Ford, the Michigan-based auto manufacturer, reported a marginal increase in profits for the second quarter of 2024. However, the company’s share price took a hit due to poor performance in the electric vehicle (EV) division. The EV division suffered a loss of $1.14 billion, which Ford attributed to ongoing industry-wide pricing pressure resulting from a price war between manufacturers.
The aggressive lowering of EV prices by manufacturers like Tesla and Ford has negatively impacted profits. Despite cost reductions of $400 million in the segment, the pricing pressure and other factors have outweighed the savings. In the first half of this year, Ford’s EV division lost $2.46 billion, following a net loss of $4.7 billion in 2023.
In contrast, Ford’s gas and hybrid vehicles, as well as the commercial segment, reported profits for the second quarter. However, the company expects the EV division to see a full-year loss of $5 billion to $5.5 billion due to continued pricing pressure and investments in next-generation electric vehicles.
CEO James Farley acknowledged the challenges faced by the company in the EV market, calling it a “huge drag” on both Ford and the industry as a whole. Despite this, he expressed confidence in Ford’s ability to reduce losses and sustain a profitable business in the future. Farley emphasized the importance of improving the quality of new products to address high warranty reserves, which have contributed to the decline in profitability.
When questioned about Ford’s ability to make low-cost EVs profitably without Chinese partners, Farley highlighted the company’s advantage in designing efficient EV components. While China may have an advantage in making highly affordable batteries, Ford’s dedicated team focuses on creating a low-cost EV platform with breakthrough components that are better and cheaper. Additionally, Ford benefits from localized battery production, thanks to the Inflation Reduction Act (IRA), which provides credits for EV buyers who meet certain requirements.
Ford’s struggles in the EV market are not unique. Tesla also reported a decline in revenues and production in the second quarter, citing a difficult operating environment for the EV industry. A recent consumer survey by the American Automobile Association revealed that high costs, lack of convenient charging options, and range anxiety were key reasons for prospective buyers’ hesitation to choose EVs.
Despite these challenges, the overall EV market value in the United States is projected to increase in the coming years. A report by Fortune Business Insights estimates that the EV market will rise to $137.43 billion in 2028 from $28.24 billion in 2021, with promotional activities and government policies helping to overcome consumer barriers.
In conclusion, Ford’s EV division has faced significant losses due to industry-wide pricing pressure and other factors. However, the company remains committed to improving its EV strategy and reducing losses. The challenges faced by Ford and other manufacturers in the EV market highlight the need for advancements in affordability, charging infrastructure, and consumer education. Despite the current obstacles, the overall outlook for the EV market in the United States remains positive, with projected growth in the coming years.
