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Robust second-quarter earnings from the Detroit 3 were tempered last week by the growing realization that their pivot to electric vehicles will be slower and costlier than anticipated.
Ford Motor Co., which said its quarterly net income tripled from a year earlier, delayed its EV production goals and cautioned that its EV business would lose $1.5 billion more than previously expected this year, citing pricing concerns and investment costs.
General Motors, which posted a 52 percent surge in net income, said supplier issues were causing unforeseen delays in battery cell production, though it maintained production targets and said CEO Mary Barra was personally reviewing module assembly lines.
And at Stellantis, which announced a 37 percent first-half net income gain, CEO Carlos Tavares warned analysts that the automaker’s volume goals could hinge on the ability to build an affordable EV “around $25,000,” or about half of what the average EV sells for today — and less than any vehicle the company sells in the U.S.
While profits and demand remain strong for gasoline-powered vehicles — prompting Ford and GM to raise full-year guidance — Wall Street expressed concern over the companies’ EV growing pains, sending shares tumbling at Ford and GM. But executives insisted their long-term electrification plans eventually would pay off.
“This is not going to be a straight line,” Ford CFO John Lawler said. “There’s going to be some bumpiness as we move along.”
Ford, the only automaker to reveal its losses attributable to EVs, said it now expects that part of its business to lose $4.5 billion in 2023, 50 percent more than previously forecast. It cited “the pricing environment, disciplined investments in new products and capacity, and other costs.”
The automaker now expects EV production to hit an annual run rate of 600,000 sometime in 2024, after previously saying it would do so this year. Ford also backed away from its forecast of producing 2 million EVs annually by 2026.
Lawler told analysts that Ford no longer expects its first-generation EVs to have a breakeven contribution margin by the end of this year, although its longer-term profit goal remains the same: 8 percent margins in 2026.
“While the path to sustainable profitability may not look quite the same as we’ve previously thought, we’re confident in our ability to deliver through more efficient product design, cost efficiencies and growth in software and services, which will continue to accelerate,” Lawler said on a call with analysts.
Ford in recent months has slashed prices on its Mustang Mach-E crossover and F-150 Lightning pickup as EV inventories across the industry rise because production has outstripped demand.
Still, Ford CEO Jim Farley said the company sees strong EV purchase consideration among potential buyers.
“There are plenty of customers,” Farley said. “The issue is the price they’re willing to pay has come down.”
It’s an abrupt about-face for Farley, who previously called price cuts a “worrying trend” that risks commoditizing products and angering customers.
The price actions and production delays come roughly two months after Ford gathered analysts at its Dearborn, Mich., headquarters for a capital markets presentation detailing how it planned to make money off EVs.
“We credit Ford admitting to the EV demand and economic realities,” Wells Fargo analyst Colin Langan said in an investor note. “However, the timing is surprising following May’s EV focused investor day.”
GM last week said it achieved its target of producing 50,000 EVs in the first half of 2023 and still expects to build roughly 100,000 in the second half. It still plans to produce a total of 400,000 EVs from 2022 through the middle of next year.
But most of the EVs it’s building today are Chevrolet Bolts, which use a second-generation EV architecture that soon will be phased out. The company has been slow to ramp up production of EVs on its newer Ultium platform, including the Cadillac Lyriq and GMC Hummer.
Barra said GM has experienced “unexpected delays” because its “automation equipment supplier has been struggling with delivery issues that are constraining module assembly capacity.”
She said GM has brought in its own employees to help, added manual module assembly lines and installed more module capacity at its EV plants.
“We are working on multiple fronts to put this behind us as quickly as possible and things are already improving,” she said.
GM still plans to launch three additional Ultium-based EVs this year: the Silverado, Equinox and Blazer.
And, in a surprise announcement, Barra said the company would produce a next-generation Bolt on the Ultium platform, highlighting the importance of affordable EVs. GM had said in April that it would discontinue the Bolt at the end of this year.
“Our customers love today’s Bolt,” Barra said last week. “It has been delivering record sales and some of the highest customer satisfaction and loyalty scores in the industry. It’s also an important source of conquest sales for the company and for Chevrolet.”
Even as EVs prove tougher to conquer, Ford and GM say their internal combustion business is stronger than expected.
Ford increased its 2023 earnings forecast for its Ford Pro commercial unit from $6 billion to “approaching $8 billion,” which would be more than double last year’s profit. Ford also said it expects to make about $8 billion at Ford Blue, its ICE business, up from prior guidance of $7 billion.
Meanwhile, GM now expects adjusted earnings before interest and taxes of between $12 billion and $14 billion this year, up $1 billion from its April forecast. GM raised its 2023 net income forecast to a range of $9.3 billion to $10.7 billion, up from $8.4 billion to $9.9 billion. And it increased its automotive free cash flow forecast by $1.5 billion to a range of $7 billion to $9 billion.
“We’re building momentum thanks to incredible customer response to our new trucks and SUVs, and strong execution of our business plan by the GM team, our dealers and our suppliers,” Barra said in a letter to shareholders.
However, the revised guidance from Ford and GM contains a large caveat: Both companies assume they’ll negotiate new contracts with the UAW in the coming months without a work stoppage.
UAW President Shawn Fain has indicated that a strike is possible, even at all three automakers, if they do not meet the union’s demands for better wages and benefits. The UAW’s contracts with the Detroit 3 expire Sept. 14.
Fain blasted the companies after last week’s earnings reports, calling their profits “obscene,” “mind-boggling” and “eye-popping.” He argued that the billions should go toward restoring worker pensions and increasing pay.
“Like every Big 3 automaker, Ford is thriving,” Fain said in a statement after Ford reported its results Thursday, July 27. “Seeing the billions that Ford is making, we know they can and must make things right for our workers and our communities.”
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