Ford Motor Company (NYSE:F) just released its fourth-quarter revenue data for investors to mull over before the company reports its fourth-quarter and full-year 2023 results later this month. The good news is that the company had a record quarter in electric vehicle (EV) sales, but the bad news is that this means billions of dollars in losses in the short term.
That's why it's still a positive development for Ford investors.
The devil is in the details
Ford's U.S. sales rose 7.1% to nearly 2 million vehicles in 2023, led by strength in its F-Series full-size trucks and utility vehicles and a record year for electric vehicles.
Let's start with the company's most important product, the truck that brings profits to the people of the Blue Oval. Ford's F-Series was America's best-selling truck for the 47th consecutive year and the best-selling vehicle for the 42nd consecutive year. To be fair, it's a title that Ford will likely continue to hold as its main competitor. General Motorsappears to split some of its sales between two truck brands, the Chevrolet Silverado and the GMC Sierra.
What's encouraging for investors is that the F-150 Lightning was the best-selling electric truck for the entire year and the F-150 Hybrid was the best-selling full-size hybrid truck. It's important for investors to recognize that Ford's strength in gasoline-powered full-size trucks can be translated to electric vehicles, as full-size trucks are a critical component to a better bottom line.
Speaking of electric vehicles…
That's a nice segue into another important component of Ford's fourth-quarter and full-year sales: electric vehicles. Ford's electric vehicles posted record sales in the fourth quarter, setting a record full year. Specifically, the Detroit icon sold nearly 26,000 electric vehicles in the fourth quarter, up 24% compared to the third quarter, helping it post an 18% gain for the full year.
Much of Ford's electric vehicle sales increase was driven by the aforementioned F-150 Lightning, which posted a 74% increase in sales compared to last year's fourth quarter and a 55% increase for the full year. With the F-150 Lightning, the Mustang Mach-E and the E-Transit, Ford secured America's second-largest electric car brand for 2023.
The story goes on
The bad news
Here's the kicker about Ford's record electric vehicle sales: The company is still burning cash on every electric vehicle that rolls off the assembly line. In fact, Ford previously estimated that its electric vehicle division, the Model e, would lose about $4.5 billion in 2023.
Management expects Ford to cut costs and speed up production enough to turn a profit on its Model E unit by the end of 2026. However, a record quarter for electric vehicle sales also means a less lucrative result for the year as a whole.
But as they say, the night is darkest just before sunrise. Ford needs to hit these quarterly electric vehicle sales records to ultimately reduce overhead and costs and achieve profitability. Essentially, record quarterly electric vehicle sales mean short-term pain for long-term gain.
As Ford presents its path to an 8% EBIT margin by the end of 2026, most of the margin increases will come from scaling production/sales, with the rest coming from a combination of design and engineering and lower battery costs.
Data source: Ford Motor Company presentation.
What's next?
Ford closed the 2023 chapter with some sales momentum, but management believes the company is still poised for growth in 2024, driven by its strength in full-size trucks and SUVs. In fact, Ford will launch new F-150s, Rangers, Explorers and Expeditions as well as Lincoln Aviators, Navigators and Nautilus.
Most importantly, even though the headlines currently point to Ford's big EV losses, it needs to continue posting record EV sales to reach profitability sooner rather than later.
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Daniel Miller has held positions at Ford Motor Company and General Motors. The Motley Fool recommends General Motors and recommends the following options: Long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
Ford just lost billions of dollars on electric vehicles. Here's why that's good news. was originally published by The Motley Fool