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Ford Motor Struggles as Tesla Raises Stakes in EV Battle

Published 01/31/2023, 12:33 PM
Updated 07/09/2023, 06:31 AM
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Shares of Ford Motor (NYSE:F) fell on Monday after the company was forced to slash prices of its flagship electric vehicle (EV) model after key rival Tesla (NASDAQ:TSLA) announced big pricing cuts. As a result, Ford stock fell on Monday as investors fear that new prices will impact profitability and margins as the automaker continues to invest heavily in its ambitious EV plan.

Ford said it is ramping up production and trimming prices of its electric Mustang Mach-E SUV crossover. The move, which comes just weeks after Tesla announced similar plans, will see Ford reduce the price of its Mach-E by around $4,500, depending on the vehicle’s configuration.

Tesla Leads, Ford Follows

Overall, Ford’s reductions are in the range of $600 to $5,900, compared to Tesla’s significant price cut of up to $13,000 on its Model Y vehicle earlier this month. Marin Gjaja, Chief Customer Officer of the carmaker’s EV unit, said the price reductions will make some of the Mach-E models unprofitable on a per-unit basis.

The car company refused to reveal which Mach-E trims and models will remain profitable after the price tweaks. Gjaja added that the company will raise the production for the electric crossover SUV from 78,000 vehicles to 130,000 units per year.

However, the Detroit-based carmaker plans to offset some of the profit declines through cost improvements stemming from elevated production and reduced commodity costs, Gjaja said. Following the price cuts, Mach-E’s starting price will now be in the range of $46,000 to $64,000. Tesla’s Model Y, which is often compared to the Mach-E, currently starts from $53,500 to $57,000.

Analysts and investors welcomed Tesla’s recent price cuts as Elon Musk’s EV giant attempts to boost demand and sales, even though the move could weigh on its profits. The market was expecting Tesla’s notable price reductions would put pressure on its rivals to make similar moves.

Thanks to strong demand for the Mach-E, Ford was the second-best-selling EV maker in 2022 in the U.S., though behind Tesla by some distance. The carmaker sold over 65,000 electric cars in the home market last year, compared to Tesla’s estimated sales of 522,000 EVs.

Customers who already ordered the Mach-E model and are awaiting delivery will automatically receive the reduced price, while those who already bought the vehicle after Jan. 1 can expect Ford to contact them with a “private offer,” the carmaker said.

Furthermore, customers who order the Mustang Mach-E in the period from Jan. 30 to April 3 will qualify for special rates with Ford Credit.

Ford also said it will start issuing separate reports of financial results for its EV division, also known as Model E, in the coming months. Gjaja said:

"We want to make money. Don't get me wrong, we absolutely want to make money. Believe you me, I know that we need to be trying to get more profitable because we will be publicly accountable for that number."

In order to boost Mach-E production, Ford is set to upgrade its assembly plant in Mexico and restart its operations in February.

Focus on Q4 Results

Meanwhile, Ford shares have managed to recover some losses in early Tuesday trading after rival General Motors (NYSE:GM) reported stronger-than-expected Q4 results. Analysts are interested to hear more from both companies on signs of cooling demand and a more difficult pricing landscape.

Ford is expected to report earnings per share (EPS) of 62 cents, significantly above the 26 cents per share it reported in the same quarter last year. GM reported a Q4 EPS of $2.12 on revenue of $43.11 billion, crushing analyst expectations for EPS of $1.68 on sales of $40.04 billion.

Both car manufacturers have posted record financial reports in recent years amid tight supply and strong consumer demand. However, after relying on pent-up demand and normal inventory levels, the Detroit-based automakers may have to brace for a tougher ride in the coming quarters.

According to Cox Automotive, the two companies now have among the highest inventory levels in stock, with vehicle numbers differing significantly by brand. This scenario could make new vehicle prices and profits substantially more volatile.

Additionally, there are concerns that the demand was mostly hurt due to fears of recession and affordability challenges following a series of jumbo interest rate hikes and record prices of around $50,000 on average for a new vehicle.

Analysts at Wall Street have been expecting a collapse in demand for the past several quarters, suggesting that all eyes will be on the companies’ 2023 outlook numbers later this week. Goldman Sachs expects the carmakers’ estimates to fall short of consensus numbers due to “price and mix as well as lower financial services profits." The broker expects Ford’s 2023 EPS to be around 16% lower than last year.

Deutsche Bank analyst Emmanuel Rosner shared similar views, with the bank expecting the two carmakers to “see a notable decline in profitability this year, as earnings can be weighed down by vehicle pricing declines and losses from growing EV volumes.”

Yet EVs remain a popular choice for socially-conscious consumers. In Canada for example, one survey suggested 71% of residents will consider an EV for their next vehicle purchase.

Summary

Ford has slashed the price of its Mustang Mach-E SUV crossover in a move that comes after rival Tesla continued to lower prices to drive up demand. The EV makers have struggled in recent months to attract strong demand, as was the case before, as tough macro conditions weigh on consumer spending.

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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

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