Ford’s EV price cuts could pressure profitability, a headwind the automaker needs to address

By Eduardo Saverin On Jan 31, 2023

Ford Motor (F) confirmed Monday what Jim Cramer has been speculating for weeks: Price cuts on its electric vehicles following similar moves by Tesla (TSLA). While engaging in this price war was necessary for Ford to stay competitive and maintain customer demand, we’re concerned about the dent the Club holding faces in profitability. Ford will lower prices on its Mustang Mach-E, a competitor to Tesla’s Model Y crossover SUV, by an average of $4,500, depending on the model. The reductions, which range from $600 to $5,900, came just weeks after Tesla cut prices up to $13,000 on Model Ys. Ford referenced Tesla and federal EV incentives as reasons for its response. Lowering EV sticker prices may make more models eligible for the $7,500 tax credit that’s part of the Inflation Reduction Act. Depending on the models, Ford’s price reduction “hurts our decision to own Ford,” Jim said Monday after the automaker said the move will make some Mach-E trims unprofitable. “We are not going to cede ground to anyone,” said Marin Gjaja, chief customer officer of Ford’s electric vehicle business. “We are producing more EVs to reduce customer wait times, [and] offer competitive pricing. Gjaja added that a production increase and lower commodity costs may help offset the impact of price cuts. Perhaps those factors will help Ford protect some of its margins. In the past, CEO Jim Farley said Ford will only build EVs if they’re profitable. Last year, Ford announced a split of its EV and internal combustion engine units into separate businesses — called Ford Model e and Ford Blue, respectively — aiming to increase efficiencies unique to each and maximize profits. Ultimately, the legacy automaker and second-biggest EV maker wants to produce more than 2 million EVs by late 2026 and eventually beat Tesla, the current leader that’s dictating price in the market. While shares of Ford fell 2.5% in afternoon trading, the stock has bounced back more than 11% in 2023 after last year’s plunge. Tesla shares also got whacked in 2022, but they’ve gained more than 37% so far this year. F 1Y mountain Ford (F) 1 year performance The Club’s take With investors concerned about margin pressure due to the price cuts, we’ll be looking for messaging on Ford’s next steps to address the problem. Yes, it cited production increases and lower input costs. But those alone are not enough. We originally bought Ford shares because we believed in its transformation plan to become a leader in EVs while increasing profits through large-scale manufacturing, discontinuation of non-profitable operations, and connected services and experiences to customers. The thesis is being put to the test once again. Ford, under the leadership of Farley, has clearly demonstrated its ability to get out of losing businesses. We’ll look for the CEO to use that skill set to figure out how to get costs down to make the Mach-Es more profitable. Ford is set to report quarterly results after the bell Thursday, along with five other Club stocks. Auto analysts are expecting Ford’s earnings-per-share in the fourth quarter to come in at 62 cents, with total revenue seen climbing 6.9% year-over-year to $40.3 billion, according to estimates from Refinitiv. (Jim Cramer’s Charitable Trust is long F. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Attendees view a Ford Mustang Mach-E GT during opening day of the 2022 New York International Auto Show (NYIAS) in New York, on Friday, April 15, 2022.

Jeenah Moon | Bloomberg | Getty Images

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