps to save energy and reduce the greenhouse gas emission in the environment. Ford
planned to launch an all-electric SUV by 2021 named Mustang Mach-E.
Interaction of resources between government, households and business
Government took several initiatives for the development of the electric vehicle industry.
Government of USA provided financial aid for the mobility industry of the USA, which in turn
helped the economy of USA to recover (Usa.gov, 2020). The sale of the plug-in electric vehicle
(PEV) had quadrupled from 2012 to 2017. As of 2017, the market share of the PEV stood at just
one percent. Electric vehicles are more environment friendly as the level of greenhouse gas
emission is much lower than the non-electric vehicles. However, there are various limitations of
the electric vehicle car, which set off its advantages. These are high initial costs and restricted
battery range. To increase the market share of the electric vehicles, manufacturers adding new
models into the electric vehicle sector.
The electric vehicle market of the US is dominated by the Tesla Inc. it is the single
largest manufacturer of the electric vehicle in the US. In 2018, the PHEV sales were 122.1
thousand units. Moreover, the growth of the PEV sales in the US was 79% in 2018
(Tradingeconomics.com, 2020). Though, Ford stood 10th on the list of the top electric vehicle
manufacturers of the US in 2018. By 2005, the company may become the second largest electric
vehicles manufacturers of the US (Cano et al., 2018). The company invested a large amount in
the research and development segment of the electric vehicles sector in recent years. In addition,
the amount of invested was maximum in expanding its fleet of electric vehicles. In 2018, one of
the model of the Ford, which placed top ten in the bestselling PEVs of the USA was the Ford
Fusion Energi.

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The new addition of the Ford in the electric vehicle family is Mustang Mach-E. It is new
version of the Mustang. The electric vehicle will be able to target 0-60 mph in the mid-3 second
range. It is an all-electric SUV. The electric and hybrid vehicles offered by the Ford loaded with
many advanced features. The main feature of this range is advanced fuel saving technology. The
fuel saving technology make it special and attractive to the customers. The Mustang Mach-E is
also featured with zero emission, which is a major step for the environment. Therefore, use of
this vehicle will be environment friendly (Hall & Lutsey, 2017). Therefore, this vehicle will also
provide many other benefits to the customers. It will serve the customers in a better way in order
to meet many customer’s demand. There exists rear and front motors to channelize power to all
the individual wheels. Thus, it increases the capability and provides easy handling system. Thus,
the electric vehicle can also perform in the snowy roads. One of the main feature that attracts the
customers is luxury of space. It is the most important feature in order to make the ride better and
comfortable. The interior of the car is impressively spacious with plenty of legroom. The vehicle
will provide next level driving experience to the customers. Other features that it offers are smart
technology, thoughtful amenities, modern design and enhanced fuel economy.
Several incentives are offered by the US government to improve the market of the
electric vehicles. Thus, it would be profitable for the automakers to launch electric vehicles in
presences of these offers. Moreover, for the sales of the first 200,000 electric vehicle, automakers
would get a subsidy of a tax credit for consumers from $2500 to $7500 (Jenn, Springel & Gopal,
2018). The cap is already hit by the Tesla. Ford took various initiates and will also launch new
electric vehicles in order to reach that cap and to get the tax benefit provided by the US
government. It also led to the surge in sales of the electric vehicles in the US mobility market. It
is estimated that there will be 18.7 million electric vehicles by 2030 on US roads. The main

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reason behind providing incentives are limiting climate change and lowering of emissions. It
would also curtail the demand for the energy in US as well as world. It will be helpful in energy
saving. However, the recent decision of the Trump government to impose tariffs on the imported
car parts and vehicles. Thus, it would increase the price of the electric vehicles in the US market.
Hence, the policies taken by the Trump may hamper the growth of the electric vehicle market of
the US.
Scarcity, price elasticity, foreign exchange, gross domestic product (GDP) and market
mechanisms
The electric vehicle is an emerging market mobility sector. Thus, the demand for the
electric vehicle also increasing eventually. However, presently it is costly and limited in the US
and world market (Yuksel & Michalek, 2015). There are few players in the electric vehicles
market in comparison to the gasoline based vehicles. There are several companies in the field of
gasoline based vehicles and these companies also have a wide range of products to cater. On the
other hand, the available products of the electric vehicle is very limited. The demand of the
electric vehicles are getting higher day by day. Here, scarcity of the product in the market would
act in favor of the organization. Therefore, it would also help the firm to earn profits out of it.
Moreover, new electric vehicles of the company would also solve the problem of the scarcity.
One of the essential feature of the economy is market mechanism. In an economy, market
mechanism is associated with the decision of the consumer and producer. In addition, the
consumer make decision on the basis of the maximization of the utility for their purchases. On
the other hand, the decision of the producer is based on the maximization of profit for their
marketing (Reifschneider, Wascher & Wilcox, 2015). Therefore, market drives the consumers
and producers to take their respective decisions. The economy of US is a mixed economy, where

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resources are possessed by the both sectors of the economy such as public and private. To fulfill
the profit maximizing motive of the producers, the product offered by the producer should meet
all the demands of the customers. These vehicles are much more comfortable and environment
friendly. Thus, under the market mechanism, the customer would decide to purchase these
electric vehicles based on utility maximization. It would offer them with various facilities.
To analyze the market of the electric vehicle, which will be launched by the Ford, it is
significant to understand the price elasticity of demand for the product (Tily, 2016). The
percentage change in price with respect to change demand is represented by the price elasticity
of demand. Though, the demand for the electric vehicle is increasing. The growth of demand is
slowly improving. Therefore, there is a possibility that some market conditions may influence
the demand for the electric vehicles. Thus, if a small change in price brings large change in
demand, it is known as elastic price elasticity of demand. On the contrary, if a small change in
price brings small change in demand, it is known as inelastic price elasticity of demand. The
growing concern for minimizing the use of the vehicles based on the fossil-fuels. It generates
large amounts of carbon dioxide into the environment, which influences the consumers to choose
the electric vehicles over fossil-fuel based vehicles. Moreover, government also offering various
tax incentives for using electric vehicles (Torr, 2019). Though, the demand of electric vehicle is
increasing at slower pace with respect to price, there is a probability that the price of the electric
vehicle may scale up due to imposition of tariff on imported vehicles and vehicles parts by the
Trump administration.

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Figure 1: GDP growth rate of US from 2010 to 2018
Source: (Data.worldbank.org, 2020)
Figure 1 represents the GDP growth rate of US from 2010 to 2018. The growth of the
country is fluctuating nature. In 2018, the growth rate of the country was 2.927%. Historically,
the growth rate was highest in 2015 during this period. Moreover, it was lowest in 2011 during
the same period. The economy faced serious economic downturn during the period of the great
recession. Though, it recovered slowly in 2011 (Data.worldbank.org, 2020). On April 2018, the
recovery process of the US became the second longest recovery in the history of the world. The
economic crisis period brought changes in various economic indicators. These indicators are
higher unemployment rate, credit crisis and higher inflation.in 2017, the country stood at 43 out
of 207 countries of the world in terms of national debt, which is measured by the debt held by the
public. Thus, the position of the country is not stable in terms of GDP (Michaillat & Saez, 2015).

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However, it is recovering slowly. Even, the government of US has also provided various aid in
order to boost the electric vehicle industry.
Figure 2: The position of the US dollar
Source: (Tradingeconomics.com, 2020)
Figure 2 illustrates the position of the US dollar for last ten years. Graphically, the
performance of the currency improved. In addition, the currency of the US, US dollar is also
most widely used currency in the world. It is the first reserve currency of the world. Therefore,
strong currency also strengthen the foreign exchange system of the country
(Tradingeconomics.com, 2020). The value of the currency is also greater in terms of most of

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other currencies of the world. The foreign exchange market is one of the largest source of
revenue for the US economy. Therefore, it would help in growth of the electric vehicle market.
As a result, the new product of the Ford will also get benefitted from the foreign exchange of the
US.
Productivity and trade
One of the most vital emerging market of electric vehicle contributes positively in the
growth of trade, productivity and economic growth. It is projected that by 2030, there will be
18.7 million of electric vehicle on US road (Daga et al., 2017). Thus, the product of the Ford will
boost the market. Even, the company also pulled back some cars from the market in order to
focus more on crossovers and SUVs. The main hurdles on the way of achieving excellence in the
electric vehicle segment include less variety, better range and higher price. These factors
compelled the consumers to purchase gasoline based vehicles and face the consequences.
However, the market for the electric vehicles getting stronger day by day in order to avoid the
consequences such as state emissions cap, increasing variety of attractive electric vehicles and
inducing temperatures.

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Figure 3: Sales of plug-in electric vehicles from 2012 to 2018
Source: (Forbes.com, 2019)
Figure 3 represents the sale of plug-in electric vehicles from 2012 to 2018. Though, the
sale of the plug-in electric vehicle was sharply drop in 2015 and it was lowest at -4%. The sale
was highest in 2012 during the period. In addition, the sale of the plug-in electric vehicle was
85%, which was gradually improved from the decline of 2015 (Forbes.com, 2020).
In addition, the efficiency level of the electric vehicles are also superior. The efficiency
level makes it attractive to the consumers. It is estimated that the fuel cost can be saved by using
the electric vehicle over gasoline based vehicle is $5000. The operating cost of the electric
vehicle is also lower (Vergis & Chen, 2015). Thus, it improves the productivity of the electric
vehicles. The increasing sale of the electric vehicle also impacted the growth of the country in a
positive way. The sell and purchase of electric vehicle provides various tax breaks by the
government. Thus, it boosts the trade and productivity of electric vehicles. The sectors also
attracted huge investments from the public sector as well as private sector. The continuous
research and development also incentivize the sector dramatically. As a result, the cost of
batteries of electric vehicle dropped gradually. Therefore, it would in turn curtail the price of the
electric vehicles. Furthermore, the sector also may influence the others sector of the economy
profoundly.
The growing use of battery in electric vehicles would enhance the production and growth
of the battery industry. Ford also took new initiative to develop battery for the electric vehicles.
It also planned to invest $11 billion by 2020 for the development of its electric vehicle segment.
Therefore, the new product Mustang Mach-E would increase the productivity of the sector