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

Published Mon, Jan 30 20233:46 PM ESTUpdated Mon, Jan 30 20237:12 PM EST

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