The automaker on the rise of electric vehicles and the increase in profits

Ford Mustang on display at the New York Auto Show, April 6, 2023.

Scott Mlyn | CNBC

DEARBORN, Mich. – Ford engine is making its case to Wall Street at an investor event on Monday, sharing details of its plan to profitably build millions of electric vehicles while expanding its traditional operations.

Ford CEO Jim Farley kicked off the day by discussing the company’s growth plans for its gasoline, fleet and electric business units.

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“I’m not here to tell you they were underpriced, you’ll make your own decision,” Farley said.

Ford said early monday that it maintains its guidance for 2023 of between $9 billion and $11 billion in adjusted EBIT and around $6 billion in adjusted free cash flow.

Ahead of the event, the company also announced a series of new agreements for the supply of lithium products in support of its plan to significantly increase production of electric vehicles.

Ford is aiming for an EBIT margin of 8% on its electric vehicle unit and a production pace of 2 million electric vehicles by 2026, compared to 600,000 expected by the end of the year.

The automaker is expected to lose about $3 billion on its “Model e” electric vehicle business this year, offset by profits from its traditional “Blue” and “Pro” fleet businesses. The company separated the companies and started reporting them separately this year.

For the first quarter, Ford said the loss from EV operations widened to $722 million in the first quarter from $380 million a year earlier. The company’s traditional auto business brought in $2.6 billion, and the automaker’s fleet operations brought in $1.4 billion in revenue.

The company plans to streamline operations and grow traditional product margins to low double-digit EBIT margins from 7.2% in 2022.

For the traditional business, Kumar Galhotra, president of operations, said 8 percentage points of margin should come from reduced structural and contained costs. This will help offset 6 percentage points in net prices.

“Demand continues to exceed the capacity of our key [internal combustion] vehicles,” Galhotra said. “Over the next 10 months, Ford Blue will increase capacity by more than 160,000 units.”

This increase may be surprising, as society is investing billions in electric vehicles. Galhotra said that while the company expects its sales of traditional vehicles to begin to decline after 2025 in exchange for electric vehicles, vehicles with internal combustion engines will be present “long before” in the next decade, a- he declared.

Profitably balancing the shift from traditional motor vehicles to electric vehicles is an increasingly difficult challenge for traditional automakers like Ford.

Doug Field, director of advanced product development and technology, said the key to achieving this was to increase the efficiency of its next-generation electric vehicles which are expected to begin production in 2025.

“Different Types of Income”

Field also touted a push in software and subscription revenue models, using the automaker’s BlueCruise hands-free highway driving system as an example.

“As we develop our next-generation platforms, we aspire to provide [BlueCruise] to as many customers as possible,” Field said. “When you can take your eyes off the road, everything changes.

Ford for the 2024 model year plans to build 500,000 vehicles equipped with hands-free technology. At an expected 20% turnout, Field said BlueCruise alone could represent $200 million in revenue.

“My financial and business partners tell me it’s a different kind of income,” he said. “They use those words as margin accretive, less cyclical than vehicle sales.”

Field said Ford’s approach to creating electric vehicles is radically different from its traditional approach to vehicle development, noting that the software will define and control many new features, including features that Ford has not yet developed. , but will add to existing vehicles in the future via updates. .

“The products we make are not salons,” Field said. “They are mobile, functional robots. And our software ambition goes far beyond how our products move, how they collect data and how they support the people who will use them for real work.

“We call them incredibly awesome products because the best things we’ll do are the ones we haven’t thought of yet.”


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