Ford’s path to electric glory requires rocket fuel
NEW YORK, March 23 (Reuters Breakingviews) - Ford Motor (F.N) has set itself a destination: to be a leader in electric vehicles. On Thursday it also gave a clearer picture of where it starts from. The U.S. auto manufacturer disclosed the losses generated by its EV business, now called Ford Model e. Investors can now better see how ambitious this journey is.
For now, there’s plenty of red ink. Model e generated an operating loss of $2.1 billion in 2022, steeper than 2021’s hit of roughly $900 million. By the end of this year, the carmaker expects those cumulative losses will have reached $6 billion. The quid pro quo is the prospect of future black ink to wipe away the red. Ford hopes it can reach a production rate of 2 million EVs by the end of 2026, hitting an 8% operating margin some time that year. If a vehicle sells for $50,000, say, that’s $8 billion of profit.
It’s a steep hill to climb, though, and not just because of those investment costs. Recent supply shortages and rising material prices have made unit economics worse – Ford is probably still selling each EV at a loss, saying that Model e’s cars are only expected to “approach” covering their variable costs this year, let alone fixed costs.
The company isn’t alone. EV startups are major cash incinerators. Rivian Automotive (RIVN.O), whose shares have slid 90% since going public in 2021, saw negative gross profit of $1 billion in its most recent quarter. But scale helps Ford and rival General Motors (GM.N). Some 20 percentage points of Ford’s anticipated profitability improvement comes from building up its capabilities, executives said at a “teach-in” event today. Gas-guzzling products can help subsidize the electric ones in the meantime.
The path of Elon Musk’s Tesla (TSLA.O) shows how much investors love a successful EV story. For companies like Ford, it’s a necessity rather than an add-on. That potential $8 billion of operating profit is almost exactly where Ford Blue, the new name for its traditional business, is today, and well behind Tesla’s $15 billion of EBIT last year, according to Refinitiv. Ford’s current destination is one point in an even longer journey.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
CONTEXT NEWS
Ford Motor on March 23 held a “teach-in” event to preview its new reporting structure, which will break out financials for its internal-combustion, electric and professional segments.
The automaker reiterated guidance that its electric car business, known as Ford Model e, will generate 8% operating profit margins by late 2026, from a margin of negative 41% in 2022. The company expects to reach run-rate production of 2 million electric vehicles by the end of 2026, from 96,000 last year.
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