Even though Ford expects to lose $3 billion on sales of electric vehicles to consumers this year, the company still plans to make between $9 billion and $11 billion in profits, which is within its profit objectives for the year.
As for the overall profit and the EV losses, Ford claims they are all pre-interest and pre-tax. Losing $3 billion on EVs is nearly the same as losing $6 billion during the previous two years.
It reported losses of $900 million in 2021 and $2.1 billion in 2022. As far as we’re aware, this is the first time the company has broken out EV-specific financials.
Still, the company maintained that it anticipates an 8% profit margin for EVs by the end of 2026, up from a 40% operational loss margin in 2018 when it sold around 96,000 EVs and brought in $5.3 billion in sales.
It forecasts that by the end of that year, the annual pace of worldwide manufacturing of EVs would have reached 2 million.
Ford’s electric vehicle business, even if it achieves its profit margin objectives, will still be much less lucrative than Tesla, the market leader in electric vehicles. In the last quarter, it posted a 22% profit margin (again, ignoring the effects of depreciation and amortization and interest and tax expense).
This isn’t a perfect comparison to the profit margins stated by Ford and other traditional manufacturers, but it does show that Tesla has a significant head start when it comes to turning a profit from the sale of EVs, whereas these others struggle to do so.
Ford’s chief financial officer, John Lawler, was asked on a Thursday investor call about the company’s confidence in its EV profit prediction in light of the amount of Tesla employees Ford has been able to poach.
“Look, it’s about the talent we have,” Lawler remarked. “We all know there’s one profitable EV manufacturer. The folks that designed those vehicles are at Ford. It’s a whole new way of how we’re designing vehicles, very much focused on energy efficiency…. And we have the people at Ford that know how to do that.”
Ford reduced the price of its Mustang Mach E electric car earlier this year as a result of increased manufacturing, while Tesla has reduced the price of its cheaper models in several regions across the world.
Although there is a significant demand for both the Mach E and the F-150 Lightning EV truck, Ford CEO Jim Farley stated during an earnings call earlier this year that the company ran into several issues during production, which made the ramp-up of EVs considerably more expensive than expected.
“We didn’t know that our wiring harness for Mach-E was 1.6 kilometers longer than it needed to be. We didn’t know it’s 70 pounds heavier and that that’s [cost an extra] $300 a battery,”on a conference call with investors, he said.“We didn’t know that we underinvested in braking technology to save on the battery size.”
As a result of these and other expenses, Ford “left nearly $2 billion in profit on the table,” according to Farley.
Ford, which will be holding a meeting with investors later on Thursday, provided financial statistics on EVs early Thursday.
Ford will no longer disclose earnings by area, but rather by product line, and this presentation will outline this change in reporting methodology.
Electric Vehicles Bleeding Red Ink: Ford Is Losing Billions on EVshttps://t.co/74001OMkZA#ElectricVehicles
— Larry Elder (@larryelder) March 25, 2023
There is “Ford Blue,” which includes ICE and hybrid consumer vehicles, “Ford Model e,” which includes electric vehicles, and “Ford Pro,” which includes business vehicles with either ICE or electric propulsion.
Ford Blue brought in $6.8 billion, Ford Pro brought in $3.2 billion, and Ford Credit brought in $2.7 billion, which together were enough to offset the company’s losses from the previous year.
While it anticipates a 50% drop in revenues to $1.3 billion from Ford Credit, it anticipates making around $7 billion from Ford Blue and $6 billion from Ford Pro this year.