Ford Mustang on display at the New York Auto Show on April 6, 2023.
Scott Mill | CNBC
Dearborn, Michigan — Ford At an investor event on Monday, it laid out the details of its plan to profitably manufacture millions of electric vehicles while growing its traditional business.
Ford Chief Executive Jim Farley began the day by discussing growth plans for the company’s gas power, fleet and electric business units.
“I’m not here to tell you we’re underrated and you make your own decisions,” Farley said.
ford said earlier on monday It will maintain its 2023 guidance for adjusted EBIT of between $9 billion and $11 billion and adjusted free cash flow of about $6 billion.
The company also announced a series of new lithium product supply deals ahead of the event to support its plans to significantly ramp up production of electric vehicles.
Ford is aiming for an EBIT margin of 8% in its electric vehicle division by 2026 and a production run rate of 2 million electric vehicles, up from a year-end forecast of 600,000 vehicles.
Ford detailed profit expectations for each of its major business units, but did not announce any major changes to its plans, which some on Wall Street criticized as overly ambitious, if not unrealistic.
Farley has focused much of his time on how Ford’s plan aims to lift the company out of the valuation penalty box the industry currently has compared with traditional automakers. tesla.
Ford estimates its total costs are $7 billion more than competitors.
Ford CFO John Lawler was candid to analysts at the end of the morning: “We’ve been talking about it for years. You’re not going to believe us until we start delivering … because we’ve told you that before. .It’s a fact. We have, but we haven’t delivered. So we have to prove it.”
The automaker is expected to lose about $3 billion this year on its “Model e” electric vehicle business to offset profits from its traditional “Blue” and “Pro” fleet operations. The company separated the business and started reporting it separately this year.
Ford said its first-quarter loss in the electric vehicle business widened to $722 million from $380 million a year earlier. The company’s traditional auto business earned $2.6 billion, and the automaker’s fleet business reported a profit of $1.4 billion.
The company expects to simplify its operations and boost margins on traditional products to low double-digit EBIT margins from 7.2% in 2022. Ford, for example, says its next-generation F-150 is identical to the current vehicle.
For the traditional business, operating president Kumar Galhotra said the 8 percentage point margin is expected to come from lower structural and controlled costs. This will help offset 6 percentage points of net pricing.
“Demand continues to exceed our capacity for critical (internal combustion engine) vehicles,” Galhotra said. “Over the next 10 months, Ford Blue’s production capacity will increase by more than 160,000 vehicles.”
The increase may come as a surprise, given the billions the company has invested in electric vehicles. Galhotra said that while Ford expects sales of its traditional vehicles to start declining after 2025 in exchange for electric vehicles, internal combustion engine vehicles will “enter” the next decade or so, he said.
How to balance the transition from traditional cars with engines to electric vehicles is an increasingly difficult challenge for traditional automakers such as Ford.
Doug Field, chief senior product development and technology officer, said the key to doing so will be improving the efficiency of the next generation of electric vehicles due to enter production in 2025.
Field also touted the software and subscription revenue model, citing the automaker’s BlueCruise hands-free highway driving system as an example.
“As we build our next-generation platform, we’re eager to make (BlueCruise) available to as many customers as possible,” Field said. “When you can take your eyes off the road, everything changes.”
Ford expects to produce 500,000 vehicles equipped with hands-free technology for the 2024 model year. With an expected adoption rate of 20%, BlueCruise alone could generate $200 million in revenue, Field said.
“My financial and business partners told me it was a different kind of income,” he said. “They use these words to increase profit margins, which are less cyclical than car sales.”
Field said Ford’s approach to building electric vehicles is very different from its traditional vehicle development strategy, emphasizing that software will define and control many new features — including features that Ford hasn’t yet developed but will add to existing vehicles through future updates.
“The product we make is not a living room,” Field said. “They’re moving, working robots. Our software goals go far beyond how our products move, gather data, and support the people who will use them to do the actual work.
“We call them unimaginably great products because the best things we’ll make are things we haven’t thought of yet.”