Navigating Challenges: How Ford is Addressing Its Electric Vehicle Setbacks and Labor Costs
The automotive world was taken aback as Ford Motor Co. faced a 6% drop in its share prices during Friday morning’s trading session. This downturn comes in the wake of the company grappling with increasing losses in its electric vehicle (EV) sector, primarily instigated by a competitive price war led by Tesla, the industry’s frontrunner.
Ford’s situation is reportedly further complicated by the removal of its full-year forecast for 2023, attributed to the “uncertainty” surrounding the approval of a new labor agreement with the United Auto Workers (UAW) union. This deal is poised to ramp up labor-related expenditures significantly.
The Detroit-based automaker is taking measures to mitigate these challenges, including the reduction in production of its Mustang Mach-E and a scaled-back investment in its EV segment, totaling around $12 billion. This also includes the postponement of its second battery plant in Kentucky.
According to Wells Fargo analysts, “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.” Ford’s quarterly report only added to the darkening cloud over the EV market, which has witnessed a pullback in consumer purchases amid soaring inflation rates.
The automaker disclosed a quarterly loss in earnings before interest and taxes (EBIT) of $1.33 billion for its EV unit, marking an increase in losses from the second quarter’s $1.08 billion EBIT loss. Amidst these financial tribulations, Ford reached a tentative agreement with the UAW on Wednesday, promising a 25% wage increase for 57,000 workers over nearly five years, effectively concluding the strike at some of the company’s major factories.
John Lawler, Ford’s Chief Financial Officer, anticipates the new contract to amplify labor costs by $850 to $900 per vehicle. Throughout the strike’s duration, the automaker saw a staggering market cap loss of approximately $4.32 billion, based on LSEG data.
In these trying times, Ford is not alone in its tribulations. General Motors, a staunch competitor, also retracted its 2023 results forecast earlier this week and revised its ambitious goal of producing 400,000 EVs by mid-2024. As Ford strives to navigate through these murky waters, all eyes are on how the company will bounce back and reposition itself in the ever-evolving automotive landscape.
Photo courtesy of Ford Motor Co.