Ford Mustang on display at the NY Auto Show, April 6, 2023.
Scott Mlyn | CNBC
DEARBORN, Mich. – ford engine is making its case to Wall Street at an investor event Monday, sharing details of its plan to profitably build millions of EVs while growing its traditional operations.
Ford CEO Jim Farley kicked off the day discussing the company’s growth plans for its gas-powered, fleet, and electric business units.
“I’m not here to tell you that we’re undervalued, you’ll make your own decision,” Farley said.
Ford said early Monday that it is maintaining its 2023 guidance of between $9 billion and $11 billion in adjusted EBIT and about $6 billion in adjusted free cash flow.
The company ahead of the event also announced a series of new deals for the supply of lithium products in support of its plan to dramatically ramp up production of electric vehicles.
Ford is targeting an 8% EBIT margin on its electric vehicle unit and a 2 million EV production run rate by 2026, up from an expected 600,000 by year-end.
Ford went into greater detail about its profit expectations for each of its main business units but did not announce any significant changes to its plans, which some on Wall Street have criticized as being ambitious, if not unrealistic.
The automaker is expected to lose about $3 billion on its “Model e” electric vehicle business this year, offset from profits in its traditional “Blue” and “Pro” fleet businesses. The company separated the businesses and began reporting them individually this year.
For the first quarter, Ford said the EV operations’ loss widened to $722 million from $380 million a year earlier. The company’s traditional car business earned $2.6 billion, and the automaker’s fleet operations reported $1.4 billion in earnings.
The company expects to simplify its operations and increase margins from traditional products to low double-digit EBIT margins up from 7.2% in 2022. For example, Ford said it has removed more than 2,400 parts from its next-generation F-150 compared with the current vehicle.
For the traditional business, Kumar Galhotra, President of the Operations, said 8 percentage points of margin are expected to come from reductions in structural and controlled costs. That will assist in off-setting 6 percentage points in net pricing.
“Demand continues to outstrip capacity for our key [internal combustion] vehicles,” Galhotra said. “In the next 10 months, Ford Blue will increase its capacity by over 160,000 units.”
That increase may be surprising, as the company invests billions into EVs. Galhotra said while Ford expects its sales of traditional vehicles to begin declining after 2025 in exchange for EVs, vehicles with internal combustion engines will be around “well into” the next decade, he said.
Profitably balancing the shift from traditional vehicles with engines to EVs is an increasingly difficult challenge for traditional automakers such as Ford.
Doug Field, chief advanced product development and technology officer, said a key to doing so is increasing efficiencies in its next-generation EVs that are set to begin production in 2025.
‘Different kind of revenue’
Field also touted a push into software and subscription revenue models, using the automaker’s BlueCruise hands-free highway driving system as an example.
“As we build out our next gen platforms, we aspire to deliver [BlueCruise] to as many customers as possible,” Field said. “When you can take your eyes off the road, everything changes.”
Ford for the 2024 model year expects to build 500,000 vehicles equipped with the hands-free technology. At an expected take rate of 20%, Field said BlueCruise alone could amount to $200 million in revenue.
“My finance and business partners tell me that this is a different kind of revenue,” he said. “They use these words like accretive to margins, less cyclical than vehicle sales.”
Field said that Ford’s approach to creating EVs is radically different from its traditional strategy for vehicle development, emphasizing that software will define and control many new features – including features Ford hasn’t yet developed, but will add to existing vehicles in the future via updates .
“The products we make are not living rooms,” Field said. “They are moving, working robots. And our software ambition goes way beyond deep into how our products move, how they collect data, and how they support people who are going to use them for real work.
“We call them unimaginably great products, because the best things we will make are the ones we haven’t thought of yet.”