Ford Reassesses $12B EV Investments Amid Market Dynamics

Ford has decided to postpone its $12 billion investments in electric vehicles (EVs), including the construction of a second battery facility in collaboration with SK On, due to a decreased demand for high-end electric cars according to an investor briefing and reporting by TechCrunch.

During Ford's recent Q3 earnings call, CFO John Lawler clarified that the company remains committed to its next-gen EVs. However, both he and CEO Jim Farley recognized that while the EV market is growing, consumers are hesitant to pay extra for EVs compared to traditional or hybrid vehicles. This reluctance has impacted Ford's profits, particularly in their EV sector.

Most of Ford's profits are generated from its commercial products and services, known as Ford Pro, and its renowned gas and hybrid vehicles under the Ford Blue division.

Contrastingly, Ford's Model e division, dedicated to EVs, reported a Q3 loss of $1.3 billion, an increase from the $1.08 billion loss in the previous quarter. Ford's goal is to achieve an 8% profit margin on EVs, matching the pricing of internal combustion engine (ICE) vehicles. Achieving this requires significant structural adjustments.

Farley emphasized the importance of competitive EV pricing, citing Tesla's success with the Model Y as a benchmark. He mentioned that while Ford is making strides with its upcoming EV models, profitability remains elusive.

In line with this strategy, Ford launched the F-150 Lightning Flash pickup in October, a more affordable yet tech-rich version of the F-150 Lightning. Additionally, Ford plans to roll out several second and third-generation vehicles at more competitive prices.

Farley stressed that merely having a great product isn't sufficient in the current EV landscape; cost competitiveness is crucial. Lawler added that the success of Ford's EV transition hinges on their next-gen EVs being cost-effective and incorporating lessons from their existing vehicles.

To align with market demand, Ford is recalibrating its production. This includes reducing Mustang Mach e production and reconsidering several investments. Collaborative projects, like the battery plant in Kentucky with SK On, have been delayed. Furthermore, Ford is assessing its global Battery Park Michigan facility for potential modifications.

Lawler highlighted that approximately $12 billion of EV expenditure, encompassing capital expenditure, direct investment, and expenses, has been deferred. Ford will only proceed with these investments if deemed necessary.

In other news, Ford and the United Auto Workers union have tentatively agreed to conclude a six-week strike. The strike affected Ford's third-quarter earnings by around $100 million and reduced their production by 80,000 units. Lawler mentioned that this could decrease the 2023 EBIT by an estimated $1.3 billion. Updates on Ford's annual guidance will be provided post-ratification.

Previously, Ford's 2023 projections were an adjusted earning of $11-$12 billion and a free cash flow of $6.5-$7 billion. As of Q3, Ford reported an adjusted EBIT of $9.4 billion.

The union agreement entails a 25% wage hike over the next 4.5 years, with an initial 11% increase. This will raise top wages to over $40 per hour and starting wages by 68% to exceed $28 per hour.

For Q3 2023, Ford announced a net income of $1.2 billion, a significant improvement from the $827 million loss the previous year. The total automotive revenue stood at $41.19 billion. The Ford Blue and Ford Pro divisions earned $1.72 billion and $1.65 billion, respectively, while Model e reported a loss of $1.3 billion. The quarter ended with Ford having over $29 billion in cash and $51 billion in liquidity.