Ford Motor Co (NYSE:F)
Conventional automakers are attempting to expand their own electric vehicle operations in order to compete with Tesla and acquire market share in the expanding segment of the automotive industry. Yet, it is unknown how much traditional auto manufacturers profit or lose from the production of electric vehicles (EVs).
This will no longer be the case beginning this week, thanks to Ford Motor (NYSE:F).
The new financial reporting framework for Ford will be presented to the public on Thursday morning. Ford has decided to declare its sales and profits not according to geographic location, but rather by electric vehicles, regular vehicles, and the commercial sector of the corporation. It is important that Ford Credit maintains its status as a separate reporting segment. Ford has given the name Model e to its electric vehicle (EV) business, Ford Blue to its traditional vehicle business, and Ford Pro to its commercial vehicle business.
Ford stock has lost around 4% of its value so far this year before trading began on Tuesday. The price of Tesla shares has increased by nearly 49%. The S&P 500 index has gained approximately 3%. Around three percent of the Dow Jones Industrial Average’s value has been wiped off so far in 2023.
It was a brave decision to pull back the curtain on the Model e-business. It’s likely that Ford isn’t turning a profit on the sale of electric vehicles just yet. In 2022, the company delivered about 62,000 electric vehicles (EVs). That is sufficient to place it as the second largest seller of electric vehicles in the United States, behind only Tesla, which sold 1.3 million vehicles worldwide in 2022, including more than 500,000 in the United States.
When Tesla was delivering electric vehicles at a rate of about 60,000 units per year, which was comparable to what Ford did in 2022, Tesla produced gross profit margins in the range of 20% and operating profit margins of about negative 15%, excluding stock-based compensation. Ford produced gross profit margins in the range of 25% in 2022. Additionally, Tesla was making quarterly sales of more than one billion dollars.
Taking into account the costs of materials, labor, operating expenses, research and development, marketing, and other expenses, it is possible that Ford’s electric vehicle (EV) company made gross profits of approximately 20% in 2022 but had an operating profit margin of -10%. This is a very approximate estimate of the total cost. It is simply not known what Ford’s allocation is for corporate overhead, what it pays for batteries and a great deal of other information.
It is not difficult to anticipate financial setbacks. For its part, General Motors (NYSE:GM), which has yet to turn a profit on electric vehicles (EVs), predicted in November that the company’s EV business will be “solidly profitable” by the year 2025. To achieve this level, among other things, GM will need to increase its local battery production and the number of sales of its electric vehicles.
And this results in an increase in output. Automobile assembly plants have a price tag in the billions of dollars, and a single facility is capable of churning out 500,000 vehicles annually. Scale is necessary for automakers to improve their profit margins. As Tesla was producing approximately 400,000 automobiles annually from a single facility, the company began to see steady gains in both its operating and bottom-line earnings. The year 2019 marked the beginning of Tesla’s shift to profitability.
One of Ford’s plants is located in Mexico, and the other is located in Dearborn, Michigan. The two electric vehicles that sell the most are the Mustang Mach E and the F-150 Lightning. Together, the two facilities are responsible for employing approximately 1,750 people. If Ford wants to join Tesla and BYD (1211. Hong Kong) as one of the world’s profitable electric vehicle manufacturers, production there will be critical.
The operational profit margins that Tesla achieved in 2022 were approximately 17%, and it is anticipated that the company will produce approximately 14% in 2023. As a result of Tesla lowering the prices of its automobiles, analysts anticipate a decline in margins. The operating profit margins that BYD achieved in 2022 were approximately 5%, and it is anticipated that the company will achieve operating profit margins of almost 6% in 2023.
In 2022, approximately 10% of the world’s market for light vehicles will be accounted for by electric vehicles. This includes plug-in hybrids as well as fully electric vehicles. As the number of electric vehicles (EVs) increases, investors will be seeking more information regarding EV earnings. It is possible that other traditional automobile manufacturers will follow Ford’s lead in the future.
Only the beginning has been made with its new financial reporting.
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