Ford Model E Division Lost $60K on Every Electric Vehicle It Sold in the First Quarter

[worachj]

Ford Model E Division Lost $60K on Every Electric Vehicle It Sold in the First Quarter

Ford Model E Division Lost $60K on Every Electric Vehicle It Sold in the First Quarter
Cristian Agatie
3 May 2023, 10:01 UTC
Ford reported its first-quarter financials, showing that the losses at its EV division Model e are widening. The Blue Oval lost over $60,000 for every EV sold in the quarter. Although Ford earned a lot of money from its legacy divisions, Ford Blue and Ford Pro, with the overall results exceeding expectations, the investors weren't thrilled.

After GM, Ford is the second most bullish legacy carmaker about electric vehicles. Its CEO, Jim Farley, boasted about overtaking Tesla in a heartbeat a year ago but has since lowered expectations. As the Blue Oval has started breaking down its financial results for its three divisions Ford Blue (legacy ICE vehicles), Ford Pro (commercial vehicles), and Model e (electric vehicles), it became clear that Ford's EV business is not going very well. Still, Jim Farley showed his optimism in the May 2 earnings call.

Ford posted first-quarter revenue of $41.5 billion, up 20% from Q1 2022, and improved margins of 8.1%, up 1.4 percentage points. Adjusted earnings before interest and taxes rose 45% to $2.4 billion, which should be considered a good sign for the company. Still, investors couldn't overlook that most of that, or $2.6 billion, came from Ford Blue, its legacy ICE business. More worrying, Ford posted losses of $722 million on its EV business, Model e.

Ford sold 12,000 electric vehicles in the quarter, spending $60,000 more per car than its average selling price. Considering that Ford Model e average selling price was around $58,000 in the first quarter, the Blue Oval spent $118,000 on average for every EV it sold. This made Tesla fans joke that Ford should buy a Model Y, slap a Ford badge on it, and still lose less money. The losses are expected to accelerate in the second quarter, as Ford announced an up to $4,000 price cut on the Mustang Mach-E.

Ford F-150 Lightning production was impacted by a battery fire in February, and the Mustang Mach-E production was also halted to upgrade the production line. The EV production at the Ford Model e division dropped from 30K units in Q4 2022 to 12K in Q1 2023. This explains the drop in revenue, but it's likely that the higher production would've led to more significant losses for Ford.

In a call with investors at the end of March, Ford executives warned that its EV business would continue to lose money for the foreseeable future. Ford likened its Model e division to an EV startup, promising the situation should improve when production scales up in the coming years. The total losses for the year are projected to reach $3 billion. Still, Ford expects to approach contribution margin breakeven on EVs by the end of 2023. It also hopes to have 8% margins on EVs by late 2026.

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[flapjake314]

variable cost vs fixed cost.... this is an incredibly misleading way to interpret numbers but ok sure

the real story here is why smaller manufacturers like rivian face a VERY steep uphill battle and a high likelihood of failure

 

[txaggies07]

Agree with last poster, stupid title. I didn't read the article but the number I would want to know is the $ lost/made on the last car they made. If you take the title as is then you would assume if they sold 10 more cars then they would lose $600,000 more. This is likely not anywhere close to true and thus the headline is bad.

 

[Mach1E]

variable cost vs fixed cost.... this is an incredibly misleading way to interpret numbers but ok sure

the real story here is why smaller manufacturers like rivian face a VERY steep uphill battle and a high likelihood of failure

The losses came from losing a billion $$ due to Rivian stock.

A better article might have mentioned this.

https://www.electrive.com/2023/05/03/ford-expects-billion-dollar-losses-over-electric-vehicles/

 

[flapjake314]

The losses came from losing a billion $$ due to Rivian stock.

A better article might have mentioned this.

https://www.electrive.com/2023/05/03/ford-expects-billion-dollar-losses-over-electric-vehicles/

for clarity, that was booked in Q1 2022 and not Q1 2023, they mention it because it affects the quarter-on-quarter comparison

 

[GreaseMonkey]

The problem for legacy automakers is that they’ll lose money ramping up EVs, then lose more money ramping down ICE. That’s why their valuations (and subsequently stock price) are low. They’ll be suffering excruciating pain for many years to come.

 

[Mach1E]

for clarity, that was booked in Q1 2022 and not Q1 2023, they mention it because it affects the quarter-on-quarter comparison

Oh that makes sense.

This statement does NOT inspire confidence, “In the quarterly earnings conference call, both Farley and CFO John Lawler indicated that all startups lose money at the beginning, from Amazon to Tesla.”

Uhhh….. I wish they could go on Shark Tank and make that statement. The sharks would hand them a new one.

That excuse just doesn’t fly.

You’re a 100+ yr old car company, NOT a startup. You need to figure out how to sell new models at a profit.

Probably the only reason Ford is separating their divisions is so they can let the one that isn’t profitable go bankrupt by itself.

 

[Mirak]

This probably goes without saying, but if you invest $5 billion (or whatever the number is) to built/retool factories to manufacture EVs, it's gonna take a while to recoup that investment.

So I would agree that simply taking a -700MM quarterly earnings divided by 12,000 vehicles sold in the quarter is kind of dumb.

But how does Ford calculate quarterly EBIT? How are the fixed costs, primarily for building/retooling of plants for EV production, spread across the quarters?

What is Ford's breakeven analysis? Is that publicly available information?

 

[Logal727]

Tesla was a Wall Street darling for never making a profit up until recently ?‍

 

[Vulnox]

Oh that makes sense.

This statement does NOT inspire confidence, “In the quarterly earnings conference call, both Farley and CFO John Lawler indicated that all startups lose money at the beginning, from Amazon to Tesla.”

Uhhh….. I wish they could go on Shark Tank and make that statement. The sharks would hand them a new one.

That excuse just doesn’t fly.

You’re a 100+ yr old car company, NOT a startup. You need to figure out how to sell new models at a profit.

Probably the only reason Ford is separating their divisions is so they can let the one that isn’t profitable go bankrupt by itself.

No they wouldn't, because the reason almost anyone goes on Shark Tank is because initial production of something is simple, ramping up and investment in new tech is expensive. So they go to Shark Tank to get investment for that expansion.

Flipping it to Ford's situation, they spun Model e off into its own entity because it is operating as a start up in a sense, it's building its own product portfolio, investing in new models and new tech that isn't used by the rest of the org, and is in a heavy expansion and factory build up that no part of Ford's ICE division is dealing with. Instead of going to "the sharks" for money though, they get the investment from Ford Blue.

They use the $60k loss because it's attention grabbing but it isn't talking about the cost to build a Mach-e and sell it, in a vacuum. Right now the profit margins are slim on EVs, and the Model e division is building Blue Oval City, the REVC expansion, investment/development in next gen EVs, and ongoing investment in battery tech. So even if Ford made $10k on every EV sold, Lightning or MME or Transit Electric, just to keep it simple, the division is spending $70k for every EV they sell in building new factories and all the things I noted above. That doesn't mean their vehicles aren't selling at a profit, but they aren't yet selling enough EVs to offset the costs of building all the new factories and so on. But you need those factories to eventually get to that point.

That is very typical, Tesla was burning cash heavily in the first decade of its existence. It survived only on investors and selling clean air credits to the legacy OEMs. Ford is in a similar investment structure now, but is relying on ICE sales to offset. I don't know how you possibly envision it working any other way.

 

[moparguy]

There is a reason why the Ford's stock 52 weeks high is $15.88, shitty Rivian is trading higher than Ford, the 100+ years old company.

 

[MW1515]

This conclusion is kind of like buying a new $3000 TV, then after a week complaining that it has cost you $600 for every time you've turned the TV on. The TV was an investment with an upfront cost. Do the analysis after 5 years...

 

[Mirak]

They use the $60k loss because it's attention grabbing but it isn't talking about the cost to build a Mach-e and sell it, in a vacuum. Right now the profit margins are slim on EVs, and the Model e division is building Blue Oval City, the REVC expansion, investment/development in next gen EVs, and ongoing investment in battery tech. So even if Ford made $10k on every EV sold, Lightning or MME or Transit Electric, just to keep it simple, the division is spending $70k for every EV they sell in building new factories and all the things I noted above. That doesn't mean their vehicles aren't selling at a profit, but they aren't yet selling enough EVs to offset the costs of building all the new factories and so on. But you need those factories to eventually get to that point.

Right. To that point, I'd like to know what the total variable costs are per vehicle. But I cannot find that so maybe it isn't public information. Fixed costs are, of course, relevant, but muddy the waters when we don't know the fixed costs are being distributed.

Looking at "earnings" is useless without knowing how thinly or thickly Ford is spreading its fixed costs over an unspecified time frame. Unless there's an accounting standard which specifies how those fixed costs have to be spread. I have no idea.

 

[Arsenic17]

Apple loses $1 billion on the very first iPhone it sells every year, but after they sell the other 200 million iPhones, they are back to profitability..

 

[ArthurDOB]

There is a reason why the Ford's stock 52 weeks high is $15.88, shitty Rivian is trading higher than Ford, the 100+ years old company.

A dollar-for-dollar comparison of two companies' individual stock prices is no indication of the company's profitability. Many other factors influence the price, such as how many shares are available on the market.

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