By Michael Elkins
Deutsche Bank reiterated a Sell rating and $11.00 price target on Ford Motor Company (NYSE:F) ahead of the American automaker’s “teach-in” on its new reporting structure this Thursday, when the company is expected to disclose profits/losses for its three new business units, Ford Blue, Ford Pro, and Model e.
Analysts attempted to estimate the respective segment economics and believe that the EV business could report much deeper losses than investors expect. Their analysis suggests that, based on an EV cost disadvantage of $25k-27k per vehicle disclosed by Jim Farley last year, Ford could be incurring gross losses of ~$9k per EV unit, and its Model e segment may report ~$6 billion in 2022 operating losses after accounting for ~65% of the automaker’s R&D investments.
One potential silver lining from Ford’s new disclosures could be the high profitability of its Ford Pro business. However, Deutsche Bank wonders if this could come under pressure as the segment ramps up vehicles with expensive electric powertrains. At the same time, Ford Pro’s strong profitability may also imply Ford Blue retail ICE business may not be as profitable as investors assume
Analysts wrote in a note, “All in, we believe Ford’s new segment disclosure could showcase EV economics which make the automaker’s 8% EV margin target by 2026 particularly hard to achieve, given deep current losses in 2022 and only modest improvement expected before Ford’s second-gen EV platform scales. We also find the target especially optimistic when compared to GM, who is only targeting low- to mid-single digit margins on its EV business by 2026 (excluding any IRA benefits), despite all its models being already based on the common Ultium platform. As such, we worry Ford management may need to use its upcoming Capital Markets Day in May to cut its mid-term margin targets, possibly lowering them or pushing out the timeline to get there.”
Shares of F are up 5.14% in mid-day trading on Tuesday.