Ford Motor Company (F +3.46%) sold nearly 450,000 internal combustion engine vehicles during the first quarter compared to a much more modest 59,000 electric vehicles (EVs) and hybrids.
Despite those figures heavily favoring combustion engine sales, the automaker actually lost more money on its Model e division than it made with its Ford Blue traditional combustion engine business. That's leading at least one analyst to call for a different strategy. Let's dig in.
How bad is it?
During the first quarter, Ford's Model e unit lost $1.32 billion, compared to Ford Blue's profit of $905 million. It gets worse. Management noted its Model e losses could reach as high as $5.5 billion in 2024. A source told Bloomberg last month that Ford's losses per EV topped an unbelievable $100,000 during the first quarter, which was allegedly more than double the loss per EV last year.
Furthermore, because Ford needs to build scale to bring costs down, it's a bleak picture when you consider that its Model e division posted a 20% decline in wholesale units and an 84% drop in revenue during the first quarter compared to the prior year.
To be fair, Ford is working hard from all angles to reduce these significant losses. It's pulled back on orders to battery suppliers, and its EV battery factory in Michigan will be much smaller than originally anticipated due to softening demand.
Ford has also adjusted its broader EV strategy by reducing spending by $12 billion on its battery-powered vehicles. The company even pulled back on its 2021 commitment to be all-electric in Europe by 2030, acknowledging if demand remained for internal combustion engine vehicles, it would still offer them to consumers.
All that said, Bank of America analyst John Murphy thinks a more extreme strategy could prove valuable.
NYSE: F
Key Data Points
How extreme?
To sum it up concisely, Murphy believes Ford and other Detroit automakers should focus on their core business, which revolves around highly profitable gasoline-powered trucks and SUVs.
Furthermore, he thinks they should consider a reduced footprint in China, the world's largest automotive market. Instead, the automakers should spend the next few years generating optimal profits while developing electric vehicle technology that can be produced at a similar level of profitability as Tesla.
"It's going to be mission critical to ultimately becoming competitive on a price and cost basis with Tesla," Murphy said, according to The Detroit News. "Pushing volume at the moment and losing money doesn't make a tremendous amount of sense. You really want to focus on some of the next-generation platforms to have a profitable business."
Murphy goes on to suggest that even current cost reductions won't be enough to break even, and it will require a third generation of EVs, and potentially four to five years, to become cost competitive. That's a lot of time to be losing billions of dollars annually.
Between a rock and a hard place
While Murphy's suggestions might seem extreme, the truth is he's right about a lot of things. It doesn't make much sense to lose as much money on EVs as Ford is, and it's going to weigh on the bottom line for the foreseeable future -- not exactly ideal for investors.
But Ford has already developed these platforms and vehicles. It might have joined the market before it was prepared to do so, but what's done is done. The answer might be somewhere in between those viewpoints, and it's likely we're going to see increased and longer delays with launches while we continue to see capital poured into EV technology to improve profitability faster.
The only thing investors can do at this point is pay close attention to quarterly calls and see if Ford's moves to pull back on EV investments are enough to meaningfully mitigate losses over the next year and a half, and adjust your investment thesis accordingly.
