Ford is finally delivering the value investors have been seeking: the electric vehicle revolution.
Ford's electric vehicle business is expected to lose $2.1 billion in 2022, more than double the $900 million it lost last year. The information is based on the company's new reporting system, which categorizes its automotive divisions instead of geographic regions. According to Ford, the cost will be further driven by EVs next year.
It is not a big deal when EVs start running in the red. Ford's ICE and Fleet businesses generated an operating profit of $10 billion, which more than offset losses from EV sales. These segments will make significant efforts to sustain the growing profits in the coming year as well.
Ford's electric vehicles' future:
In March 2022, Ford's announcement of plans to restructure gave hope to Wall Street for some answers to a crucial question. The company stated that it would launch its petrol and hybrid vehicles ("Ford Blue"), as well as its electric vehicles ("Ford Model E"), and break them down into various parts.
Ford CEO Jim Farley said the new EV division would generate as much excitement as any other electric vehicle competitor, but with the advantage of scale and resources that no start-up can match. The 120-year-old company's legacy business, which Farley refers to as "a profit and cash engine", has given it scale and access to resources.
The figures from the new financial reporting system reflect this.
Why did Ford modify its method of financial reporting?
Cathy O’Callaghan, who is a controller and vice-president at Ford, will lead a "teach-in" today (March 23) in a webinar at 10 am ET, to explain how to evaluate the company's new reporting method. O'Callaghan mentioned that this wasn't just a simple exercise of filling in a spreadsheet, but the outcome of almost a year of rigorous work by hundreds of Ford employees. The new reporting system is designed to capture the enormous strategic potential of Ford+ and provide a one-of-a-kind view into the company's business.
O'Callaghan identifies three reasons for the update:
- To fairly represent the business model of each segment.
- Giving Ford Blue, Ford Model e, and Ford Pro teams the freedom and responsibility to succeed.
- "So everyone can see how Ford is creating value for customers and other stakeholders," the goal is to make things simple to understand and implement.
Future Ford EV profitability, in one large number:
By the end of 2026, Ford expects the Ford Model e-business to have an adjusted operating margin of 8%. The company plans to have a global production capacity of 2 million EVs by that time. This EBIT margin is probably "very difficult to achieve," according to Emmanuel Rosner, a Deutsche Bank analyst because the EV business "could record significantly bigger losses than investors expect," he wrote in a note to investors on Monday (March 20).
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