Ford, arguably one of the most iconic American companies of the last century, announced this week that it plans to invest $30bn into electric vehicles over the next 5 years. Ford is shooting for 40% of its sales to be electric vehicles by 2030 — a target investors seemingly enjoyed as the company's shares rose almost 15% on the news this week.
Huge company, slim margins
Few industries are as competitive as making and selling cars — and Ford's financials are a prime example of this. Despite being a giant, Ford ekes out a slender profit margin. Since 2012 Ford's average net profit margin has averaged just 2.7%. With revenues regularly north of $150bn, that still translates into a sizeable profit of $4bn a year (on average) — but it doesn't leave much room for error if sales fall, costs rise, or both.
With that context in mind, the decision to invest $30bn into electric vehicles, when average net profit is around $4bn, is a big commitment — and it reflects a confidence at Ford that it will be $30bn well spent. Reservations for the Ford F-150 Lightning, Ford's new electric pick-up, have just passed 70,000 orders. Ford is getting serious about electric.
