Ford Motor (NYSE:F) delivered better-than-expected Q2 earnings and raised its full-year outlook. However, its stock is down about 1.2% in the after-hours, reflecting declining price premiums for EVs (Electric Vehicles), which is taking a toll on its profitability.
Given the declining price premiums and drastic pricing pressure, Ford now expects to deliver a loss of $4.5 billion in its Model E division (which creates EV models), up from its earlier loss forecast of $3 billion.
Nonetheless, its diversified product portfolio positions it well to navigate the current challenges and deliver solid growth in the long term.
Ford’s Diversified Portfolio Could Lead to Durable Growth
The adoption of EVs continues to grow. However, the heightened competition in this space has led to a decline in the price premiums of EVs over internal combustion vehicles (ICE), noted Ford Motor’s CEO Jim Farley during the Q2 conference call. While Farley expects the EV market to stay volatile, he remains confident that Ford’s diversified portfolio offers an edge over the competition and positions it well to navigate the near-term challenge.
Farley highlighted that competition in the EV market has grown with the continued growth in the number of global entrants. This has led to a dramatic increase in pricing pressure. He added that the EV price premiums over internal combustion vehicles fell over $3,000 in Q2 and about $5,000 in the first half of 2023.
Nonetheless, businesses like Ford Blue (which focuses on ICE and improving cost structure) and Ford Pro (a division focusing on vehicles, software, and services for commercial customers) continue to support its growth. Moreover, initiatives to lower the cost structure augur well for future growth.
While the EV price premiums have normalized more quickly than anticipated and are hurting the company’s profitability, Ford raised its full-year EBIT and free cash flow guidance, reflecting the strength of its diversified portfolio. Let’s delve into the 2023 outlook.
Ford Raises Guidance Despite EV Pricing Pressure
Ford continues to face inflationary and EV pricing pressure. Besides pricing pressure, investments in new products and capacity (targeting 600,000 annual production units of EVs by next year) are likely to hurt margins.
Nonetheless, the company raised its company-wide EBIT guidance for the full year, reflecting strength in its Ford Blue segment. Ford expects to deliver adjusted EBIT in the range of $11 billion and $12 billion in 2023, up from its previous forecast of $9 to $11 billion.
At the same time, Ford expects its adjusted free cash flow to be between $6.5 billion and $7 billion, up from its previous forecast of $6 billion. While Ford’s diversified portfolio could enable it to navigate the challenges in the EV space, let’s understand what analysts recommend for the stock.
Is Ford Stock a Buy, Hold, or Sell?
Given the declining EV price premiums, increased competition, and wider losses in its Model E division, Wall Street analysts remain sidelined on Ford stock. It has received three Buy, three Hold, and two Sell recommendations for a Hold consensus rating. Analysts’ average price target of $14.83 implies 8.01% upside potential.
