You have to spend money to (eventually) make money. It’s true for websites like this one (please become a member!). It’s true for car companies. To wit, Ford says it plans to lose $3 billion this year trying to get its EV business off the ground. Billion. With a B. Additionally, we’re learning how much Michigan is going to spend per job on Ford’s new plant there, discussing the impact of Silicon Valley Bank fallout on auto startups, and I’m personally getting a big slap in the face from Volkswagen Group. Let’s get to it.
Ford’s Gas Cars Will Pay For Its Electric Cars
Ford makes billions of dollars selling gas-powered F-150s and Mustangs. It loses money building F-150 Lightnings and Mustang Mach-Es. It then makes some more money on its commercial vehicle business. In the past, this was all just tied up in one number.
The big change from CEO Jim Farley is that the company will now account for each part of its business separately. The three segments are:
- Gas and hybrid-powered vehicles (Ford Blue)
- Commercial Customers (Ford Pro)
- EV and Software (Ford Model e)
To look at what its business has looked like when broken up into these sections, Ford’s accountants went back to previous reports. They also forecast what they expect in 2023. Conveniently, The Detroit News summarized all this in its report:
2021
- Ford Blue: +$3.3 billion
- Ford Pro: +$2.7 billion
- Ford Model e: -$900 million
2022
- Ford Blue: +$6.6 billion
- Ford Pro: +$3.2 billion
- Ford Model e: -$2.1 billion
2023 (Forecast)
- Ford Blue: +$7.0 billion
- Ford Pro: +$6.0 billion
- Ford Model e: -$3.0 billion
As you can see, the company’s net profits would be a healthy $10 billion in this scenario this year, which makes the $3 billion a bit easier to swallow. This is all part of Ford’s plan to build 600,000 EVs annually by the end of the year and 2 million annually by 2026.
I do not give investment advice here. And even if I did, I spent $3,000 on an old BMW recently so maybe don’t take my advice if I ever decide to go full Jim Cramer [Editor’s Note; That was a solid investment! -DT]. Still, Ford’s current stock price is hovering around $11.50, and that gives the company a market cap that’s 1/10th, approximately, of what Tesla has. Tesla produced 1.37 million cars last year. These are just numbers.
Ford Will Get $693,000 Per Job In Michigan
Ford planned to team up with China’s CATL to build a battery factory in Virginia, but the state’s governor nixed the idea over claimed security concerns. This was good news for the State of Michigan, which was already smarting from having lost Ford facilities to both Tennessee and Kentucky. It swooped in and grabbed the plant. Michigan’s biggest enticement? Money. Given the above news about Ford losing $3 billion making electric cars, money is obviously on Ford’s mind.
The new plant in Marshall, Michigan was secured using the state’s Strategic Outreach and Attraction Reserve Fund (SOARF) to the tune of $1.7 billion. Given the plant will provide 2,500 jobs, the total cost is about $680,000 per employee. That’s, uh, a lot. If you only factor in cash, and not tax breaks, it’s about $400,000 a job.
Let’s see what some lawmakers think, via Automotive News:
“I believe that we paid a premium for Ford to tell a good story, which is: ‘We created this fund because we lost Ford, and now we’ve attracted Ford.’ But the issue is at what cost? That’s $1.7 billion of benefits they received, totaling $725,000 a job, which is way out of whack with what we paid” for other agreements, said House Minority Leader Matt Hall, a Republican from Kalamazoo County’s Richland Township and a critic of the deal.
That’s not unfair. Other projects in Michigan are getting $41k-$300k per job created, according to Automotive News. Additionally, a Republican State Senator pointed out that some of those workers will be making just $41,600 a year (it’s not clear how many). The Democratic House Speaker had an alternative perspective:
“You see the spin-off of other jobs. You see the co-location of the supply chain around the areas where there is this manufacturing,” Tate said. “When you look at the technology that’s going to be manufactured here, this is only the start of those opportunities. I think it’s going to be definitely a value add not only for what’s being built there but also the supply chain that’s going to go along with it.”
Maybe! A lot of companies are building battery facilities in Michigan as it retools itself for the future. If the state becomes the country’s center of battery production for 50 years, that $1.7 billion isn’t going to seem like much in the grand scheme of things.
Silicon Valley Bank Ripples Into Auto Industry
It’s not a great time to be an automotive startup. Everyone invested a ton of money into autonomous driving and related companies and it’s not clear how much of that money is coming back. High valuation companies that aren’t turning a profit run into a weird conundrum: You need to keep borrowing money at a, theoretically, higher valuation. How do you justify a higher valuation? You could sell something, but for complex products like tech for self-driving vehicles, it may take years to get to market. So you hire a bunch of people and talk about all the technology you’re creating.
What happens if the money taps get turned off? Ford’s self-driving startup Argo couldn’t keep raising money and it was eviscerated. The same thing seems to be happening to Embark Technologies, the self-driving truck company that’s on its way to liquidation.
Silicon Valley Bank famously imploded earlier this month. Why? One might blame a strategy that completely underestimated the current rate environment. I would argue that SVB’s problem is that it was overly friendly to venture capitalists and founders who are, by and large, extremely callous and thin-skinned. SVB seemed to assume that its customers, who had gotten sweetheart business and personal deals for decades, wouldn’t just suddenly abandon it after a few whispers [Editor’s Note: I argue that the issue was the whispers themselves — The PR problem shouldn’t be completely discounted. -DT]. Boy, was that the wrong call. The SVB bank run is the stupidest bank run outside of something you’d see in a Frank Capra film, except the people of Bedford Falls have actual spines and some sense of decency.
This is all to say, the automotive startups hoping to keep getting cash from friendly investors are about to have a rough go of it. There’s an Automotive News story that probably undersells it: “Auto tech startups’ capital access may worsen with SVB failure.”
From the story:
The cost of capital will be higher for auto tech and battery startups, Martin French, managing director at German auto industry consultancy Berylls Strategy Advisors, told Automotive News, while venture capital firms will be shrewder with their investments.
“The industry still needs these startups, they still need these companies to be well-funded in terms of the transition to electrification,” French said. “It’s just a question of whether or not the relationships are going to be there with other banks, with the VCs, to be able to help startups and give the startups what they need.”
Silicon Valley Bank was a crucial resource for startups such as Liminal, which provides battery inspection systems, and for early-stage companies that have long product validation times, said Andrew Hsieh, Liminal’s CEO and co-founder.
This is a bad and good thing, in my view. There’s a lot of innovation to come in the automotive space and someone needs to provide that money. It’s quite likely the people providing that money may do extremely well on their investments. At the same time, the existing startup environment created a seemingly endless stream of losers with dubious products.
Does Volkswagen Hate Me?
It’s fairly clear that this is a pro-Skoda shop. When I heard that a Volkswagen brand would potentially be coming to the United States, I was certain it would be the Czech company. Ehh… maybe not. Instead, VW might be considering the company’s Spanish spinoff Cupra.
Confirming previous rumors, Cupra has revealed that it is analyzing a potential entry into the North American market in a move that could establish the Spanish carmaker as a truly global brand.
Chief executive Wayne Griffiths made the revelation while speaking during Seat’s recent annual press conference. While a final decision has not yet been made, such a move would come on the back of Cupra’s arrival into the Australian market last year.
“At the moment, we’re testing our brand there [in North America] with potential clients where we think Americans would love Cupra’s design and great performance,” Griffiths said. “And I have to say, the results from these first tests are very promising and very positive.”
I do like Cupra, but I was holding my breath for a new EV Felicia pickup. Dreams…
The Big Question
How long before Ford’s EV group becomes profitable?
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Photos: Ford, CATL, Seat, Embark
Volkswagen said “Don’t buy Felicia”
Ford Will Get $693,000 Per Job In Michigan
Oddly enough, my aunt is one of the people getting the buyout to move out of her home for this factory. I think the plant is great news for the state and the country. After being inside of my aunt’s home a handful of times and seeing everything stained and smelling of her husband’s cigarette-smoking stench, I’m glad to see that she gets to possibly move into something a bit nicer.
I’m making over $13k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life.
That is what I do… https://c2d.in/joblive76
So you’re saying that if they also work online, part-time, Ford could be profitable in less than 19,230.8 years?
That’s an interesting take. Thank you for your input.
Why do companies get money for “creating” jobs and not equivalently fined for eliminating them? As can be seen by the Stellantis closure in Belvidere the economy of an entire town is being devastated; but if Stellantis sets up shop somewhere else they’ll be sucking at the government teat expecting tax breaks for the “new” jobs they created when at best they are offsetting jobs they’ve whacked elsewhere.
Same obviously goes for Ford or GM. They’ll happily take the tax breaks and incentives to set up shop somewhere new but society gets shafted when they decide to shut down. Meanwhile, small local business doesn’t get most or sometimes any of these sort of tax breaks.
I’m not anti-business or some sort of commie sympathizer, but I am exhausted with the taxpayer and the little guy left holding the bag when big business screws up while we are expected to maximize their executive bonuses, let them move money overseas and play games with the tax code to keep from paying taxes, and provide endless corporate welfare.
For those who disagree, I am certainly open to being educated if some people can provide reliable studies and references showing such corporate welfare actually works to the benefit of the local citizens. In the case of Ford above, $1.7 billion is a pretty big hole to dig out of.
What would a Cupra Chupacabra look like?
Pretty sure I saw that on an episode of the X-Files. Mulder was all in but Scully wouldn’t believe it.
They should definitely have the model Cupra Chaba.
Regarding the Big Question… I give it 5 years. This first gen of in-house BEVs they are making (the current Mach E and the Lightning) will break even at best. It’s the next gen of these vehicles as well as other vehicles they come out with based on these that will make money as they take the time to sweat out the details to cuts costs and improve the designs.
If you watched the Sandy Munro videos comparing the cooling system of the Mach E to the cooling system on the Tesla Model Y, it’s easy to see why the Model Y is far more profitable.
“I do not give investment advice here.”
That’s good, because the implications of your not-advice immediately after that are pretty questionable. Ford being valued at 1/10 of Tesla is mostly because Tesla is drastically over-valued, not because Ford is under-valued by 10x. The only way I would invest in Ford at this point is if I thought they were going to solve their rampant quality problems (also not investment advice, just my humble opinion).
When Ford produced the Mach-E, everyone said, “See Tesla is not so special. Big Auto is going to eat their lunch.” Now it has become clear that the competitor EVs are being built with cubic dollars.
Building an competent EV is not really hard.
Building the machine to build EVs efficiently is hard.
Actually, SVB collapsed because of a fundamental flaw with their interest-rate-risk management program. In short, they invested short-term deposits into long-term bonds. When interest rates rose, the value of the bonds fell, wiping out the equity of the bank. Any junior banker with an MBA and a minor in economics would have known this and could have prevented this. In fact, even the lowest bank clerk would have known this. This was first a gargantuan management failing and second pure idiocy.
Its client base of venture capitalists and their loan portfolio had nothing whatsoever to do with it in spite of breathless reporting otherwise.
Speaking of idiots, Jim Cramer is surely in that camp. I mean, please.
Ford is losing $3 billion building the infrastructure to build EVs. Not building the EVs themselves
Between 2010 and 2020, 2020 being the first year Tesla made 600k+ vehicles they lost on the books about $6B in total, but there was $4B in reg credits so they really lost $10B. Yeah Ford your $3B is no big deal.
Man I wonder if the conversion from Horses to Motorized Carriage was so long and and money losing?
It’s 4 months of Ford’s 2022 earnings, for a fundamental strategic move. Sounds cheap to me.
https://www.freep.com/story/money/cars/ford/2023/02/03/ford-ceo-jim-farley-automaker-2022-earnings/69866914007/
Hey VW,
Give me a Leon Sportstourer and I will welcome Cupra with open arms.
Call me old fashioned but IMHO losing 3 billion dollars is not a good way to sell more BEVs.
Maybe Ford should make a bunch of Cheap Maverick BEV pickups with ranges that are competitive with the Nissan Leaf instead of a few full size F-150 Lightnings that are only available with a 5 seats in a “super crew” cab with a short bed.
Hell, if Ford stopped making F-150 Lightnings and instead took the batteries from them and using them to make Maverick Hybrid battery packs you could make at minimum 89 Maverick Hybrid battery packs from the amount of batteries in ONE F-150 Lightning. Considering 75% of Maverick orders are for the Hybrid and Hybrids only make 30% of Mavericks produced I think it’s safe to say that 89+ Maverick Hybrids on the road do more to reduce exhaust emissions than one F-150 Lightning.
Wait until you hear how they fund new ICE models.
Do enlighten me…
It’s called investing in the future. You spend money now so you can make more money later.
As a society, we should try doing more of that. As far as large companies, it’s become almost quaint to see them do it so we kinda should celebrate those that do.
On the contrary, selling things below their true cost is an excellent way to sell more of them.
Mostly it appears you have no understanding of startup costs for such things.
There is no “cheap BEV Maverick” after they spend several hundred million re-engineering it before it even goes on sale. Your idea makes their bottom line worse, not better. (This includes an assumption a BEV Maverick’s development is not included in the current projected loss. It may well be.)
Take an ICE Maverick chassis: Put batteries where the hybrid battery goes, and under the hood with enough room for electric transaxle, put electric transaxle in. Make it work. Tada, cheap BEV Maverick with very low development costs (relatively). Same way Mini made the Mini BEV.
Ford Blue, sold less than they wanted but made more than ever by jacking up prices and only selling top trims. The longer they lose money on EVs the better for tax write-offs. Once they HAVE to reduce ICE sales, you’ll see the profits come in for EVs, and no time before that.
Nice to finally see Ford use their Model e name.
Yes, but it looks like they’re still not capitalizing on it.
Hey-o!
I thought Mercedes-Benz owns “E”
Ford owns it, that’s why Elon has S3XY cars and not SEXY cars.
Also, if you want to make money in the stock market, absolutely pay attention to what Cramer says, then do the EXACT OPPOSITE! Cramer was promoting his followers to buy SVB in February. We see how well that went.
Ford also retains a trademark on Model U, which they’ve only used for one concept car like 20 years ago, then never talked about again
RIP Musk’s plan for SUXY cars?
The EV push and optics with regard to high prices, Job losses claimed to be related to less complicated build processes, and lack of profitablity do not inspire many to think the BEV is a long term solution. I think they are just hoping for the best to be honest.
Time will tell I suppose.