Ford and GM answer Wall Street questions about when EVs will be profitable

• Wall Street is seeking more information from Ford and GM on their transition to EVs
• The companies’ stock prices this year are relatively flat and lower than the overall stock market
• Ford’s stock value is now higher than GM’s, though both companies are still losing money on EVs

General Motors started the year as the number two publicly traded company in Michigan, just ahead of Ford Motor Co. as ranked by the value of their outstanding stock shares. 

But Ford’s market capitalization increased 6 percent to about $50 billion when comparing it in early June to year-end 2022 — enough to power it past GM’s flat valuation of about $47 billion into position as the state’s second most valuable publicly traded company behind Kalamazoo medical device maker Stryker, valued at $105 billion.

The shift comes as Wall Street increasingly scrutinizes the Michigan-based automakers as they each dig into strategies to support their shifts from gas-powered engines — which drive profits — to electrification. 

Related:

• Most Michigan-based stocks roaring back in 2023 after a brutal year
• Value of Michigan’s largest public companies dropped by over $120B in 2022
• Michigan business leaders mildly hopeful despite lagging GDP, income

Analyst questions about first-quarter results honed in on EV profitability at Ford and GM, as the companies spend billions on new models and the systems to make them. At the same time,  investors are trying to gauge the transformation and weigh the bottom line for shareholders.

Both automakers report that handsome profits on EV’s remain years away. 

Detroit-based GM forecasts no EV profits by 2025, as it counts on increased production and efficiency, along with at least $2 billion in cost-cutting.

Ford CEO Jim Farley is looking at a similar timeline, he told analysts on May 2.

“We're on track this year toward a contribution margin approaching breakeven,” he said.

EVs have been estimated at up to 45 percent more expensive to produce than internal combustion engines (known as ICE), with one-third of the vehicle’s cost attributed to the battery. However, automakers say costs will drop as more EVs and batteries are produced and battery technology improves.

Both automakers contend that production increases will boost profit margins as more electric vehicles are sold. But only Ford broke out, for the first time this spring, financials for its EV division.

Ford’s quarterly earnings report on May 2 showed that its legacy Ford Blue gas-fueled vehicles and Ford Pro commercial vans and heavy trucks (including EVs like the E-Transit van) are driving earnings from over 1 million quarterly sales. Meanwhile, Ford Model e’s new EV lineup, which includes an Escape plug-in hybrid, an Explore and the Ranger truck,  have yet to show a profit after 12,000 sales in the first quarter.

GM continues to break out EV-specific sales, but combines most other financial details with ICE vehicles.

“We're not going to give a lot of details right now just because the numbers aren't that meaningful,” Paul Jacobson, GM executive vice president and chief financial officer, said April 25 during an analyst call after the company released its first quarter report.

Implications for Michigan go beyond investment markets: The auto companies, even after recent professional U.S. staff downsizing — 3,000 workers for Ford and 5,000 for GM — are among the top private employers in the state, and their headquarters and operations here feed spinoff businesses that employ still more.

Both are investing in Michigan, even as questions arise about the future of their factories geared toward ICE.  As Bridge Michigan recently reported, Ford recently closed its Romeo engine plant, while GM will halt production of its Chevrolet Camaro muscle car in January, leaving a void in its Grand River Assembly factory in Lansing.  

Yet this week, GM announced a $1 billion investment in Flint, where it plans to build its next generation of non-EV heavy-duty trucks. That follows billions in EV-related investments in factories like Oakland County’s Orion Assembly and a recent $200 million in an Auburn Hills EV parts plant. 

And Ford continues with its plans to build a $3.5 billion EV battery factory in Marshall and open its Michigan Central innovation district in Detroit, as construction continues on its massive $11.4 billion battery centers in Kentucky and Tennessee.

Ford

Ford [NYSE: F] stock was up about 0.6 percent for the year as of June 2 to $12.39 per share, after swings from a high of $14.32 on February 2 to a low of $11.18 on March 20. The dip started after Feb. 2, when the automaker missed its profit targets for the fourth quarter of 2022. 

The stock has been up and down since, including on the news that Ford entered an agreement with Tesla, the nation’s top EV producer, to share its Supercharger stations.

However, the stock price climb was enough to make Ford the second-largest public company in Michigan this spring. It expects $9 billion to $11 billion in adjusted earnings for the full year.

The quarterly report offered insight into its EV business segment, with 2023 earnings forecast at $7 billion for Ford Blue legacy ICE autos and $6 billion for Ford Pro commercial vehicles, which would be nearly twice 2022 earnings. 

The Model e division, reflecting its new EV lineup and operations, expects a $3 billion loss this year after a first quarter when sales declined by one-third and the loss hit $722 million, more than twice the loss in the first quarter of 2022.

Much of the loss is attributed to lower Mustang Mach-E sales, after Ford closed its Mexican factory to retool and nearly double its production capacity.

Other factors, the company said in its recent filing, were higher engineering and spending-related expenses, and material cost increases due to inflation.

Looking ahead, Ford, which in 2022 sold 1.7 million vehicles across all product lines — 35 percent fewer than in 2015, when it sold 2.6 million — is focused on growth from its new EVs, Farley told analysts. However, it is prioritizing profitability over market share.

Growth will be targeted to certain types of vehicles, he said, even as Ford plans capacity for 2 million EVs annually by 2026.

“We do not subscribe to a ‘win vehicle share at any cost’ approach,” Farley said. 

As an example, the Mustang Mach-E SUV will be competing with nearly four dozen similar vehicles from other makers by 2025. To keep it competitive, the automaker used data from purchased cars to identify unused options, removing them from production to save $5,000 in manufacturing costs. Then Ford trimmed its price. 

Ford is now betting on products like the F-150 Lightning electric truck, which is winning the company new customers, and its own software — particularly in the commercial electric vehicles — to differentiate the brand. Next up, he said, are new EV models, including a three-row crossover and work vehicles.

Rather than build as many EVs as possible and turn to incentives if they don’t sell, “we plan to be surgical about where we play and how we win with the right products, the right cost structure, and the right price points,” Farley said. While Ford expects some price softening in ICE models over 2023, he expects most EV prices to be stable.

Ford is next expected to release earnings on July 26. 

General Motors

GM [NYSE: GM] stock swung from a high this year of $43.17 on February 17 to a low of $31.54 on May 16, yet finished by June 2 flat from the start of the year, closing at $34.28. 

The automaker’s performance compares to an 11.5 percent increase over the same timeframe by the S&P 500, a benchmark of leading U.S. companies. Overall stock market growth through June 2 was about 1.8 percent. 

During that time, GM in April raised its 2023 earnings guidance by $500 million to $11- to $13 billion.

This is “the breakout year for GM EVs,” CEO Mary Barra told investors as GM released its first quarter earnings on April 25.

The automaker plans to produce 400,000 EVs from 2022 to the first half of 2024, including 50,000 EVs in North America in the first half of this year, and double that in the second half.

GM recorded 16.4 percent U.S. market share in the first quarter, up from 15.1 percent a year earlier. That represents 603,000 cars, trucks and crossovers sold in theU.S., with about 20,000 of them EVs in the first quarter, a total second only to Tesla.

By 2025, GM told shareholders, it expects to be generating $50 billion in EV revenue as its EV capacity increases to 1 million in North America. That year, it forecasts $225 billion in overall revenue. 

EV profitability is expected to be in “low to mid-single digits” in 2025, the company reported. That profit won’t be solely attributed to the vehicles; it also will be software revenue and after-market sales.

Yet through 2025, GM also expects up to $13 billion in capital expenses per year as it plans facilities that include new battery factories — including near Lansing, which will open in 2024. About 75 percent of its capital spending is dedicated to EV developments, said Jacobson, the CFO, during its April 25 analyst call.

Among the strategies that GM says it will use to boost profitability as more of its fleet is electrified:

• Trimming costs, including $2 billion in announced cuts that included voluntary buyouts that, among the 5,000 people cut from payroll, thinned about 15 percent of its executive ranks. The company is traveling less, advertising less and cutting IT expenses.
• Reducing vehicle complexity. One example: The Trax, a small Chevrolet SUV, has one powertrain option.
• Expanding the use of shared subsystems between ICE and EV vehicles, such as shared infotainment screens.
• Controlling supply costs, including through battery joint ventures.

Jacobson and Barra said GM also plans to manage its inventory closely, even as it expects to stay on target with increased EV production in North America. It temporarily closed its factory in Fort Wayne in February to slow truck production, a move Jacobson said paid off even if the company’s stock price subsequently fell.

By tailoring production to demand, pricing was able to stay consistent and the company did not need to resort to incentives, which in turn allowed GM to raise its earnings guidance, its executives said.

“That decision to have inventories flat while we gained share and increased volumes over the time period, I think, is one of those really valuable lessons learned that we can take to the future,” Jacobson told analysts.

Looking ahead this year, GM’s battery production is nearly at capacity in Lordstown, Ohio, Barra said, and GM’s factory in Spring Hill, Tennessee, opens this year. Work continues to convert the assembly plant in Orion Township to build the GMC Sierra EV and the Chevrolet Silverado EV, Barra added.

Systems are in place to increase production, Barra said, even as GM stays focused on EV profitability and how much it’s spending on each vehicle. Scaling up to sell more of them is an immediate goal, she added.

“All of this is coming together in a way that will fundamentally change the narrative that traditional automakers can't deliver competitive EV margins,” Barra told analysts. “We have a lot of work to do, but we have the right trajectory, and I believe we can get there much faster than people think.”

GM is expected to release its next earnings report on July 25.