Ford Goes All-In on Hybrids as its EVs Lost Nearly $5 Billion in 2023

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Widening EV Losses

The storied car manufacturer has been pushing hard on electric vehicles, but the market has faced difficulties recently. The price premium against a backdrop of high inflation and elevated interest rates that make funding more expensive, along with other factors, have softened demand. Many manufacturers reacted by slashing prices, in a war started by Tesla, but this is bad for profitability.

Model E, Ford's EV segment, lost a whopping $4.7 billion (EBIT) in 2023, more than doubling from a year ago and expects them to widen further in 2024, to $5.0-5.5 billion. Furthermore, the company no longer believes it can achieve the previously stated margin goal of 8% by the end of 2026 [1]. CFO John Lawler said during the earnings call that "I don't think anybody believes that by '26, we can bridge from here to 8%". [2]

The "slower" EV adoption than previously anticipated, has caused the firm to rethink the EV push and take a step back. It has pushed back around $12 billion in investments and recently announced a cut in the production of its electric pickup truck to achieve "the optimal balance of production, sales growth and profitability". [3]

Taking a step further yesterday, the CFO said that the next generation of EVs are adjusted to ensure profitability and CEO Jim Farley added that they will be profitable "in the first 12 months of their launch". The shift in Ford's strategy includes greater emphasis on hybrids, sales of which jumped 20% last year and are projected to accelerate 40% in 2024. Confirming the change, Mr Farley stressed that hybrids will "play an increasingly important role" and touted flexibility as pure-battery market is getting saturated.

However, the company remains committed to electric vehicles and is not turning away from them, with the CEO speaking of an "inevitable" path and a bright future. The Ford Motor Company has emerged as the No. 2 EV maker behind Tesla in the US, with its F-150 lighting gaining the love of buyers and critics. Globally, its sales rose 20% in 2023, to 116,000. It plans an expansion in Europe, with highly anticipated all-electric Explorer SUV.

Cheap electric cars are the key to mass adoption, especially given the current environment. Tesla CEO Elon Musk has confirmed plans for an affordable vehicle, pointing to 2025 production in the last earnings call. Ford is apparently going down the same road, with Mr Farley saying they are working on a low-cost EV platform, but offered no timeframe.

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Despite the massive losses on the EV segment, the firm generally performed better than markets expected and offered upbeat guidance for the current year. It also announced an additional dividend as it looks to give back 40-50% of its cash flow, which was cheered by investors.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 07 Feb 2024 https://s201.q4cdn.com/693218008/files/doc_financials/2023/q4/2-6-24-Ford-Delivers-Solid-2023-Provides-Outlook-for-Healthy-24-Company-Declares-Regular-Supplemental-Stock-Dividends.pdf

2

Retrieved 07 Feb 2024 https://s201.q4cdn.com/693218008/files/doc_financials/2023/q4/FMC-2023-Q4-FY-Earnings-Calls-Transcript-_Factset_2-6_945.pdf

3

Retrieved 02 Jun 2024 https://s201.q4cdn.com/693218008/files/doc_news/2024/Jan/19/ford-adds-third-crew-to-meet-demand-for-bronco-and-ranger-reduces-f-150-lightning-production.pdf

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