EV Profits Are Under The Lens As Demand ‘Overwhelms’ Auto Giant| Investor’s Business Daily

Ford (F) and General Motors (GM) both shared a strong outlook this week for the second half of 2022, based on easing chip constraints and recovering volumes. Ford stock continued to surge Friday, hitting a nearly three-month high.

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On the Ford earnings call after its Q2 beat late Wednesday, Wall Street placed the shift to electric vehicles under scrutiny — specifically, EV profits. The auto giants are pursuing Tesla (TSLA) while raw material costs, especially for battery metals such as lithium, have soared.

“Should you be thinking about pulling back on some of the EV investments if the economics at this point are unclear?” asked Colin Langan, an analyst at Wells Fargo Securities.

Ford CEO Jim Farley shot back: “No, no. We don’t plan on pulling back. If anything, the first generation of products has inspired us to go faster.”

Demand for first-gen EVs — including the Mach-E crossover, Lightning pickup and E-Transit van — had “overwhelmed” the company, Farley added.

Ford sold 1,837 Lightning EVs last month, its first full month of sales. By 2026, the carmaker expects to produce 150,000 Lightning trucks per year.

Ford Stock Jumps 15% In Earnings Week

Shares of Ford gained 4.9% to 14.68 amid a broad rally on the stock market today. Ford stock rose 14.5% for the week, reaching its best level since early May, after Ford crushed Q2 earnings views Wednesday. Ford stock regained the 50-day moving average on July 19 as it rallied into earnings, and it’s now comfortably above that key support level.

GM stock gained 1.9% to 36.43 Friday, extending its post-earnings rally. Tesla stock rose 5.8%, also extending gains after a Q2 beat last week.

Ford’s Strategy For EV Profits

Automakers tend to lose money on electric cars, which are costly to make, mostly due to expensive batteries. But on Wednesday’s earnings call, CEO Farley highlighted two levers that could help EVs reach cost parity with internal combustion engine, or ICE, vehicles soon.

First, subscription and services revenue tied to smart, connected electric vehicles.

“We’re investing in digital products, and we can keep them longer because we don’t have to upgrade the upper bodies. … They’re software-enabled vehicles,” Farley said. “There’s so much we can do to change the profit profile of these vehicles.”

Second, Ford will bring cheaper, China-made LFP batteries to North America for the first time, starting in 2023 with its entry-level Mach-Es. LFP or iron-based batteries typically involve a trade-off: car buyers get lower cost for lower range.

“Our announcement for LFP, bringing that to North America, is a big deal from a profit standpoint,” Farley said during Wednesday’s call.

In recent days Ford and GM have announced new pacts to secure battery materials.

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EV Profits: A Long Time Coming?

Not everyone came away fully convinced.

“It’s unclear that Ford can make its first-gen EVs profitable, and may have to wait until the second generation of products, to unlock further cost savings,” Deutsche Bank analyst Emmanuel Rosner wrote in a note to clients Thursday.

Rosner estimates that Ford’s Mach-E carries a $25,000-27,000 cost premium vs. its Edge SUV, which is gas powered.

Yet the Mach-E “only sells to consumers at a modest premium” vs. ICE, he said. So Rosner worries about the impact on Ford’s profit margins as EV volumes ramp starting next year.

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