Startup Mode: Ford Expects $3B Loss at Its EV Division This Year

Ford (F) anticipates that the EV sales to customers will result in a $3 billion loss in 2023. Yet it still projects that it will achieve its annual profit target of $9 to $11 billion. According to the company, the total profit and the electric vehicle losses are both before deducting expenses and interest-related costs. On the same basis, it lost money on electric vehicles over the course of the previous two years, which is nearly equal to the lost $3 billion. The company claims that it lost roughly $900 million and $2.1 billion in 2021 and 2022, respectively.

Though it sold around 96,000 electric vehicles last year, earning revenue of $5.3 billion, Ford continues with the expectation that electric vehicles will begin making a profit shortly, starting from an operational margin of losses of 40% to around an 8% margin of profit by the end of 2026, when it expects that increasing production of electric vehicles will have boosted the units of EVs being produced globally to 2 million annually.

Even though Ford meets its profit targets, it will remain significantly less profitable compared to what Tesla, a leader in turning a profit on electric vehicle sales, reported. While responding to a question as to whether Ford was going to meet its electric vehicle profit goals during a Thursday investor call conference, John Lawler said that Ford was confident in its prediction partly because of the hired Tesla graduates on their side.

Early in the year, Ford increased production of electric vehicles and announced a reduction in price for one of its models, the Mach E. Weeks later, Tesla lowered the cost of many of its cars.

Though there are long lines of customers waiting for the Ford F-150 Lightning electric truck and the Mach E, Jim Farley claimed Ford faced production problems that made ramping up electric vehicles much more costly than originally anticipated. While speaking during an investor conference call, Farley stated that Ford management was unaware that the Mach E 1.6 km wire harness was too long. They did not know the 70 pounds of added weight would cost an extra $300 per battery and that they underestimated the value of braking technology in order to save on the size of the battery. As a result of all these issues, along with those cost-related ones, Ford lost out on around $2 billion in earnings.

Ford has disclosed financial information about electric vehicles, detailing how it will report results moving forward without breaking out losses and profits according to region but rather product line instead, which it will present in another investor meeting.

It would be interesting to compare the path to profitability of other startups in this space such as QuantumScape Corp. (NYSE: QS).

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