Ford may lose $4.5 billion on electric cars this year, but its profits from other areas may outweigh this.

Ford may lose $4.5 billion on electric cars this year, but its profits from other areas may outweigh this.

Ford’s Electric Vehicle Division Faces Losses, but Overall Outlook Remains Positive

In a recent announcement, Ford revealed that its electric vehicle division, known as “Ford Model e,” is expected to incur losses of $4.5 billion this year, with $1.8 billion already lost in 2023. However, despite these setbacks, the company remains optimistic about its future in the electric vehicle (EV) sector. Ford’s robust performance in its traditional and commercial vehicle segments has not only led to a considerable increase in net income but has also prompted the revision of its profit guidance for the entire year.

EV Sector Challenges and Growing Demand

The demand for electric vehicles is rapidly increasing, but the industry is struggling to keep up with production. According to the New York Times, there is currently an overstock of over 90,000 electric cars and trucks on dealer lots, a four-fold increase from the previous year. This challenge has led to a price war among EV manufacturers, including Ford and Elon Musk-led Tesla, with both companies slashing prices to boost sales and gain market share.

Ford, in particular, has recently reduced prices on some of its electric car models by up to 17%, including the F-150 Lightning electric pickup truck. This move aims to attract more consumers and position Ford competitively against its rivals. Despite the slower-than-expected adoption of EVs, Ford’s CEO Jim Farley sees it as an opportunity for early movers like Ford, emphasizing the company’s readiness to provide innovative and next-generation products that will astonish customers.

Geopolitical Challenges and Partnerships

While Ford is actively investing in the EV sector, it has also encountered geopolitical hurdles. In February, the company announced a partnership with Contemporary Amperex Technology (CATL), a Chinese battery company. Ford plans to license CATL’s advanced battery technology for its new $3.5 billion plant in Michigan, scheduled to open in 2026. However, some members of Congress have criticized the deal, alleging that it is an attempt to bypass U.S. rules on electric vehicle subsidies. To address these concerns, Ford’s executive chairman Bill Ford and CEO Jim Farley recently met with Congressional leaders.

Ford’s Strong Earnings

Despite the challenges faced by its EV division, Ford’s overall financial performance remains promising. In the last quarter, the company generated $45 billion in revenue, marking a 12% increase compared to the previous year. Particularly noteworthy is the strong growth in Ford’s commercial vehicle segment, named “Ford Pro,” which saw a revenue increase of 22% to reach $15.6 billion. Furthermore, Ford’s quarterly net income reached $1.9 billion, nearly triple the amount earned during the same period last year.

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Ford’s positive financial outlook is further supported by its revised guidance on earnings before interest and taxes (EBIT), which is now expected to be between $11 billion and $12 billion, up from the initial range of $9 billion to $11 billion. The projection includes a forecast of $16 billion in EBIT from Ford’s traditional and commercial vehicle segments combined, which more than offsets the projected $4.5 billion loss from the electric vehicle division.

Chief Financial Officer John Lawler expressed the mindset behind these investments, emphasizing that startups often experience losses as they invest in capabilities, develop knowledge, build volume, and gain market share. This viewpoint reflects Ford’s long-term strategy in the EV sector, where they are willing to weather initial losses for future gains.

In conclusion, while Ford’s electric vehicle division currently faces significant financial losses, the company’s overall performance in its traditional and commercial vehicle segments remains strong. Ford’s strategic moves, such as price reductions and partnerships, demonstrate its determination to remain competitive in the evolving electric vehicle industry. With an optimistic outlook and innovative products in the pipeline, Ford is well-positioned to take advantage of the increasing demand for electric vehicles and establish a prominent presence in the market.

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