At its Capital Markets Day this week, Ford’s (F) goal was for investors to hear the story of the new Ford: why it’s now positioned to be valued as a high-growth industrial company—not a low-margin auto business. Ford CEO Jim Farley made his case to Yahoo Finance, contending the company will leverage high-margin vehicles in its traditional gas powered business, rely more on its resilient Ford Pro commercial business, and switch to more cost-efficient gen-2 electric vehicles in the coming years.
Ford’s CFO John Lawler doubled down on those arguments. The secret formula: driving costs down through efficiencies. Especially for the gen-2 EVs, which Ford is aiming to launch in 2025.
“It's about efficiency at every turn and that's the secret formula to create profitable EVs, and that's what we're executing with our gen-two vehicles,” Lawler said in an interview with Yahoo Finance from Ford’s Capital Markets Day.
The new EVs, which Ford says will include a three-row crossover SUV, and a nex-gen EV pickup, and a third body style, will built completely different from the ground up.
“There's three key levers: there's scale, of course, as we grow, and then there is the clean sheet design. It's a clean sheet design and that we can start with a very simplified low complexity architecture where we can optimize for cost,” Lawler says. “And then of course, it's optimizing batteries efficiency in your design to get the smallest battery for the longest distance.”
A big part of the cost efficiencies are in the battery design and manufacturing—and obtaining the necessary raw materials to make those batteries in a vertically integrated way, Lawler said. And that also means making deals to get right at the source for materials like lithium and nickel.
“We're vertically integrating all the way down to the mines to get the minerals that we need to produce the batteries for these vehicles, “ he said. “We announced three key relationships [on Monday] with us going straight into the mines and that's gonna allow us then to be a compliant for all of the IRA (Inflation Reduction Act) benefits that are out there.”
In addition, Ford believes embedding software in its gen-2 vehicles will drive costs even lower, allowing for the ability to upgrade vehicles cheaply, keep vehicle platforms around for longer,, and boost profits with high-margin software add-ons.
With those efficiencies in mind, Ford updated its financial outlook to include “financial bridges” like cost savings and boosting profitable businesses that will allow it to hit company adjusted EBIT margins of 10% in 2026, “a waypoint” the company says to higher subsequent profitability.”
Meanwhile, Ford Blue, the traditional gas-powered business, is expected to hit low double-digits in terms of EBIT margin percentage by 2026, Ford Pro is targeting mid-teens, and by late 2026, Ford’s EV business - Model e - is targeting 8% EBIT margins.
Analysts like Citi’s Itay Michaeli came away largely impressed by the presentation.
“We liked what we heard...At the core, we believe Ford established two important foundations: (1) Ford Pro as a fundamentally different business with clear competitive moats… (2) Advancing the discussion around expanding revenue pools from today's 1x sale to lifetime economics,” Michaeli wrote in a note to investors following the event.
He added: “While most of today's conversations center on new EV competition (and) resulting unit economics, the bigger structural (and more positive) step-change might come from automakers grabbing at what we've estimated is ~60% of lifetime vehicle revenue" from new services like self-driving software that currently isn't being exploited.
Michaeli said he and the Citi team were impressed with how fast Ford is moving on these initiatives, and that the event served as an opportunity to shift “the narrative” around the stock. Citi has a “neutral” rating on Ford shares with a $12.80 price target.
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Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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