EV profitability is proving tricky for Ford

We are starting to see some interesting news coming out of the USA. It’s being reported that Ford is manufacturing each EV at a huge loss.

At this stage it’s difficult to know exactly the extent of that loss across each EV model but some articles we have read estimate the loss to be as high as $60,000 US dollars. With that amount of loss how is Ford expected to turn a profit for its EV program by 2026?

To keep things simple with the numbers and get a better understanding of how unprofitable Ford's Model E, EV programme is, we see that Ford's EV sales grew by 40% during the first quarter of 2023 to nearly 11,000 EVs, however its Model e segment lost over $700 million in adjusted earnings during that same time frame. That essentially shows each vehicle that Ford's EV segment produces loses more than $60,000.

What is even more surprising, we have also read that Ford's EV profitability is expected to get worse before it begins turning a profit.

In fact, Ford Model e losses jumped from roughly $900 million in 2021 to $2.1 billion in 2022.

Those losses are expected to reach $3 billion by the end of 2023 as the company heavily invests in new models and factories to build scale and eventually turn billions in losses into billions in profits.

The big question now remains, how does Ford actually get to profitability in such a short amount of time? The key factors for Ford's Model e programme turning a profit are related to increasing scale, improving design, engineering efficiencies, lowering battery cost, and hoping there are no EV price wars and that raw material costs and availability improve.

However, Tesla and many Chinese EV manufacture have already started announcing reduced pricing on their EV models.

Ford are saying that accelerating the scale and production will be the best path to profit by 2026. Already Ford has targeted its popular F-150 Lightning and Mustang Mach-E to reach higher sales by the end of 2023. The F-150 Lightning showed increased sales so far in 2023, while Mustang Mach-e numbers dropped.

Increasing inventory levels for EVs appear to be a growing pain for Ford dealers as the demand has not reached expectation. One US Ford dealer shared that actual supply was not in sync with customer demand, leading to more Ford EVs remaining unsold in the showroom.

Ford is targeting a global run rate of 600,000 EVs by the end of 2023, with that figure reaching more than 2 million by the end of 2026. Growth can be gained through harmony and reuse of technology, engineering and improving design efficiency. More efficiency can be found by vertical integration, securing battery materials, and accelerating scale of battery production. Those three factors should alone get the Model e segment to profitability.

Any other remaining strategy to reach Ford’s target of profitability by the end of 2026 might be a little more uncertain. Ford expects dealer standards, software and service, and better raw materials costs to add a few extra points. But the uncertainty of a price war with other EV manufacturers will still remain a major threat to profitability by 2026 and beyond.

Can Ford generate profits from its EV programme by the end of 2026? It has popular nameplates driving current sales and demand, new EVs on the way, and improving scale for not only its vehicles, but also its batteries, once again time will tell, but it’s not all plain sailing.

December 2023