Ford Soundly Beats Earnings Estimates But Shares Decline Anyway, Why?
Ford Motor Company (F) seemingly had a great quarter, but concerns mount over its EV spotlight. Let's discuss.
Market Yawns on Great Earnings
It's not the news or the earnings that matters but the market's reaction to it.
In this case, the market yawned at Ford's big beat the street results of EBIT $3.4 billion, compared to consensus estimate of $2.4 billion.
The story is telling.
Reuters report Ford's profit rises on strong truck demand but EV outlook weighs
Ford Motor Co (F.N) on Tuesday posted robust first-quarter revenue and profit, thanks to strong demand for trucks and SUVs, but issued a measured full-year outlook tempered by continued losses in its electric-vehicle unit.
In a late briefing, Ford Chief Executive Officer Jim Farley said he hopes the company becomes "boringly predictable" at meeting investor expectations. Ford missed Wall Street estimates for the fourth quarter, leaving $2 billion on the table, Farley said earlier this year.
Farley also said Ford does not intend to pursue EV sales volume "at any cost" - after the automaker earlier in the day slashed Mustang Mach E prices for a second time this year.
Facing declining demand for its products in China, Ford will restructure its operations there to run on lower investment, and "double down" on its commercial vehicle business there, including EVs, Farley said. Ford's joint venture with Chinese automaker JMC Corp can become an export hub for lower-cost commercial electric and combustion vehicles, he added.
Losses Mount On EVs
Ford lost more than $60,000 per electric vehicle sold in the first quarter. Its combustion-vehicle business, Ford Blue, averaged pretax profit of $3,715 a vehicle, while the Ford Pro commercial business earned $4,053 per vehicle, based on the company's financial data.
It's hard to make money when you lose $60,000 per EV sale, unless you don't sell many EVs.
Demand for the electric Ford F-150 Lightning pickup is "really, really strong," Farley said. Ford is sticking with plans to boost Lightning production to a rate of 150,000 vehicles a year by the end of this year.
I'm not sure 150,000 is "really strong" given Ford sold 726,004 F-Series trucks in 2021. But it would be a big leap from now so let's concede the point.
Profit Coming?
In a briefing, Chief Financial Officer John Lawler said the company is on track for its Model e electric vehicles to be EBIT margin-positive by the end of 2024. Ford expects the unit to post an EBIT margin of 8% by the end of 2026, a target CEO Farley described as "totally realistic" given the company's "aggressive" moves to take cost out of its next-generation EVs.
The market doesn't seem to believe Ford's CFO profit forecast and/or sales forecast and neither do I.
I am amused by this statement: "Farley also said Ford does not intend to pursue EV sales volume at any cost - after the automaker earlier in the day slashed Mustang Mach E prices for a second time this year."
Ford is slashing prices, selling EV cars and trucks at big losses while maintaining it will not go after EV volume at any cost.
Ford Questions and Answers
- What precisely is Ford doing?
- What do Ford customers want?
- Does it even matter what Ford's customers want?
1A: Ford is pursuing EV volume at the expense of cost, despite denying that.
2A: No one knows for sure because much depends on future pricing points and miles per charge that we do not know now.
3A: Perhaps not. Customers will have no choice other than an EV if Biden gets his way.
EVs are Coming
Like it or not, EVs are coming. And they are coming whether it makes any environmental or economic sense.
I don't object to EVs. I do object to enormous subsidies and extreme fear mongering over climate change.
But EVs will not save the world. They will not even make a tiny dent.
Inflation or Deflation?
In isolation, Biden's push for EVs is very inflationary. But part of that assumes people will be willing to buy EVs.
What if they don't?
Worst of Both Worlds, Stagflation Right Now, But What's Ahead?
For discussion of the inflation and deflation forces in play, please see Worst of Both Worlds, Stagflation Right Now, But What's Ahead?
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The article makes some good points. but the author's stance on Ford EVs is puzzling. Itis not like Ford is headlong into EVs in isolation. VW, Toyota, Tesla, GM are all moving electric. Ford'scompetition has claimed they will be 100% electric within 10 years. Tesla is already. I don't think they are all making a mistake. $F