What happened
Ford Motor Company (F 0.08%) fell on Thursday after an analyst slashed his stock price forecast for the auto giant. By the close of trading, Ford's shares were down 3% after falling as much as 5.3% earlier in the day.
So what
Wells Fargo analyst Colin Langan is worried that legacy automakers like Ford and General Motors (GM -0.04%) will see their earnings fall in the coming years, as they shift more of their production toward electric vehicles (EVs).
For Ford specifically, Langan warns that the costs of raw materials needed to build EVs have surged due to supply constraints. He estimates that these costs could force Ford to increase the price of its most popular electric vehicles, the Mach-E sports car and Lightning pickup truck, by as much as $4,800 and $8,500, respectively, or absorb the costs and suffer the corresponding erosion to its profit margins.
With Ford generating more than 60% of its profits from its pickup trucks, Langan sees the shift toward battery electric vehicles as a major risk for the automaker.
Image source: Getty Images.
Moreover, Langan expects higher labor costs and other inflationary pressures to further dent Ford's profitability in the years ahead. Thus, Langan halved his share price target for Ford to $12.
Now what
There's no doubt that the profitability of its EVs will be a key determinant of Ford's future success. The auto titan revealed in March its intention to scale its production of electric vehicles to more than 2 million units per year by 2026. The company also wants EVs to account for half its global manufacturing volume by 2030.
Ford will need to invest billions of dollars in shareholder capital to achieve those goals. And it will need to manage rising EV production costs effectively if it is to generate satisfactory returns for investors.
