Ford estimates losses from electric vehicles to reach $3 billion in 2023

Ford Motor Company estimates that losses in its electric vehicle sector will reach $3 billion this year. This is the result of significant investments in new models and factories. The deficit is equal to the company's two-year EV loss total.

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As it prepares to start publishing financial results by business unit rather than region, the automaker provided guidance on Thursday regarding the performance of its EV unit. In addition, it provided guidance regarding its traditional internal combustion engine and commercial activities. The business maintains its current-year earnings forecast at the same level.

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Ford also revised its financial statements for the previous two years. It revealed that its developing EV company lost $2.1 billion in 2018 before interest and taxes and $900 million in 2021 on that basis.

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Jim Farley, the company's CEO, is dividing the 120-year-old carmaker into three divisions: Model E, Ford Blue, which will focus on internal combustion engines, and Ford Pro, which will produce commercial trucks and vans.

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Ford is the No. 2 EV seller in America thanks to the F-150 Lightning plug-in pickup and the battery-powered Mustang Mach-E, but it is well behind Tesla Inc., which dominates the US EV industry with two-thirds market share.

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Farley wants to compete with Tesla and eventually outperform Elon Musk's business, which is currently the most valuable automaker in the world. Ford has set a goal of producing 2 million battery-powered vehicles annually by 2026 and is investing $50 billion in EV research and development through that date.

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According to John Lawler, chief financial officer, EV losses will increase by 43% this year. This is as Ford invests substantially in a second generation of battery-powered cars and billions in new factories to make them.

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"Model E will have a lot of growth," according to Lawler.

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Ford has reiterated its goal to reach an 8% margin, before interest and taxes, on electric vehicles by late 2026. According to that metric, called EBIT, electric vehicles produced a 40% negative margin last year, according to Lawler. But he noted that on a contribution-margin basis—which does not include R&D expenses—EV Ford's business will approach breakeven by the end of this year.

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At a "teach-in" on Thursday at the New York Stock Exchange, Ford will walk analysts through its goal to eliminate losses and start earning a profit on EVs by 2026. Lawler says the path to profitability will be paved with more sales volume, more effective designs, cheaper batteries, and more competitive distribution and pricing.

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Ford's losses from EV sales last year were lower than Emmanuel Rosner, a Deutsche Bank analyst, had predicted. In a note dated March 20, he stated that, after accounting for large research and development expenses, Ford's Model E segment will likely have operating losses of $6 billion in 2022.

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Pickups Bolster Profits

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Ford's profits from conventional gasoline-fueled cars like the best-selling F-Series pickup trucks and Bronco sport utility vehicles more than offset its losses from EVs. According to the automaker's revised financial statistics, the Ford Blue division's EBIT for the previous year was $6.8 billion.

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Farley has been critical of its traditional businesses' performance, and this year Ford predicted that its internal combustion-engine vehicles would generate approximately $7 billion in earnings before interest and taxes, which it described as a "moderate improvement."

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Ford forecasts its commercial division's earnings before interest and taxes could treble to $6 billion this year. Ford Pro's EBIT for the previous year was $3.2 billion, up from $2.7 billion in 2021.

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Lawler noted that Ford Pro "is scaling and growing" and mentioned the introduction of a new Transit vehicle this year. "There is tremendous unmet demand in the commercial sector."

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The company reiterated its adjusted EBIT projection for the full year of $9 billion to $11 billion. In the wake of two consecutive weak earnings quarters, shares have been under pressure.

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Farley hopes to revitalize and refocus Ford via corporate restructuring.

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“This is not just an accounting exercise,” says Lawler. "We've virtually refounded Ford after 120 years."