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Ford reveals new operating structure, $3B in losses expected for EV segment

Ford (F) shares rose in early trading as the company gave a presentation on how it will reorganize its business units and report financial performance, though the company expects $3 billion loss for its EV unit this year.

Dubbed a “refounded” Ford, the company stated that it will report results using the business segments Ford Blue (gas, hybrid vehicles), Ford Model e (EVs) and Ford Pro (commercial products & services), and not by regional markets like in the past.

Ford CFO John Lawler presenting at the company's 'teach-in' event

Ford CFO John Lawler presenting at the company’s ‘teach-in’ event

Ford recasted prior financial results in order to show how the accounting will work— 2022’s results will be recast by quarter, and 2021’s results will be broken down into the full-year’s performance.

For example, Ford revealed that for the entire year of 2022, under the new segmentation Ford disclosed that the Model e EV segment lost $2.1 billion in adjusted EBIT last year, whereas Ford Blue made $6.8 billion, and Ford Pro made $3.2 billion in adjusted EBIT. Under the old segmentation, Ford only broke out performance by regional segment, and there was no transparency into how the separate segments operated.

Ford's new recasted financials for 2022 and 2021

Ford’s new recasted financials for 2022 and 2021

Though Wall Street applauded Ford’s decision to break out reporting and reorganize the company, the bigger concern now will be whether Ford can show the EV segment is growing over time, and on the way to profitability.

To that end, Ford announced a number of new financial targets, including:

  • Reaffirmed full-year adjusted EBIT of $9 billion to $11 billion – and adjusted free cash flow of about $6 billion (Ford says it will have more on this at its Capital Markets Day in May)

  • Reaffirmed 10% margin target for company adjusted EBIT (earnings before interest and taxes) by the end of 2026

  • New 2023 segment-level EBIT expectations:

    • a full-year loss of about $3 billion for Ford Model e;

    • about $7 billion for Ford Blue

    • About $6 billion for Ford Pro

  • Ford expects Ford Model e to approach break-even status (by a revenue minus certain variable cost basis) by the end of this year, but that will be “more than offset on an EBIT basis by higher investments in new EV products and manufacturing capacity”

  • Repeat its 8% EBIT margin objective by late 2026 for Ford Model e, “which is tied to planned global electric vehicle production run rates of 600,000 units by the end of 2023 and two million by the end of 2026”

When asked about the losses expected in the Model e business, Lawler said that Ford is “investing in growth,” and that means long-term investments in new vehicles and plants will weigh on Ford Model e profitability next year. Lawler said growing manufacturing scale, insourcing of parts, and improving battery technology and simplifying platforms will eventually lead to profitability, and achieving that 8% EBIT margin target.

Ford also explained how assets are assigned and revenue and costs are reported across the segments, and described accounting for products supplied between segments. Ford uses the example of a Ford F-150 Lightning EV built at a Ford Blue plant in Michigan, that will incur costs that will then flow to the business unit that sells the Lightning, either Ford Model e or Ford Pro for commercial customers. Ford Model e or Ford Pro would then recognize the revenue from the sale, balancing out the transaction.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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