Unless investors have closed their eyes and covered their ears, they’ve probably heard that electric vehicle (EV) sales growth in the US market has slowed to a crawl. That has become a major headache for major automakers such as Ford Motor Company (NYSE:F)which planned to invest billions of dollars in its EV segments and battery factories.
The news gets a little worse as a recent report just noted staggering losses per Ford EV, but the company is taking action to offset these costs. Let’s dig in.
Double losses
If you just look at Ford’s first quarter results, you can see how much of a drag its EV unit, Ford Model e, had on the results. Earnings before interest and taxes (EBIT) for the Ford Model e in the first quarter amounted to a loss of $1.32 billion. A source recently told Bloomberg that Ford’s losses per EV in the first quarter were as much as $100,000, which was reportedly more than double the loss per EV last year. One problem is simply the high costs, including batteries, which are still one of the biggest costs of electric vehicles. Ford will need to scale up its EV production to reduce costs.
For context, Ford Blue, the automaker’s traditional gasoline vehicle division, posted an EBIT result of $905 million – more than offset by its staggering EV losses. Additionally, amid a lack of demand, Ford’s Model e posted a 20% decline in wholesale units and an 84% decline in sales during the first quarter compared to the previous year.
These stunning results would have hit investors even harder had it not been for Ford Pro, the company’s commercial vehicle division. Fortunately, Ford Pro was able to deliver strong EBIT results of $3 billion in the first quarter for Ford investors. Instead of relying on Ford Pro’s strong results to offset its EV losses, the company is taking some steps.
What is Ford doing?
Recently, Ford began withdrawing orders from battery suppliers to help stem electric vehicle losses. Also in November, management said its EV battery factory in Marshall, Michigan, will be much smaller than originally expected to help offset slowing demand.
More broadly, Ford has adjusted its overall EV strategy by reducing spending on battery-powered vehicles by $12 billion, delaying the launch of new EVs and reducing the size of its battery factories. Ford has also reneged on its 2021 pledge to go all-electric in Europe by 2030 and now admits that if demand for internal combustion vehicles continues, Ford will sell them.
Despite its moves to scale back its EV ambitions, Ford expects losses on Model e units to reach $5.5 billion as it continues to hit its bottom line. One of the key issues is that while Ford has saved thousands of dollars on the cost of its electric vehicles, it has also had to cut prices to remain competitive in a market that includes Tesla‘s aggressive pricing strategies.
What it all means
There’s no doubt that Ford’s EV ambitions have weighed on the company’s results, and 2024 will be another huge loss even if it comes in on the better side of $5.5 billion, according to estimates. For investors, the hope is that sooner or later Ford will get a return on its massive investment. In the meantime, it also means that the company has a lot of upside if it can turn around its Model e business within a few years as originally expected.
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Daniel Miller holds positions at Ford Motor Company. The Motley Fool holds and recommends positions in Tesla. The Motley Fool has a disclosure policy.
Here’s the staggering amount of money Ford loses with every EV it makes. originally published by The Motley Fool
