The main reason why Elon Musk's Tesla doesn't take massive losses on its electric vehicles is because a) that's the only kind of vehicles the company makes; and b) Musk long ago scaled production of Tesla EVs to demand.
But the other major automakers who built their brands on the internal combustion engine and who have flocked to the EV market that was created by government policy, not through demand, are about to learn another hard business lesson: Left-wing 'woke' ideology is no way to succeed.
And the first is Ford Motor Co.
"Ford is about to tell investors what they’ve long wondered: How much is the transition to electric vehicles costing?" according to a report by CNBC this week.
Ford will switch from reporting its financial results by region to reporting them by business unit starting on Thursday, according to a statement. The company will host a “teach-in” for analysts and media with the theme “Ford Refounded,” and release revised versions of its financial results to show how the new business units would have performed in 2021 and 2022, the report noted.
Ford is set to change its financial reporting structure to business units, instead of by region. The new reporting structure will consist of five business units: “Ford Blue” for traditional internal combustion engine business, “Model e” for electric vehicles, “Ford Pro” for commercial and government fleet business, “Ford Next” for future tech and non-automotive mobility solutions, and the existing Ford Credit financial services subsidiary, CNBC noted further.
The upcoming financial reporting by Ford will provide investors and analysts with a detailed look into the finances behind the company's EV business, making it the most comprehensive disclosure by any traditional automaker. Ford's new reporting structure will allow for a breakdown of profits and losses, revenue, margins, and earnings before interest and taxes (EBIT) for each of its business units, providing a baseline for comparisons as the company undergoes its transformation, the report said.
And frankly, Ford's reporting on its EV business isn't expected to be good.
Under CEO Jim Farley's leadership, Ford has initiated a comprehensive restructuring of its business, which involves splitting its primary revenue streams, namely internal combustion vehicles and its commercial fleet business, from the company's developing all-electric vehicles, which are expected to remain unprofitable for at least a few years, the report continued.
At least.
Farley and other executives have stressed that the reporting changes are not only aimed at disclosure but also reflect the way Ford's management team operates and thinks about the business.
“The changes are significant. It’s not the first time Ford Motor Co. has had to reimagine its future or form its own path that’s different from other companies,” Farley said when announcing the new business units on March 2, 2022, CNBC added. “Is this about winning? 100%.”
Farley said last year that Ford's dedicated EV business would generate "as much excitement as any pure EV competitor, but with the added advantages of scale and resources that no startup could match." Nevertheless, he described Ford's legacy business -- which is combustible engines -- as “a profit and cash engine." That's code for "The EV business isn't going to take over the legacy business anytime soon, if ever."
"Morgan Stanley’s Adam Jonas expects Ford Model e to have negative gross margins of between 10% and 20% with adjusted EBIT margins of between negative 20% and negative 30%. Both would imply significant losses," CNBC reported, while Ford execs are only predicting about 8 percent negative gross margins.
Emmanuel Rosner, an analyst at Deutsche Bank, estimates that Ford may be incurring gross losses of approximately $9,000 per electric vehicle sold.
The analyst predicts that Ford will announce on Thursday operating losses of $6 billion for the Model e in 2022, which accounts for significant research and development investments, representing approximately 65% of the company's total R&D, into the electric vehicle unit, CNBC reported.
“The EV business could report much deeper losses than investors expect, which could make Ford’s target for 8% EV EBIT margin by 2026 particularly difficult to achieve,” Rosner observed earlier this week in an investor note.
Sources include:
Please contact us for more information.