Recently, investors have heard from a growing number of analysts that it is time to change the strategy regarding electric vehicles. In fact, American bank Analyst John Murphy went so far as to say that Detroit automakers like Ford Motor Company (NYSE: F) Focus on high-profit trucks.reduce any footprint in China, and avoid electric cars so they can roll out vehicles with Tesla-like profitability. Ugh.
While Ford may not be able to stop its current EV strategy, we are seeing radical moves that could move the needle on its EV losses, which could reach $5.5 billion in 2024. Here's Ford's latest smart move.
big swap
Ford just announced plans to expand production of its highly profitable Super Duty pickup truck line to its Oakville, Ontario, plant. The announcement is much more significant than the headlines make it seem—and here’s why.
Originally, the Ontario plant was set to invest $1.3 billion to convert it to a production of two three-row electric vehicles in 2025. Ford scrapped that idea in favor of its Super Duty, which it says can no longer meet consumer demand. Management now expects to push back production of the two three-row electric vehicles by two years to 2027, though it’s unclear where that will happen.
Why is this so important?
“It will be very important that we eventually become able to compete on a price and cost basis with Tesla“Murphy said, according to Detroit News“Increasing trading volume right now and losing money doesn’t make any sense. It’s really better to focus on some next generation platforms to make trading profits.”
Take a quick look at Ford’s first-quarter results and you’ll understand why it makes sense to shift from more electric vehicles to the Super Duty, which falls under Ford Pro. Consider that in the first quarter, Ford’s electric vehicle business, Model E, lost a staggering $1.3 billion, while Ford Pro made $3 billion. For context, Ford Blue, Ford’s traditional gasoline-powered business, made $900 million.
One reason Ford Pro is so profitable compared to the rest of its business is its amazing margins. Earnings before interest and taxes First-quarter gross margin was 16.7%, a level that major automakers dream of reaching. Ford Pro’s margins dwarf Ford Blue’s 4.2% EBITDA margin, which is roughly what major automakers can expect.
Better yet, in Ford’s first-quarter press release, management specifically noted that Ford Pro results were driven by increased production of the Super Duty, the 2024 North American Truck of the Year. With this latest announcement, investors will see a 100,000-unit-per-year increase in production capacity, rather than profit-sapping EVs.
What does all this mean?
The future of the auto industry is certainly electric, but it’s clear that automakers jumped on the trend a little too early and absorbed the hype. The industry is expected to grow much more slowly than previously anticipated.
This puts automakers in a tough spot right now, where they can choose to pay out huge incentives that drain profits or let inventory pile up at dealerships. For the folks at the Blue Oval, it’s clear they’re pumping the brakes on electric vehicles so they can produce vehicles that can be more profitably taken out of production.
Ford has already delayed the launch of electric vehicles and adjusted its strategy to defer spending on electric vehicle projects by as much as $12 billion. It is important for investors to watch these developments over the next 18 months. Ford needs to continue to pour capital into electric vehicle development to improve production efficiency and reduce costs, but also reduce its focus on this segment so that it can produce a more affordable and profitable product.
It would be a huge step forward if Ford can prove to investors that this year's expected $5.5 billion loss at the Model E unit is the ultimate loss.
Should you invest $1,000 in Ford Motor Company now?
Before you buy shares in Ford Motor Company, keep the following in mind:
the Motley Fool Stock Advisor The team of analysts has just identified what they believe to be Top 10 Stocks There are plenty of companies investors want to buy right now…and Ford Motor Co. isn't one of them. And these 10 stocks that do just that could deliver massive returns in the years ahead.
Think about when Nvidia I made this list on April 15, 2005… If you invested $1,000 at the time of our recommendation, You will have $722,626.!*
Stock Advisor It provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. Stock Advisor The service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns as of July 15, 2024
Bank of America is an advertising partner of The Ascent, a Motley Fool company. Daniel Miller Holds positions at Ford Motor Company. The Motley Fool holds positions at and recommends Bank of America and Tesla. The Motley Fool holds positions at and recommends Bank of America and Tesla. Disclosure Policy.
Ford Takes Another Smart Move With Electric Cars Originally posted by The Motley Fool
“Extreme travel lover. Bacon fanatic. Troublemaker. Introvert. Passionate music fanatic.”
More Stories
Netflix Earnings, Mark Cuban: Working Overtime to Dominate the Market
Uber has explored a bid to acquire Expedia
Stocks, news and interest rate decision of the European Central Bank