Ford Stock Dips 17 Percent, EVs Lose $1.1 Billion in Second Quarter

The all-electric F-150 Lightning from Ford is displayed at the Los Angeles Auto Show in Los Angeles on Nov. 18, 2021. (Frederic J. Brown/AFP via Getty Images)

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 poor performance on the electric vehicle (EV) front.

While the Michigan-based auto manufacturer reported a 3.8 percent increase in net income for the second quarter compared with the same quarter last year, the company’s EV division suffered a loss of $1.14 billion.

The company blamed the loss on factors such as “ongoing industry-wide pricing pressure,” referring to price wars in the electric vehicle industry.

Manufacturers such as Tesla and Ford have been aggressively lowering EV prices, which ends up negatively affecting profits. The pricing pressure and other factors have “more than offset about $400 million in year-over-year cost reductions in the segment.”

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 gas and hybrid divisions and its commercial segment 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.”

Shares of the firm fell after the earnings release. While Ford shares were trading at $13.66 at the end of July 24, the stock fell by more than 17 percent to trade at $11.32 as of 1:45 p.m. on July 25.

During an earnings call, Ford CEO James Farley called the company’s EV journey an overall “humbling” experience.

“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,” he said.

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.

The company is focusing on lifting the quality of new products to deal with high warranty reserves. These efforts are “starting to pay off,” Ford said in a statement.

Chinese Competition, EVs a ‘Huge Drag’

When asked by an analyst during the earnings call about whether Ford can make low-cost EVs at a profit without their Chinese partners, Mr. Farley said it is possible.

While China has an advantage in making highly affordable batteries, its companies do not have an efficient design for other EV components, according to the CEO.

This could work in Ford’s favor, as the company has established a dedicated team that is focused on creating a low-cost EV platform, according to Mr. Farley.

“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 [Inflation Reduction Act (IRA)] benefit,” he said.

IRA rules provide income tax credits for EV buyers as long as the vehicles undergo final assembly in North America and meet certain critical mineral and battery component requirements. This helps to boost domestic production of EVs because vehicles manufactured in China do not qualify for credits under the program.

Meanwhile, Mr. Farley admitted during an earnings call in April that Ford needs to make “tremendous progress” in the EV division because the department is a “huge drag, not just on Ford but on our whole industry.” He said Ford is “going to build a sustainably profitable EV business with terminal value.”

“And it needs to return the cost of capital on its own and not be subsidized. ... And the real turning point for us, not only is our flat costs in [the EV segment] this year, but most importantly, it'll be the profitability in our next cycle of products,” he said.

Ford does not plan to launch 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 because of the large losses faced by its EV business. The company has delayed its second joint venture battery plant, cut the size of its lithium iron phosphate plant in Michigan, and backed out from a joint venture battery plant in Turkey.

Ford is not the only manufacturer bearing the brunt of a tough EV market. Tesla recently reported a 7 percent annual decline in revenues in the second quarter of2024, with deliveries and production also dropping. The company stated that the second quarter was a “difficult operating environment” for the EV industry.

Ford and Tesla’s poor EV performance comes as people are losing interest in electric vehicles, according to a recent consumer survey by AAA.

The survey found that the high cost of EVs, lack of convenient charging options, and anxiety about vehicle range were the key reasons that prospective buyers were hesitant to choose EVs. Three out of 10 respondents also said 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 coming years, according to a report by Fortune Business Insights.

The report estimates that the EV market will rise in value by more than 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 reads. “These factors will influence the U.S. electric vehicle market forecast.”