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Ford (F) Sets Forth Plan to Boost EV Production Profitably

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Ford Motor (F - Free Report) laid out its plan to profitably ramp up its EV production while parallelly growing its traditional operations. The company has maintained its previous guidance of adjusted EBIT in the range of $9-$11 billion and adjusted free cash flow of around $6 billion in 2023. The auto giant targets an 8% EBIT margin on its EV units and expects to produce 2 million EVs annually by 2026.

In a bid to achieve its production run rate and slash costs, the company is introducing a platform that is designed to streamline manufacturing across all its segments. The platform will deploy advanced technology and software and will be out in 2025.

Ford has partnered with three lithium makers: Albermarle (ALB - Free Report) , SQM and Nemaska Lithium, from whom it is likely to have secured 90% of the required amount of lithium and nickel. From 2026, Ford will procure 100,000 metric tons of battery-grade lithium from Albermarle. This agreement will last for five years. It will also procure 13,000 tons of lithium hydroxide per year from Nemaska Lithium and the agreement will last for 11 years.

As soon as BlueOval SK starts its operations in 2026, Ford suggests offering the cheapest electric vehicle batteries in the United States.

The auto manufacturer is introducing a new distribution model that will enhance the ownership experience of customers. With its flexible purchase options, the new model will allow customers to skip negotiating prices at the dealership. It will include replenishment centers that will accelerate deliveries.

In 2024, Ford plans to manufacture 500,000 vehicles equipped with hands-free technology. Assuming a 20% take rate, BlueCruise is expected to generate $200 million in revenues.

Ford is also focused on increasing the margin of its traditional business, which is running profitably compared with its EV counterpart. The company plans to increase its traditional business EBIT margin from a high single-digit to a low double-digit number.

According to Ford’s president of operations, Kumar Galhotra, there will be 8 percentage points of improvement in margin due to structural and controlled cost-cutting, which will help offset the effect of 6 percentage points in net pricing. As demand continues to exceed supply for traditional vehicles, Ford Blue plans to increase its capacity by more than 160,000 units in the next 10 months.

Zacks Rank & Key Picks

F and ALB currently carry a Zacks Rank #3 (Hold).

Some better-ranked players in the auto space are Mercedes-Benz Group AG (MBGAF - Free Report) and Wabash National (WNC - Free Report) , both of which sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mercedes-Benz develops, manufactures and sells passenger cars, including premium and luxury vehicles. The Zacks Consensus Estimate for MBGAF’s 2023 sales implies year-over-year growth of 6%.

Wabash is one of the leading manufacturers of semi-trailers in North America. The Zacks Consensus Estimate for WNC’s 2023 sales and earnings indicates year-over-year growth of 12% and 19.7%, respectively.

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