Ford’s Electric Vehicle Division Faces Financial Turbulence with $1.3 Billion Loss
Ford Motor Company’s ambitious drive into the electric vehicle (EV) market has hit a financial speed bump, with its EV unit, Model e, reporting a staggering loss of $1.3 billion in the first quarter of the year. This equates to a loss of $132,000 for each of the 10,000 vehicles sold during this period, significantly impacting the overall earnings of the automotive giant.
A Shifting Automotive Landscape
Ford, alongside other major automakers, has been navigating a transition from traditional gasoline-powered vehicles to electric ones. Unique among its peers, Ford is the only traditional automaker that separately reports the financial outcomes of its retail EV sales. The figures unveiled on Wednesday highlight the profit challenges Ford and others face in the burgeoning EV sector.
The Model e division saw a 20% decline in sales compared to the same period last year, selling 10,000 vehicles. Revenue took an even more dramatic hit, plunging 84% to approximately $100 million, a downturn Ford attributes largely to industry-wide price cuts for EVs. These challenges contributed to the division’s $1.3 billion loss before interest and taxes (EBIT), underscoring the extensive cost beyond mere production and sales.
Beyond Production Costs
The losses incurred by Model e extend far beyond the manufacturing and selling of EVs. Ford points to substantial investments in research and development for the next generation of electric vehicles as a significant factor. These investments, amounting to hundreds of millions, are essential for Ford’s future in the EV market but are years away from yielding financial returns.
This predicament sets the stage for continued financial strain within the Model e unit, with Ford projecting EBIT losses of $5 billion for the full year. Despite these projections, Ford aims to align EV pricing with the actual costs of building each vehicle within the next 12 months, a goal complicated by the ongoing price war among EV manufacturers.
Ford CFO John Lawler expressed the challenge succinctly, noting that while Ford has managed to reduce costs by about $5,000 for each Mustang Mach-E, “revenue is dropping faster than we can take out the cost.”
Looking Ahead
Despite the daunting financial landscape for its EV division, Ford remains optimistic. CEO Jim Farley, speaking to investors, emphasised ongoing changes within the EV business and the potential for profitability with the next generation of electric vehicles.
The company’s traditional vehicle divisions continue to perform well, with Ford Pro, catering to fleet sales, emerging as a primary profit driver in the quarter. This segment reported EBIT of $3 billion, more than double the previous year’s figure, driven by strong demand, including significant orders from the US Postal Service and Ecolab, a global sustainability company.
However, the gasoline-powered vehicle division, Ford Blue, experienced an 11% drop in sales, contributing to a near two-thirds decline in EBIT to $905 million. Despite these mixed results, Ford’s combined profits from Ford Blue and Ford Pro remained roughly consistent with the previous year.
