Ford Motor Company recently announced that it expects to lose $3 billion on its electric-vehicle (EV) business this year. This news came as a shock to many industry analysts. The company had previously stated that it would break even on its EV business in 2021. The announcement also led to a 9% drop in the company’s stock price.
The New financial-reporting structure of Ford
Despite the disappointing news, Ford is optimistic about the future of its EV business. The company has outlined a new financial-reporting structure. They did that to give investors a better insight into the performance of its three business units. Their three business units are: Model e (its EV business), Ford Blue (their traditional product line), and Ford Pro (its sizable commercial-vehicle line).
Positive Outlook on the EV Division of Ford
Ford‘s finance chief said that the EV division is like a new business operating within the company. It is normal for new businesses to lose money at the beginning, he said. He emphasized that the company is making significant investments in its EV business. Therefore, these investments will pay off in the long run.
By the end of 2026, the Model e division is about to reduce its losses and attain an operating-profit margin of 8%. Actually, this is close to the company’s overall target of 10%. This target is in line with the company’s commitment to investing $22 billion in EVs and self-driving technology through 2025.
Ford’s Contribution Margins Expected to Approach Breakeven
Ford‘s profits on its EVs, which is revenue minus the costs, are predicted to break even by the end of the year. This is a positive development, as it suggests that the company is making progress in reducing the costs of its EVs.
Ford wants to provide investors with greater transparency into its business units. To achieve that, Ford will break out results for each of the three new business units. In the past, Ford was providing regional results, starting with its first-quarter financial results. This move is designed to make it easier for investors to track the progress of the company’s EV business.
Ambitious Goal for the Future of Electric Vehicles
Despite the losses it is currently incurring, Ford is on target to reach an annualized production rate of 2 million EVs. In fact, they want to achieve that by the end of 2026. This ambitious goal underscores the company’s commitment to transitioning to an all-electric future.
To sum up
While Ford‘s announcement that it expects to lose $3 billion on its EV business this year may have come as a surprise to many. However, it is important to remember that the company is making significant investments in this area. Ford is demonstrating its commitment to EVs by setting ambitious targets. Additionally, Ford is breaking out its financial results by each business unit. With time, the Model e business will gradually erase its losses and achieve profitability. That will bring Ford one step closer to its goal of becoming a leader in the EV space.
Reference List
Ford Says It Will Lose $3 Billion on EVs This Year as It Touts Startup Mentality.
Ford Projects $3 Billion Loss on EV Business for 2023 | Mint.