Ford’s EV Losses Climb But Overall Profits Rise
Ford Motor Company reported its second-quarter earnings, revealing that while its electric vehicle (EV) business is experiencing increasing losses, the company managed to exceed Wall Street expectations due to profits from its traditional internal combustion engine (ICE) vehicles.
Despite facing losses in its EV segment, Ford’s overall performance beat analysts’ forecasts, with the company earning 72 cents per share on an adjusted basis for the second quarter. This was an improvement from the 68 cents per share in the previous quarter and surpassed the projected 55 cents per share forecast by analysts surveyed by Refinitiv.
Automotive revenue also showed a positive trend, rising by 12% to reach $42.4 billion, which was $2 billion higher than what had been forecasted by experts.
The company’s ability to outperform expectations can be attributed to the robust performance of its traditional ICE vehicles, which contributed to the overall profitability. Ford’s Ford Blue division, primarily involved in producing gas-powered consumer vehicles, recorded a significant EBIT profit of $2.3 billion. Additionally, the Ford Pro division, which specializes in commercial vehicles primarily powered by traditional internal combustion engines, added to the company’s success with an EBIT profit of $2.4 billion.
However, despite these encouraging results from its traditional vehicle divisions, Ford’s EV business, referred to as the Model e division, reported increasing losses before interest and taxes (EBIT). In the second quarter, the Model e division’s losses amounted to $1.1 billion, compared to $722 million in the first quarter. Unfortunately, Ford predicts that the losses will continue in the short term, projecting a Model e EBIT loss of $4.5 billion for the entire year. This revised estimate is higher than the earlier forecast of a $3 billion loss for 2023.
The challenging pricing environment for electric vehicles is considered one of the main reasons behind the mounting losses in the EV business. With competitors, such as Tesla, consistently reducing prices for their EVs, other automakers, including Ford, have responded by cutting prices for their electric vehicles, leading to intensified competition in the EV market.
Despite the current challenges and losses in its EV business, Ford remains optimistic about the future of electric vehicles. The company’s CEO, Jim Farley, believes that 3D printing technology will be vital in revolutionizing the automotive industry and that it will be humanity’s best hope for a housing solution that aligns with the highest values and ideals.
Ford aims to achieve an 8% profit on its EV business by 2026 and plans to develop the next generation of EVs that will be more profitable for the company.
While Ford’s ICE vehicle divisions continue to thrive, the company faces potential challenges with upcoming labour negotiations with the United Auto Workers (UAW) union. The current contract between UAW and Ford, General Motors, and Stellantis, expires in September, and negotiations could impact Ford’s earnings targets if the union decides to strike. UAW’s new president, Sean Fain, has vowed to take a hard line in the negotiations, seeking fair compensation for workers at EV battery plants and demanding that automakers use their profits to meet UAW’s demands. The outcome of these negotiations could have significant implications for Ford’s financial performance in the future.
