Tesla gave Ford a “huge gift” in demonstrating how to cut costs on electric car development and production, Ford CEO Jim Farley said.

Ford’s Model E electric division lost $1.3 billion (£1.07bn) in the three months to the end of September as it negotiated a “challenging market” for the Ford Mustang Mach-E SUV as well as investing in new EV products, the company said.

The firm is aiming to overturn Model E losses with its second generation of electric vehicles, which it aims to launch from 2025, starting with a new electric pick-up and a seven-seat SUV.

“A great product is not enough in the EV business any more. We have to be totally competitive on cost,” Farley told analysts on the company’s third-quarter earnings call. “Tesla actually gave us a huge gift with a laser-focus on cost and scaling the Model Y. They set the standard.”

Ford has said it will replicate some of Tesla’s innovations with the second-generation EVs – for example, by combining multiple underbody parts in a single ‘megacast’ piece. 

The company has previously said it has stripped down a Tesla Model Y to understand the differences in cost between that and the rival Mach E. For example, Ford discovered that the wiring harness for the Mach E was a mile longer and 32kg heavier than that for the Model Y.

The Mach-E also uses a cooling system originally specced for combustion-engined vehicles, meaning it can withstand four times the pressure actually needed for EVs.

Farley told analysts that the company would produce 50% more in-house parts for the next-generation EVs, including castings, batteries, inverters, electric drive units and gearboxes. “This level of integration… will allow us to significantly reduce material costs," Farley said. Tesla famously brought far more parts production in-house, overturning a trend to outsource.

Ford will also overhaul its electronic architecture with the introduction of so-called zonal control systems that bring connectivity across the vehicle chassis. Like Tesla, Ford is also introducing the option of cheaper lithium-iron-phosphate (LFP) batteries, with the first LFP Mach-E models arriving later this year in the UK.

Farley warned analysts of a bumpy ride ahead to overhaul its design methodology. “None of this will be easy, and it has some risk, and you’ve seen our competitors struggle as they build out and ramp up these capabilities,” he said, without naming those competitors. 

Tesla CEO Elon Musk has previously talked about the "production hell" of scaling up the company’s volume models, and recently spoke of Tesla “digging its own grave” getting the Cybertruck into production.