Ford registered a marginal increase in profits for the second quarter of 2024, but the company’s share price tumbled after its earnings release amid a poor performance on the electric vehicle (EV) front.
The company blamed the loss on factors such as “ongoing industry-wide pricing pressure,” referring to price wars in the electric vehicle industry.
Ford’s EV division has lost $2.46 billion in the first half of this year. In 2023, the segment had registered a net loss of $4.7 billion.
The company’s two other divisions—the gas and hybrid vehicles as well as the commercial segment—both reported profits for the second quarter.
Ford is expecting the EV division to see a full-year loss of $5 billion to $5.5 billion given “continued pricing pressure and investments in next-generation electric vehicles.”
“We look forward to proving our EV strategy out. That has become more realistic and sharpened by the tough environment. Thankfully, we scaled years ago. We are confident we can reduce the losses and sustain a profitable business in the future with everything we’ve known.”
While Ford’s EV losses negatively affected second-quarter profitability, the company pointed to another reason—an increase in warranty reserves used to cover expenses for repairing customers’ vehicles.
Chinese Competition, EVs a ‘Huge Drag’
When asked by an analyst during the earnings call about whether Ford can make low-cost EVs profitably without their Chinese partners, Mr. Farley confirmed that it was possible.The CEO pointed out that while China has an advantage in making highly affordable batteries, they do not have an efficient design for other EV components.
“We’re betting on them as our affordable platform, they have really designed breakthrough EV components with our own design that we think are better and cheaper. And we have a very competitive battery localized with the IRA [Inflation Reduction Act] benefit.”
“And it needs to return the cost of capital on its own and not be subsidized, as I mentioned. And the real turning point for us, not only is our flat costs in Model e [EV segment] this year, but most importantly, it'll be the profitability in our next cycle of products,” he stated.
Ford does not plan on launching Gen 2 EV vehicles “unless we can get to a profit and a return on that capital that we’re investing there at the pricing environment that we now understand is reality.”
Ford has scaled down its EV investments given the large losses faced by its EV business. The company delayed its second joint venture (JV) battery plant, cut down the size of its lithium iron phosphate (LFP) plant in Michigan, and backed out from a JV battery plant in Turkey.
The survey found that the high cost of EVs, lack of convenient charging options, and anxiety about vehicle range were the key reasons prospective buyers were hesitant to choose EVs. Three out of 10 respondents also pointed out that they won’t be able to install a charging station where they live.
Despite surveys showing falling demand for electric vehicles, the overall EV market value in the United States is projected to increase in the coming years, according to a report by Fortune Business Insights.
The report estimates the EV market to rise in value by over 25 percent annually, to $137.43 billion in 2028 from $28.24 billion in 2021.
“Promotion activities and government policies are helping to overcome prevailing consumer barriers related to vehicle range, higher upfront costs, insufficient model availability, and lack of awareness,” the report said. “These factors will influence the U.S. electric vehicle market forecast.”