Unless investors have closed their eyes and covered their ears, they've likely heard that electric vehicle (EV) sales growth in the U.S. market has slowed to a crawl. That's become a big headache for major automakers such as Ford Motor Company (F -0.21%), which had planned to invest billions of dollars into its EV segments and battery factories.
The news gets a little worse, as a recent report just noted the staggering losses per Ford EV -- but the company is taking action to offset those costs. Let's dig in.
Losses double
If you merely glance at Ford's first-quarter results, you'll see just how much of a drag its EV unit, Ford Model e, was on results. Earnings before interest and taxes (EBIT) for Ford Model e in the first quarter checked in with a $1.32 billion loss. A source told Bloomberg recently that Ford's losses per EV topped a staggering $100,000 during the first quarter, which was reportedly more than double the loss per EV last year. One issue is simply the high costs -- including batteries, which remain one of the largest costs of EVs. Ford will need to scale its EV production to help lower costs.
For context, Ford Blue, which is the automaker's traditional gasoline-powered-vehicle business, posted an EBIT result of $905 million -- more than offset by its staggering EV losses. Further, with demand lacking, Ford's Model e posted a 20% decline in wholesale units and an 84% decline in revenue during the first quarter, compared to the prior year.
These staggering results would have hit investors even harder if it weren't for Ford Pro, the company's commercial vehicle business. Thankfully, for Ford investors, Ford Pro checked in with a strong $3 billion EBIT result during the first quarter. Rather than relying on Ford Pro's strong results to offset its EV losses, the company is making some moves.
What's Ford doing?
Most recently, Ford has started pulling back on orders from battery suppliers to help mitigate EV losses. Also, in November, management said its EV battery factory in Marshall, Michigan, will be much smaller than originally anticipated to help offset slowing demand.
More broadly speaking, Ford has adjusted its overall EV strategy by reducing spending by $12 billion on battery-powered vehicles, delaying launches of new EVs, and reducing the size of its battery factories. Ford has also stepped back from its 2021 pledge to be all-electric in Europe by 2030 and now admits that if demand remains for internal combustion vehicles, Ford will sell them.
Despite its moves to pull back on its EV ambitions, Ford expects its Model e unit losses to reach up to $5.5 billion as it continues to weigh down the company's bottom line. One of the key issues is that while Ford has slashed thousands in costs from its EVs, it's also had to slash prices to stay competitive in the market that includes Tesla's aggressive pricing strategies.
What it all means
There's no question that Ford's EV ambitions have weighed on the company's results, and 2024 will be another huge loss even if it checks in on the better side of $5.5 billion as estimated. For investors, the hope is that sooner rather than later, Ford will get a return on its massive investment. In the meantime, it also means the company has much upside if it can turn its Model e business around within a couple of years as originally anticipated.
