Q4 2023 Earnings Summary
- Ford Pro's profitability is driven by durable demand from infrastructure projects, government spending, 5G rollout, and onshoring manufacturing. Increasing attach rates for high-margin software and services are further enhancing profitability.
- Ford's strong position in hybrid vehicles, with a planned 40% growth in HEV sales and expectations that 25% of F-150 sales will be hybrids, positions the company well to meet customer demand and maintain profitability during the EV transition.
- Ford is achieving substantial cost savings, targeting $2 billion in efficiencies through manufacturing improvements, design reductions, and supply chain optimizations, which will strengthen profitability.
- Ford's EV segment, Model e, is projected to incur increased losses of $5 to $5.5 billion in 2024, up from a loss of $4.7 billion in 2023, with no clear timeline for achieving profitability.
- Slowing EV demand and customers switching back to ICE and hybrid vehicles are challenging Ford's EV strategy. Reports indicate that customers are trading in EVs for ICE and hybrids, and fleet customers like Hertz are reducing EV orders.
- Cost reductions are slow to materialize; costs remained a significant drag in 2023, including in the fourth quarter. Although Ford targets $2 billion in cost reductions in 2024, there is uncertainty about the timing and effectiveness of these efforts.
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EV Losses and Path to Profitability
Q: When will Ford's EV business reach profitability?
A: Ford does not commit to a specific timing for positive EBIT in its EV business. The company anticipates $5 billion to $5.5 billion in losses for Model e in 2024 but plans to improve gross margin over time on Generation 1 vehicles. Ford aims to launch Generation 2 vehicles only when they can be profitable, focusing on capital and operating discipline to build a profitable EV business over time. , , -
Ford Pro Margin Sustainability
Q: How sustainable are Ford Pro's strong margins and earnings?
A: Ford believes the robust profitability of Ford Pro is sustainable due to durable demand drivers such as infrastructure investments, government projects, and manufacturing growth. The company is focusing on increasing attach rates of software and services, targeting 20% of profitability from these areas. Upcoming product launches like Transit Custom and Ranger in Europe are expected to enhance performance further. -
Cost-Cutting and Narrowing Cost Gap
Q: How is Ford progressing on cost improvements to narrow its $7 billion disadvantage?
A: Ford is gaining traction in narrowing the cost gap, expecting $2 billion in efficiencies in 2024. Efforts include design changes to improve efficiency, removing low-value features, extensive benchmarking, and manufacturing improvements. Stabilization of the supply chain and reduced premium freight costs also contribute to cost reductions. , -
EV Demand Slowdown and Production Adjustments
Q: How is Ford responding to the slowdown in EV demand and its impact on profitability?
A: Ford recognizes that mainstream EV customers are cautious due to cost of ownership calculations. The company leverages its flexible portfolio of hybrids, ICE, and EVs to meet customer demand, planning 40% growth in hybrids. Ford believes it has the capacity and flexibility to adjust production without losing sales and possibly improving short-term profitability. -
China Strategy and Partnerships
Q: How can Ford work with Chinese partners to achieve EV objectives more efficiently?
A: Ford is adopting a low capital approach in China, leveraging partnerships with companies like Changan. The strategy focuses on profitable export businesses and utilizing partners' platforms for electrification. Ford is building a global capability team in China for digital experience, battery, and sensing technology to be used globally. -
Dealer Relations and Strategy
Q: What is Ford's message to dealers regarding EV transition and investments?
A: Ford is urging dealers to invest in Ford Pro, including brick-and-mortar facilities and remote service vans. The company emphasizes manufacturing flexibility between ICE, hybrids, and EVs and highlights progress on quality. Ford is pushing for enhanced customer experience through remote services and increased investment in customer service capabilities.
Research analysts covering FORD MOTOR.