Ford discloses $3 billion loss, provides insights into its 3 business units

Yahoo Finance’s Pras Subramanian joins the Live show to break down Ford’s financial report, expected losses on EV business, and how the automaker is transforming.

Video Transcript

JARED BLIKRE: Ford discloses the $3 billion loss-- that it lost due to its electric vehicle business. The automaker walked investors and analysts through how it's currently organized and operating. And here with all the details is Yahoo Finance's Subramanian.

Pras, there's a big investor day over at the New York Stock Exchange. Just wondering how this is going with their plan. They're basically segmenting their operations, which makes a lot of sense. Different materials, completely different procedures to deal with ICE engines as opposed to the EV models. What's going on?

PRAS SUBRAMANIAN: Yeah, Jared, you know, a big day today for them. They, like you said, reorganizing the business. They call it a refounding there. So basically what they're doing is they're separating the main core business into three parts, Ford Blue for their traditional gas-powered cars, Ford Model E for electric, and Ford Pro for commercial applications.

So, you know, basically they used to-- most automakers divide their sort of sales kind of performance by region. In this case, everything's going into one pot, right? So for Ford Blue, that's ICE-powered cars across the entire world, right? So basically what they're saying is that they're going to do that as a way to show-- kind of give transparency into how the business is transforming.

But like you mentioned there, what's kind of catching people's eye there is the fact that they anticipate a $3 billion adjusted EBIT loss for the EV business this year.

JARED BLIKRE: Yes.

PRAS SUBRAMANIAN: Now, we knew that was going to happen, but it's kind of-- when you see that number kind of popping out at you at a--

JARED BLIKRE: It's a big one.

PRAS SUBRAMANIAN: --on a spreadsheet, it's a little bit, whoa, what's going to happen next? So the good thing for Ford is that they expect that they-- not only did they reiterate their profit guidance for the year. But they said that by 2026, they expect the EV business to be-- kind of have an-- easily break even but also have an 8% profit margin.

So that's what they're hoping to get by that point. So they see the future. They see where the business is transforming. They see how they're going to actually make this a profitable business. And they talk about how, you know, the numbers about how you kind of-- if I sell an EV in my commercial division, how does everything flow? So there's a whole process for that, too.

JARED BLIKRE: Right, and that's-- I think that's kind of the tricky part. I'm just wondering if you could get into the accounting a little bit without getting too wonky.

PRAS SUBRAMANIAN: Yeah.

JARED BLIKRE: And then maybe compare it to Tesla. Because Tesla, they're just a pure EV play. They got this advantage, the way I see it. Is it an advantage? Just talk about the economy.

PRAS SUBRAMANIAN: I mean, Tesla at this point is-- I mean, because of the fact that they've already put that investment into their-- into their business years ago, they're recouping those sort of-- those upfront costs, and now they're actually very, very, very high, from an automotive gross margin point of view, making-- minting a pretty good profit.

But like you said, for Ford now, because they have the traditional ICE business and the gas business, so for instance, the Ford Lightning Electric Vehicle is built at a Ford Blue plant, which is their-- which is their gas-power business. And so if Ford Model E sells that car, they have to actually give-- they have to basically pay the cost of that to Ford Blue's division, and Ford Blue actually will have a markup on that as a sort of a added-on service that they're providing.

So it all evens out. But in the end, it gives a profit-- a lot of the costs are sort of associated with the Ford Blue division, but the profit and revenue comes in to Ford Model E. So it all works out, but it just kind of shows you how the businesses operate. But you wouldn't have that if you have a Tesla--

JARED BLIKRE: Right.

PRAS SUBRAMANIAN: --business.

JARED BLIKRE: Yeah, that was kind of my point, but really interesting stuff there, and appreciate those insights. Pras Subramanian.