The electric vehicle push at Ford and General Motors hit a speed bump that’s cutting into the automakers’ profits and causing them to reevaluate their electric vehicle (EV) plans amid a price war and supply chain challenges.
Ford noted in its earnings report released last week that its EV unit posted a quarterly loss before interest and taxes (EBIT) of $1.33 billion – an acceleration after a loss of $1.08 billion in the prior quarter. It added that it’s cutting production of its Mustang Mach-E while scaling back about $12 billion in planned investments in the EV segment, including delaying its second battery plant in Kentucky.
"It's been a challenging situation, for sure," Ford CEO Jim Farley said during the company's third-quarter earnings call after posting greater losses than expected on EVs. "Matter of fact, our business is never short of challenges, especially right now with the evolution of the EV market and new global competitors from China, as well as the technology disruptions."
Farley added that a "great product is not enough in the EV business anymore" and emphasized that Ford has to be "totally competitive on cost" because "affordability is an issue" for consumers considering EV purchases.
Analysts from Wells Fargo wrote of Ford’s EV woes, "We believe that the rise in battery raw material costs has negatively impacted the outlook for BEV (battery electric vehicles) profitability, and consequently, Ford’s profitability."
General Motors saw its quarterly profit reduced by about $1.5 billion because of higher costs and the impact of selling more EVs – though it doesn’t break out losses from its EV unit in the same way Ford does.
GM CFO Paul Jacobson said that it would abandon an interim goal of building 400,000 EVs from 2022 through mid-2024, instead focusing on a goal of "getting to 1 million EVs of production by the end of 2025 alongside hitting our margin targets."
"We are also moderating the acceleration of EV production in North America to protect our pricing, adjust to slower near-term growth in demand, and implement engineering efficiency and other improvements that will make our vehicles less expensive to produce, and more profitable," GM explained in a note to investors from CEO Mary Barra.
Barra also commented on the changes in the EV market and how they’re impacting GM’s bottom line, writing: "Clearly, given the industry’s changing pricing and demand outlook and higher labor costs, we have work to do to ensure we achieve low to mid-single-digit EBIT EV margin targets in 2025, and grow our revenue and sustain strong 8-10% EBIT margins in North America."
GM said that it will delay the planned retooling of a factory to build electric pickups in Orion Township, Michigan, to save $1.5 billion in capital expenses in 2024. Jacobson said the delay will help improve profit margins when the facility starts production of electric Silverados and GMC Sierras.
GM and Honda also released a joint statement announcing the end of a $5 billion partnership to jointly develop affordable EVs. The initiative was first launched a year ago.
FOX Business’s Breck Dumas and Reuters contributed to this report.