Ford Motor Company (F -1.92%) just updated investors with its third-quarter results, and it has investors on the fence regarding what's to come from the automaker. Overall sales grew 11% year over year, but increasing costs cut into cash flow and profits.
But with sales growing, the United Auto Workers (UAW) strike tentatively ending, and Ford's stock price down 25% from a recent peak in early July, investors might be thinking it's time to buy. If you do buy, don't expect to be rewarded from growth in Ford's Model e, the electric vehicle (EV) segment.
Ford is working on costs
Ford missed analyst estimates in the third quarter for both operating profit and earnings per share. Much of that can be blamed on the costs it is absorbing with its EV segment. While sales grew strongly -- though from a low base -- the company lost what amounted to $36,000 per EV it sold in the third quarter. That per-vehicle loss grew from $32,000 in the second quarter. The diagram below highlights the company's third-quarter financial results.
Ford reacted to the results by postponing plans for $12 billion in capital spending intended to grow its EV business. That will result in a delay in building a new battery plant as well as throttling its Mustang Mach-E production levels.
Scaling back EV plans
Ford always planned to continue to offer its gasoline-powered lineup even as it invested heavily to grow EV offerings. But it had already moderated prior guidance for the Ford Model e segment of the business. It hopes to achieve an annual production run rate of 600,000 by the end of 2024 -- one year later than originally announced.
Instead, it will focus on building more hybrid options for customers. CEO Jim Farley told investors earlier this year that the company now expects to quadruple hybrid sales over the next five years. Ford's U.S. hybrid sales have grown at nearly twice the rate of its fully electric models over the first eight months of 2023. Harley also tempered expectations for when the company reaches a 2 million vehicle global capacity for fully electric models. The company is effectively trying to minimize losses and show that it can boost profitability from its existing and updated lineup.
Ford is not alone in lowering expectations for EV production and sales, either. General Motors recently abandoned its prior production target and scrapped plans with Honda to invest $5 billion to jointly develop lower-cost EVs that would be more affordable for mass adoption.
The Ford Mustang Mach-e. Image source: Ford Motor Company.
Profitability takes a front seat
Elon Musk may deserve much of the credit for Ford's adjusted plans. Tesla's price cuts impacted that company's profitability, but also helped keep its EV production growth at about a 50% annual rate. Tesla's price moves also help explain the increasing per-vehicle losses Ford is experiencing on its EV sales.
Ford isn't willing to invest billions right now in a segment that will continue to generate losses on every sale. The focus on its commercial vehicle and internal combustion, as well as hybrid consumer products, is meant to improve profitability and shareholder value.
Investors thinking of buying the stock should realize that Ford will have work to do to improve profitability. A new labor contract will increase per-vehicle costs across its portfolio. The company's third-quarter results didn't provide any signal that the recent decline in share price will reverse itself anytime soon.
