Ford's third-quarter earnings have unveiled a paradoxical situation. While the auto giant managed to edge out its rival, General Motors, in terms of electric vehicle sales, it found itself grappling with an escalating financial loss in its EV division. The primary culprits? A sluggish demand for EVs and a fierce price war, courtesy of Tesla.
In the third quarter, Ford reported sales of 20,962 electric vehicles, a figure that marginally surpassed General Motors. This uptick was largely due to the robust production and sales of the Mustang Mach-E. Specifically, the Mach-E witnessed a significant sales increase of 42.5%, translating to 14,824 units sold in Q3. Out of these, 5,872 units were sold in September alone.
From an outsider's perspective, things might seem peachy for Ford. After all, the company's EV deliveries soared by 44%, bringing in a 26% year-over-year revenue growth for Ford’s EV unit, amounting to $1.8 billion. But, as is often the case with business, the devil lies in the details.
The heightened sales volume didn't translate into profitability. Instead, Ford's EV segment registered an operating loss of $1.3 billion in the third quarter. This is a substantial increase from the $1.1 billion loss in the preceding quarter, and more than twice the loss reported in Q3 of 2022. Breaking it down, Ford lost an eye-watering $36,000 on every EV sold during this quarter. This figure overshadows the estimated loss of $32,350 per EV in the second quarter. Zooming out, Ford anticipates a cumulative loss of $4.5 billion in its EV division for the year.
So, why this financial downturn despite increased sales? Ford attributes the Q3 losses to its consistent investments in next-gen EVs and, more importantly, the intricate market dynamics. The automaker pointed out a noteworthy trend: a significant number of potential EV buyers in North America are reluctant to pay a premium for EVs compared to their gasoline or hybrid counterparts. This reluctance, in turn, exerts downward pressure on EV prices, squeezing profitability margins.
Responding to these challenges, Ford announced a rollback of approximately $12 billion in its planned EV investments. This will see a reduction in Mustang Mach-E production and a delay in the opening of one of its two proposed battery plants in Kentucky, in collaboration with SK On. While the exact duration of this delay remains undisclosed, Ford confirmed that its other battery plant in Kentucky and the Blue Oval City complex in Tennessee are progressing as planned.
Ford's Chief Financial Officer, John Lawler, while addressing the situation during an earnings call, remarked that the growth in the EV segment isn't stagnating. Instead, it's evolving at a pace slower than anticipated by the industry and Ford itself. Lawler highlighted that with the current softened demand, Ford's immediate EV capacity requirements have dwindled. However, he assured that Ford remains committed to its future line-up of EVs, which includes a three-row SUV and a full-sized pickup.
To add to the complexities, Ford's finances are expected to be further strained due to a tentative agreement with the United Auto Workers (UAW) union. This agreement proposes a 25% wage hike for 57,000 workers over five years. According to Lawler, this could add an estimated $850 to $900 in labor costs per vehicle. Furthermore, the recent 41-day strike by UAW led to a production loss of 80,000 vehicles for Ford, incurring a cost of $1.3 billion and effectively negating $1.2 billion in Q3 income.
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Cry me a river. They're in the race to keep EVs as luxury priced vehicles, not as the commodities they should be.
Stupid headline. Amortizing very high up front costs over a small production run (regardless of the reasons) is not a fair/valid analysis of a car producer in anything resembling a 'steady-state'.