Ford to disclose losses from electric vehicle sales for the first time

Ford’s new CEO Jim Farley (left) and Ford executive chairman Bill Ford Jr. pose with a 2021 F-150 during an event on Sept. 17, 2020 at the company’s Michigan pickup plant.

Michael Wayland | CNBC

DETROIT – Ford Motor is going to tell investors something they have long wondered about: how much does it cost to switch to electric vehicles?

On Thursday, the automaker plans to start reporting its financial results by business unit rather than by region, introducing a new reporting structure with “training” for analysts and the media – on “Ford Refounded” – and issuing revised versions of its financial results that will show how the new business units will operate in 2021 and 2022.

These new business units include “Ford Blue”, Ford’s traditional combustion engine division; his electric car “Model e”; business of commercial and state fleet “Ford Pro”; “Ford Next”, which includes solutions for non-automobile mobility and other technologies of the future; and its existing financial services subsidiary, Ford Credit.

The changes represent any legacy automaker’s most detailed look at the finances behind the electric vehicle business.

The automaker is expected to announce earnings and loss, revenue, margins and earnings before interest and taxes, or EBIT, for each of its divisions, giving investors and analysts a basis for comparison as the company’s transformation rolls out.

As part of a radical rethinking of its business under CEO Jim Farley last year, Ford decided to spin off its main profitable engines – internal combustion vehicles and commercial fleet – from the company’s new all-electric vehicles, which are not expected to be profitable. at least for a few years.

Farley and other executives stressed that the reporting changes are not just about disclosures: the new format reflects how Ford’s executive team thinks about and manages the business.

“The changes are significant. Ford Motor Co. this is not the first time you have to rethink your future or forge your own path, different from other companies,” said Farley, announcing the new business units on March 2, 2022. about winning? 100%”.

Wall Street takes a wait-and-see approach to change. According to the ratings compiled by FactSet, analysts, on average, maintain a rating for the stock with a target price of $13.50. The shares traded on Wednesday for about $11.70 a share.

Ford shares jumped 8.4% on the day executives announced the new ventures, but shares have since fallen 35% due to changing market conditions, supply chain issues and disappointing quarterly earnings.

The company will report first-quarter results in a new format on May 2, and will hold a capital markets day on May 22.

EV loss

Farley argued last year that Ford’s autonomous electric vehicle business “would generate as much excitement as any pure EV competitor, but with a scale and resources that no other startup can match.”

However, he described the legacy business as “an engine of profit and cash” for the 120-year-old automaker. As with other automakers and electric vehicle startups, investors should expect big losses when it comes to Ford’s electric vehicle business, according to Wall Street analysts.

The Model e is expected to include electric vehicle platforms, electronics, batteries, motors, as well as embedded software and digital experiences.

Adam Jonas of Morgan Stanley expects the Ford Model e to have a negative gross margin of 10% to 20% and an adjusted EBIT margin of minus 20% to minus 30%. Both will result in significant losses.

Ford said it expects an 8 percent margin on its electric vehicles – along with 2 million annual vehicle production units – by 2026, which will help boost its overall adjusted figure. profitability up to 10%. The company’s adjusted margin was 6.6% last year.

Deutsche Bank analyst Emmanuel Rosner believes Ford could suffer a gross loss of around $9,000 per electric vehicle sold. The analyst expects Ford to announce Model e’s $6 billion operating loss for 2022 on Thursday. This is after factoring in the significant investment in research and development – ​​roughly 65% ​​of the company’s total research and development – ​​in the EV division.

“The electric vehicle business could report much bigger losses than investors are expecting, which could make Ford’s EV EBIT margin target of 8% by 2026 particularly elusive,” Rosner said in a note to investors Monday.

Beyond the EV Leader Tesla, no major automaker is expected to make significant profits from EVs for at least a few years as the industry works to increase EV output and production scale. This is especially true of EVs like Ford, as mass-market cars tend to make lower profits than luxury models.

profit engine

2023 Ford Super Duty F-350 Limited


Ford’s plan is to cut at least $3 billion in structural spending by mid-decade, mostly at the expense of traditional business, to boost profits. Kumar Galhotra, head of Ford Blue, said the company expects to do so by reducing complexity, quality and structural costs over the next two to three years, he said in March 2022.

“Nothing will be taken off the table,” Galhotra said last March. “Our complexity must be radically simplified; our warranty costs should be substantially lower. Our advertising spend must match what we do when we invest in our products. These investments must be made with world-class efficiency.”

Ford Pro Surprise?

A pleasant surprise on Thursday could be the profitability of Ford Pro, the company’s fleet. Deutsche Bank estimates that Ford Pro would be the company’s most profitable automotive division in 2022, with an EBIT margin of 23.5%.

Ford has long been a significant player in the commercial fleet markets in North America and Europe, thanks to its deep pickup truck expertise and widely sold Transit van line. More recently, the company has sought to improve the profitability of its fleet operations with software and services that build on years of experience with fleet operators, and leverage the connectivity and new technologies built into its latest vehicles.

Thanks in part to these new technology offerings, Ford Pro’s recent earnings are almost certain to impress. But will they be sustainable? Deutsche Bank’s Rosner, who has a sales rating on Ford’s stock, wrote that he wondered if Ford Pro’s profitability could “take a hit as the segment ramps up cars with expensive electric powertrains.”

Electric vehicle sales are expected to become a significant part of Ford Pro’s business in the coming years as the company introduces additional electric models specifically designed for its fleet customers. This will almost certainly hurt Ford Pro’s margins as Ford’s EV production ramps up. (In 2022, the numbers were still small: only 6,500 of the roughly 105,000 Transit vans sold by Ford in the US last year were electric vehicles.)

Still, Ford Pro CEO Ted Cannis says fleet electrification opens up new opportunities for the Ford Pro.

“Our commercial customers are confused [about EVs]and they need a lot of help,” Kannis said at the Evercore Utilities Conference in January. “For us, the key to accelerating the transition to electrification is to simplify it.”

Ford CEO Jim Farley reacts to tough quarter and automaker's $2 billion loss in 2022

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