Elon Musk had some encouraging words for Ford as the automaker continues to report significant losses from its electric vehicles.
There are many ways in which Tesla leads in the auto industry’s transition to electric vehicles. One of them is margins.
While virtually all legacy automakers have started on a path to switch to electric vehicles, most of them struggle to make money selling them.
Most of them sell EVs at a loss or with a slight positive margin and compensate with their gasoline vehicle business until they can improve these margins.
Meanwhile, Tesla is selling its vehicles at a 15-25% gross margin and ~10% net operating margin.
For the first time since separating its electric vehicle (Model e) business unit, Ford has detailed the financials behind its electric vehicle programs and confirmed that its EV business is currently generating 40% negative margins.
A Twitter user tweeted this fact to Tesla CEO Elon Musk, who actually had words of encouragement for Ford:
“Always tough with margins for new vehicle lines, especially when there are major technology shifts. I think Ford’s overall strategy with EVs is smart. The electric F-150 (Lightning) has high demand.”
Musk has often shown respect for Ford – highlighting the fact that along with Tesla, it is the only other US automaker that never went bankrupt.
Now he is going as far as calling Ford’s EV strategy “smart.”
Electrek’s Take
I like the Mach-E and the Lightning, so I tend to agree with Musk here, but the main issue is that we are still not seeing anywhere near the volumes of EVs from Ford that we need to see.
Top comment by Dinklesmith
I think it would be helpful to explain the difference between gross vehicle margin and net operating margin. I think when most people see that Ford loses money on EVs, they think it's because it costs more to produce an F150 lightning than to sell it. They don't realize the loss comes from accounting for the R&D, factory, and building out the infrastructure, etc and that once those are accounted for, margins improve
In fact, Ford’s EV sales were down this quarter.
But the automaker still believes it can bring its annual EV production capacity to 600,000 units by the end of the year.
Now that is starting to be a decent volume. If it can achieve that, it should start to be closer to breaking even on its EV business.
But I think the more exciting stuff from Ford on the EV front will come with the next-generation electric pickup truck. I think that will be the “make or break” moment for Ford in the EV transition.
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