Ford has laid out its plans for the future of electric vehicles. The market is wrong.

The electric car business has gotten most of the attention. In 2022, the Model E lost about $2.1 billion on the operating line to its profit and loss statement after selling about 96,000 units, which generated about $5.3 billion in sales. Operating profit margin came in at around negative 40%.

That’s a huge loss for a company that’s struggled to increase its dividend in recent years, and it doesn’t compare favorably to Tesla (TSLA) when it was a similar size. Around 2015 and 2016, Tesla was losing approximately $850 million annually, net of zero-emission regulatory credit sales, generating operating margins of about negative 15%.

It also left viewers less than thrilled. “Ford is struggling for profitability,” commented Navellier market analyst Louis Navellier, while Daiwa Capital Markets analyst Jairam Nathan, who rates Ford stock as a sell, sees Ford’s long-term goals — including 8% operating profit margins. For the e model – optimistic. He predicts a “more volatile transition to electric vehicles as [traditional] Auto prices and profitability are down sharply.” Ford stock is down about 1%, to $11.34, since it reported results for the new segments Thursday and has fallen 33% over the past 12 months, trailing

Standard & Poor’s 500

14% decrease.

Deutsche Bank analyst Emanuel Rosner also has a sell rating on Ford shares. His price target is $11 a share. However, he saw a glimmer of hope in the update, describing the losses in the Model E as less than expected. Ford’s margin shows the company spent roughly $7.4 billion on the business model in 2022, while Rivian Automotive (RIVN), which shipped about 20,000 units in 2022, spent about $8.6 billion. Tesla was spending close to $6 billion a year when it was about the same size as the Model E.

The difference between Ford and Tesla is partly due to this: Ford builds most of its electric vehicles in two factories, while Tesla operated from a single factory. This means that Ford needs to sell more cars to reach volume. Tesla wasn’t consistently profitable until it was shipping about 400,000 units a year.

There’s good reason for Ford’s apparent extravagance. Benchmark analyst Mike Ward said Ford EV’s losses “more than accounted for” with above-average spending on research and development and engineering, which puts the company in a position to capture electric vehicle market share. He sees potential, noting that Ford’s goals for electric vehicles include annual sales of $100 billion and operating profit of $8 billion by the end of the decade. Ward has a Buy rating and a $19 price target on the Ford stock.

Ford is still profitable, even with all of its spending on electric vehicles. It generated $10.4 billion in operating profit in 2022 and expects to generate about $10 billion in 2023, including nearly $13 billion from the non-electric business.

If Ford can stick to earnings in its traditional business, which includes credit and business units that aren’t affected by the electric vehicle transition, investors could be looking at annual operating profits of $15 billion to $20 billion by the end of the decade.

Investors are not yet convinced. If Ford is expected to grow its operating profit by 50% to 100% over the next few years, its shares should be trading seven times higher than current estimates for 2023 earnings.

Given the potential, they should take another look under the hood.

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