When Ford Motor Company (F 0.17%) announced its second-quarter results on Thursday evening, at first glance, the news looked encouraging.

The iconic automaker's revenue climbed by a healthy 12%, driven by better-than-expected automotive sales of $42.43 billion (versus estimates for $40.38 billion). On the bottom line, adjusted earnings of $0.72 per share (up from $0.68 per share a year earlier) easily outpaced expectations for an earnings decline to $0.55 per share. Management also raised its full-year outlook for adjusted earnings before interest and taxes (EBIT) to between $11 billion and $12 billion (up from a guidance range of $9 billion to $11 billion before), and for adjusted free cash flow to between $6.5 billion and $7 billion (up from $6 billion previously).

So why, then, did Ford stock fall around 4% on the news? Look no further than its fledgling electric vehicle initiatives.

Ford's EV dilemma

Ford's relative outperformance on a consolidated basis was driven almost entirely by strong demand for the products of its Ford Pro and Ford Blue segments, which focus on its internal combustion engine (ICE) and hybrid vehicle lines.

Ford's Model e segment -- formed early last year to focus specifically on electric vehicles and connectivity -- did see revenue climb 39% year over year to $1.8 billion (4.2% of the company's total). But management also said that the Model e segment is expected to incur an eye-watering EBIT loss of $4.5 billion in 2023.

Management further told investors they don't expect to get EV production's annualized run rate ramped up to 600,000 units until some time in 2024. Previously, the stated target for that milestone was the end of 2023. The issue, Ford said, was the slower-than-expected adoption of Ford's EVs to date -- largely amid pricing pressures. Higher production costs have prevented the company from cutting EV prices enough to drive higher demand.

Moreover, while Ford initially targeted reaching a rate of more than 2 million EVs per year by the end of 2026, management now more vaguely suggests the company "will maintain flexibility, balancing growth and profitability on the way to attaining a two-million run rate."

Ford CEO Jim Farley did his best to paint all of this in a positive light, stating: "The shift to powerful digital experiences and breakthrough EVs is underway and going to be volatile, so being able to guide customers through and adapt to the pace of adoption are big advantages for us."

As Ford seems to be telling it, many of its customers simply aren't ready for fully electric vehicles yet. Rather, they prefer to buy something like a hybrid vehicle as a stepping stone toward eventually going 100% electric.

But this highlights what is arguably the biggest dilemma for traditional automakers as the industry inevitably shifts toward electric vehicles: As pure-play electric vehicle makers focus on driving down costs while simultaneously ramping up production in line with demand -- and make no mistake, the demand is there for companies delivering the right vehicle offerings at the proper prices -- how can legacy automakers follow suit without cannibalizing the sales of their bread-and-butter ICE lines?

You might say they're trying to have their cake and eat it, too.

Tesla's continued dominance

Tesla still holds the dominant position among EV makers. It commanded a nearly 60% market share in the U.S. during the first half of 2023 with 336,892 units sold (up 30% year over year). Ford, by contrast, sold only 25,709 EV units in the U.S. (up 12%), falling from second place in the U.S. at the halfway point last year to fifth place today. Ford now trails Tesla, Hyundai-Kia (OTC: HYMTF) (38,457 units), GM (NYSE: GM) (36,322 units), and Volkswagen (OTC: VWAGY)(26,538 units). 

To be fair, Tesla's market share is also falling. It's down from a peak of 78% in 2018 and around 72% at the start of 2022, and is widely expected to continue to decline in the coming years as legacy automakers and fellow electric pure plays alike roll out more EV offerings and scale up production. 

The big difference, however, is that Tesla is already sustainably profitable and generating positive cash flows at its current EV run rate -- raking in GAAP net income of $2.7 billion and $1 billion in free cash flow in the second quarter -- and this even after cutting prices in Q2 to help boost demand in today's higher-interest rate environment. Of course, that ignores the fact that Tesla has yet to ramp up production for its Cybertruck  -- demand for which appears to be absolutely overwhelming -- as it builds release candidates and works to complete factory tooling this year.

Tesla is focused on further reducing costs while maximizing cash flow, so the gap between its financial profile and the profiles of legacy automakers seems poised to only widen as the members of the old guard strive to manage their EV ramp ups without sacrificing their ICE businesses.

Ford executives have indicated they're perfectly content with how they are walking that line for now. They're even trying to make it sound like a positive for the company. But I'm sure they would be singing a different tune if demand for Ford's EVs was instead stronger than expected. All things considered, while Ford's strength and profitability in ICE vehicles are admirable, it seems clear that it's falling further behind Tesla in the EV race.