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Ford Motor is losing too much money on electric vehicles and there is a novel solution to the problem: It could team up with
Tesla
.
For traditional automakers, breaking into the EV business has been harder than it looked.
Ford Motor
(ticker: F), for instance, is making fewer EVs than it projected and losing more money than it expected selling battery-powered cars. In late July, Ford reported a better-than-expected second-quarter operating profit of $3.8 billion. Wall Street was looking for $3.2 billion. Good news. What’s more, Ford raised the midpoint of full-year operating profit guidance to $11.5 billion from $10 billion.
Ford, however, also increased its estimated 2023 loss for its EV division, called Model e, to $4.5 billion from $3 billion. What’s more, CEO Jim Farley said his company would produce EVs at a run rate of 600,000 a year sometime in 2024. Prior guidance was 600,000 by the end of 2023.
A 600,000 run rate is about 50,000 a month. In July, Ford sold 6,280 battery-electic vehicles in the U.S. Ford’s best month for U.S. EV sales came in December 2022 when it sold 7,823 units.
It’s been much harder to ramp EV sales than expected. “We estimate Ford’s EV business…will burn roughly $50,000/unit of cash this year and, without a strategy pivot, could get even worse before it gets better,” wrote Morgan Stanley analyst Adam Jonas in a recent report.
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Jonas still has a Buy rating on Ford stock though, one that is predicated on a “material change” in Ford’s strategy towards collaboration, opening a pathway to producing EVs people want at a competitive cost structure. “If Ford believes it truly ‘owns’ the relationship with the core F-150 or Ford Pro consumer, would that consumer really care if Ford were to license battery technology from a rival high-scale car company?” asks Jonas.
It’s a radical idea. What’s more, the only non-Chinese high-scale EV maker is
Tesla
(TSLA) Jonas is essentially suggesting Ford get out of the business of producing engines and transmissions and outsource it to a principal rival. Battery tech is core to an EV powertrain, and Tesla has the tech.
His price target for Ford stock is $16. Ford closed Tuesday at $12.88, down 0.4%.
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The merit of the approach is easy to see. Collaboration would save cash. Ford is spending some $7 billion on EV development in 2023 with more planned in 2024.
Ford has purchased engines from other suppliers in the past. In the late 1980s and early 1990s, the Taurus SHO engine was produced by Japan’s
Yamaha Motor
.
As for major Asia-based EV players, there is really one. China’s BYD (1211. Hong Kong). BYD is the largest maker of EVs in China, it manufactures EV batteries too.
Collaboration efforts are on the rise.
Volkswagen
(VOW. Germany) just announced a collaboration with China’s
XPeng
(XPEV). VW will put capital into XPeng and develop two EVs for the Chinese market.
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That’s one way to go. There are other approaches. Navellier & Associates founder Louis Navillier wrote recently that Ford might look to focus more on hybrid models and away from all-battery electric vehicles.
Ford isn’t ready to give up on battery-electric vehicles yet though. A Ford spokesman told Barron’s there is no change in the planned mix of BEVs and hybrids. In July, Ford sold 11,447 hybrids in the U.S. bringing the year-to-date total to 73,100, up about 9.4% year over year.
All electric sales have totaled 31,989 through July. That’s up about 4.4% year over year, but sales have been hurt by battery-quality problems and plant downtime.
All the talk of strategic pivots is driven by increasing losses. One way out would be for Ford to produce a BEV hit. An EV that sells tens of thousands of units a month. That would give Ford the scale to produce Model E profits.
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Tesla
sells roughly 35,000 Model Y crossover vehicles a month in the U.S. and more overseas. That’s a hit. That’s also why Tesla’s gross profit margins have averaged roughly 22% over the past year, more than double Ford’s 10%.
Easier said than done. Producing an EV hit has been tough for Ford and for all other traditional automakers. Ford’s best month of U.S. sales for its Mustang Mach-E came in May 2022 when it sold almost 5,200 units. Ford sold 3,937 Mach-Es in July.
The best-selling EV that isn’t a Tesla in the U.S. is the Chevy Bolt. GM has sold roughly 5,700 a month on average in the U.S. so far in 2023. Not bad, but no non-Tesla battery-electric model sells 10,000 a month in the U.S.
Only 10 BEV models sold more than 10,000 units in the first half of 2023. Four of those came from Tesla. A hit is needed. An EV hit for Ford would go a long way to answering any questions that investors have about strategy.
Write to Al Root at allen.root@dowjones.com
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