Ford Motor to cut investment in money-losing electric vehicles?

Ford EV business

In a significant shift in Ford Motor’s product strategy, CEO Jim Farley has announced plans to slow down the ramp-up of money-losing electric vehicles (EVs) and redirect investments towards the company’s commercial vehicle unit. The move comes as Ford aims to quadruple sales of gas-electric hybrids over the next five years.

Jim Farley emphasized the importance of Ford’s high-margin Ford Pro commercial business, describing it as a powerhouse. As part of the new strategy, Detroit, USA-based Ford now plans to launch more gas-electric hybrids to cater to a broader market and reduce the cost of its first-generation battery electric vehicles.

Ford Motor, the #1 automaker in the United States, faced challenges with its Model e unit, experiencing a full-year loss projection of $4.5 billion, 50 percent higher than previously anticipated. On average, Ford lost over $32,000 per EV delivered by Model e during the second quarter.

Despite these losses, revenue from Ford Model e’s first-generation electric vehicles saw a substantial increase of 39 percent in the second quarter, with sequential revenue more than doubling.

Chief Financial Officer John Lawler defended the upfront investment required for launching the first-generation EVs and argued that focusing solely on the loss per vehicle was not a fair assessment of the company’s overall EV plans.

Wells Fargo analyst Colin Langan expressed concern over Ford’s new full-year pretax earnings guidance, which suggests a notable decline in second-half earnings compared to the first half. Ford remains confident in its EV plans but acknowledged that the transition to a more electric-focused lineup would not be a smooth process.

To achieve its goals, Ford acknowledged that it will take longer to accelerate EV production to an annualized rate of 600,000 vehicles. The company now aims to reach that pace in 2024, pushing back its previous target of late 2023.

The Ford Pro commercial vehicle business has emerged as a major asset for the company, delivering nearly twice the pretax margins of the full company. In the second quarter, Ford Pro out-earned the Ford Blue combustion vehicle unit, generating $2.4 billion in pretax profit with an EBIT margin of 15.3 percent. Meanwhile, Ford Blue, driven by combustion pickups and SUVs, achieved $2.3 billion in pretax profit with an EBIT margin of 9.2 percent.

Ford projects that profits from both the Ford Pro and Ford Blue units will help offset the higher-than-expected losses at Ford Model e. Each of these units is expected to earn about $8 billion in EBIT for the full year, Reuters news report said.

Overall, Ford raised its pretax profit expectations for the year, now anticipating it to fall between $11 billion and $12 billion, up from the previous forecast of $9 billion to $11 billion.

Despite the challenges in the EV market, Ford remains committed to its EV plans and aims to navigate through the transitional period successfully. With a focus on gas-electric hybrids and commercial vehicles, the company is looking to create a sustainable and profitable future for itself in the rapidly evolving automotive industry.

In related news, Ford recently announced lower suggested retail prices for its all-electric F-150 Lightning pickup truck, citing increased production capacity and cost scaling at the Rouge Electric Vehicle Center in Michigan. Furthermore, Ford Model e revealed plans to transform its existing complex in Oakville, Ont., Canada, into a high-volume EV manufacturing site, assembling battery packs and installing them in the next-generation electric vehicles produced on the same campus.