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Ford's commitment to electric cars still needs a lot of gasoline


The red numbers of its electrified division are bulky and there will be no profit, at the earliest, until 2026

Ford Motor has set itself the goal of being the leader in electric vehicles.

Last Thursday he gave a clearer idea about what his starting point is.

The US automaker disclosed losses from its electric vehicle division, now called the Ford Model e.

Investors can now better see the ambitious journey ahead.

At the moment, the red numbers are large.

Model e generated operating losses of $2.1 billion in 2022, well above the roughly $900 million loss in 2021. The automaker expects cumulative losses to reach $6 billion by the end of the year .

The counterpart is the future perspective that the black numbers push the red ones aside.

Ford expects to achieve a production rate of two million electric vehicles by the end of 2026, reaching an operating margin of 8% sometime in that year.

If a car sells for an average of $50,000, that will yield a profit of $8 billion.

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But the slope that must be climbed is very pronounced, and not only because of the investment costs.

Recent supply shortages and rising material prices have worsened unit economics: Ford will likely continue to lose on every car it sells, and they acknowledge that Model e vehicles will only "approximate" to covering variable costs. this year, not to mention the fixed costs.

Ford is not the only one.

Startups dedicated to producing electric vehicles look like money incinerators.

Rivian Automotive, whose shares have fallen 90% since going public in 2021, posted negative gross profit of $1 billion in the latest quarter.

But size helps Ford, as well as rival General Motors.

About 20 percentage points of the improved profitability that Ford anticipates will come from an increase in its capacity, the board said in a didactic event this week.

Gas-guzzling products, meanwhile, will help finance electric ones.

Elon Musk's Tesla track record shows just how much investors love to see an electric vehicle success story.

For companies like Ford, the electric vehicle is a necessity, not just an addition to the range.

The $8 billion potential operating profit is almost exactly where Ford Blue, the new name for the traditional business, is right now, and is well behind the $15 billion earnings before interest and taxes, or EBIT, that Tesla achieved last year, according to Refinitiv data.

Ford's current destination is just one stop on a longer journey.


The authors are columnists for Reuters Breakingviews.

Opinions are yours.

The translation is the responsibility of EL PAÍS

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Source: elparis

All business articles on 2023-03-26

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