Analysts Weigh In After Ford Pushes Back EV Production Timelines, Discloses Higher Costs

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by Tyler Durden
Friday, Jul 28, 2023 - 01:45 PM

Ford shares are down hard early in the Friday session, after the automaker said its push into electric vehicles could lose it $4.5 billion this year.

To put it briefly, it looks like the price war started by Elon Musk and Tesla in the world of EVs has done damage to the competition. 

Ford beat earnings on Thursday and reported adjusted EPS of $0.72, beating expectations of $0.54. It posted revenue of $45 billion and adjusted EBITDA of $3.8 billion, above estimates of $3.15 billion. 

The company also raised its guidance, forecasting adjusted EBIT of $11 billion to $12 billion from $9 billion to $11 billion. The company is now guiding for free cash flow of $6.5 billion to $7 billion, from $6 billion. 

But reality has sunk in about the company's comments regarding its EV production schedule and spending plans. Price cuts in the industry, led by Elon Musk and Tesla, have thrown Ford's production targets into a tailspin and Morgan Stanley noted on Friday morning that "major changes to the EV strategy" could be necessary, according to a wrap up by Bloomberg. 

Ford now says it is "throttling back" on plans to ramp up EV production, the wrap up said. It blamed the price war for EVs as part of the cause and told shareholders it would need another year to meet its target of 600,000 EVs produced annually. 

Per Bloomberg, here's how the name's three most prominent analysts weighed in:

Jefferies, Philippe Houchois (buy)

  • Highlights Ford's expectations of EV losses being worse; notes Ford Blue and Ford Pro both came ahead of expectations on Ebit as well as margin
  • This sounded like a "tactical if not strategic retrenchment on the recent BEV strategy will likely dominate discussions across the industry, however sensible it may be"
  • Outside of this, Houchois says Ford is "delivering solid operating progress" in internal combustible engine

Morgan Stanley, Adam Jonas (overweight)

  • Beat in 2Q was solid, and the increased full-year outlook was driven by strong margin and cash flows from Ford Pro and Ford Blue segments
  • Notes the guidance raise came despite Ford expecting more losses from EV
  • "Major changes" to Ford's EV strategy could be necessary

Evercore ISI, Chris McNally (in line)

  • "Ford had a VERY high Q2 'beat & raise' bar post-GM and they certainly hurdled it on near-term numbers"
  • Real upside came from Ford Pro "more than anything" else during 2Q
  • "The debate will remain, though, to what extent investors will question "peak vs plateau" legacy pricing as well as incorporate a more difficult EV transition"

Ford CEO Jim Farley said yesterday: "The shift to powerful digital experiences and breakthrough EVs is underway and going to be volatile, so being able to guide customers through and adapt to the pace of adoption are big advantages for us. Ford+ is making us more resilient, efficient and profitable, which you can see in Ford Pro's breakout second-quarter revenue improvement (22%) and EBIT margin (15%)."

CFO John Lawler said yesterday that the company "has ample resources to simultaneously fund disciplined investment in growth and return capital to shareholders – for the latter, targeting 40% to 50% of adjusted free cash flow," Bloomberg added. He now says Ford is "not providing a date" for producing 2 million EVs per year, which was previously the company's target for 2026. 

Ford's inability to compete with Tesla was noted earlier this year in a piece titled Tesla 'Weaponizes' Price-Cuts To Crush EV Competition