Jim Farley, CEO of Ford Motor Company (F) said Tesla investors should know, their large profit margins will not last forever, as more EV makers hit the market to give industry leader Tesla some competition.
In an interview with Yahoo Finance Live, Farley said, “Tesla hasn’t had any competition until Ford and others came along. Now their prices are down like $7,000 in one year, so there’s going to be more price competition in that market, and we’re counting on that.”
In the near term however, offering competition to Tesla is not proving to be easy, or cheap. On Thursday Ford revealed that it had lost $2.1 billion on an operating basis last year in its EV unit, the Model E (electric) division. Guidance for 2023 for the automaker pointed to an operating loss of $3 billion for the division, as it pours investment capital into production and battery capacity. The automaker is projecting it will hit profitability in 2026, with an 8% operating margin.
Tesla’s operating margin was 16.8% in 2022, and 12.1% in 2021, for comparison.
The automaker’s Chief Financial Officer, John Lawler, told Yahoo Finance Live that the company could take out $7 billion from its legacy auto business, in costs, to fund the company’s EV plans and support overall profit margins if need be.
The disclosures about its EV business were made Thursday as part of a “teach-in” at the New York Stock Exchange for analysts, as the auto industry pivots toward electric vehicles.
The event was designed to aid Wall Street to gain a better understanding of Ford’s business and its inner workings, by showing how the three segments of Ford’s company worked together – the Model E electric division, Ford Blue – the gas-powered vehicle division, and Ford Pro – which focuses on commercial vehicle production and other services.
Analysts were grateful to Ford for the transparency, but noted the company will have to make its EV division profitable before its shares can begin moving higher again.
EvercoreISI analyst Chris McNally wrote in a note to clients, “While this is clearly a momentous occasion for Ford as a company, we believe today is largely a non-event for the stock. We believe the key for Ford’s stock, from here, is to drive market confidence in the guided $6-8Bn swing in EV profitability expected between ’23 and ‘26/27. Similar to GM, we see Ford’s stock as range bound (between $10 and $14) while all OEMs deal with a “normalizing” incentive market over the next 12- 24 months.”
