Ford Motor Co. recently shared its projections for the growth of its internal combustion engine (ICE) vehicle business, referred to as Ford Blue, over the next couple of years. During a capital markets day event for investors and the media, executives discussed their outlook for Ford Blue, the Model e EV unit, and the Ford Pro commercial unit. The company also reaffirmed its adjusted earnings before interest and taxes guidance for the full year 2023, expecting to reach $9 billion to $11 billion.
Kumar Galhotra, head of Ford Blue, highlighted that profit margins from combustion vehicles are expected to increase from the current 7.2 percent to at least 10 percent by 2026. This growth is primarily driven by the company’s strategic focus on profitable vehicle segments and the development of high-margin, low-cost derivatives. Galhotra expressed confidence in the potential of trucks, off-road vehicles, and performance segments, which are expected to have sustained demand.
However, Galhotra acknowledged that Ford Blue’s volume and margins are likely to decline after 2025 as electric vehicles gain popularity. Despite this anticipated contraction, Ford believes that sales of ICE and hybrid vehicles in the United States will remain robust throughout the next decade.
To enhance the profitability of Ford Blue, Galhotra mentioned that the company has identified cost-saving measures amounting to $500 million this year. These savings have been achieved through streamlining parts complexity and improving manufacturing efficiencies. For instance, the forthcoming refreshed F-150 full-size pickup model has 2,400 fewer parts compared to the current version. Over the past two years, Ford has also significantly reduced the number of orderable combinations for the Explorer and Expedition models, further optimizing production processes.
Ford’s CEO, Jim Farley, emphasized the importance of waste elimination and cost reduction efforts. He mentioned that the leadership team now dedicates specific time each month to focus on material and supplier cost-cutting opportunities. The company aims to bridge its approximately $7 billion cost gap with its competitors, primarily within the Ford Blue division.
CFO John Lawler stressed the responsibility of company leaders to deliver tangible results in cost reduction efforts. He acknowledged that addressing this issue is a top priority for Ford, and the company is committed to proving its ability to achieve the necessary cost improvements.
Ford expects its sales and profit margins from ICE vehicles to grow over the next two years, driven by a focus on profitable segments and cost efficiencies. However, the company anticipates a contraction in Ford Blue’s volume and margins after 2025 due to the increasing popularity of electric vehicles. Ford remains committed to achieving cost reductions and narrowing the cost gap with its competitors.
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