Accountants: How did my Lightning cost $200,000 to build?

[ZeusDriver]

This article came up in another thread:
https://www.msn.com/en-us/money/com...on-every-ev-sold-in-first-quarter/ar-AA1nObmJ

I am hoping that this thread takes a little different direction, that being to look at how car companies account for the cost of a vehicle sold. Like many of you, I have run my own businesses, and they have always made money... unless they failed to launch, in which case they lost money. The launch failures were risky endeavors, and usually side businesses that started as a hobby. But when I have had businesses doing what I know how to do, making money has been easy.

Presumably, Ford knows what it is doing re building vehicles?

Ford is not new to the vehicle manufacturing business, so how do they lose $132k per Lightning sold? Are they trying to write off development costs over too short a period? How could they not know, in advance, what a vehicle will cost to produce? Lightnings are simple vehicles, with a tiny fraction of parts count in the engine, transmission, exhaust system, converter, emission control sensors and electronics, etc. etc. etc. Having built a little EV, i can say with some certainty that they are easy to build, and most of the control systems are based upon variable speed drive technology that has been employed for many decades in industry. When I built my little vehicle, the controller was an off-the-shelf item, tried and true. It had several regen modes that could be selected through software. The motor and generator where both 91% efficient, plenty good enough. The batteries were LiFePO4 (which for seems to think are kind of new and the direction in which to go, but in 2008 and 2009 when I built my PHEV, they were not all that new, and could be purchases from China, and monitored with BMS boards designed in the US (but, of course, built elsewhere).

I'll bloviate in this thread about my experience in selling things for more (not less) than they cost, etc. and would love to here from people who better understand public company accounting than I do.

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[25StarWhiteLightning]

Ford is not new to the vehicle manufacturing business, so how do they lose $132k per Lightning sold? Are they trying to write off development costs over too short a period?

Not an accountant, but yes it has to do with this. Presumably once the R&D and capital to build factory is paid off, they would start to make money on each truck sold.

 

[ZeusDriver]

Lucid is in Trouble
This thread is prompted, in part by the discouraging news that Lucid is not doing well, with their profit margin being -97% Apparently that is slightly better than Ford's, in the way that Ford accounts for the lightning. The EPA range on the Lucid is 5 miles per kWh. That it incredibly efficient. and the vehicles are by all accounts extremely nice to drive and well built. They are plenty expensive. How can they be losing that much money per vehicle unless their accounting write off on development costs is far too short to be realistic?

Isn't Lucid kind of everything that is good about America? New company builds fabulous car that can out compete (on a performance and features basis) the vehicles made by huge corporations. Did they just make mistakes in scaling the business, planning for far more sales that they are achieving?

Did Ford do the same, perhaps naively thinking the 200,000 refundable reservations meant that they would sell 200,000 Lightnings right off the bat? If those reservations were $10,000 and non refundable they could have seen a clearer picture, I would think. I was very interested in the Lightning, and having worked with Ford a little over the years, had some confidence that they , would deliver the Lightning. (And having built an EV, nothing they were doing seemed even remotely risky.) I would have given them $10,000 toward my $40,000 lightning. (When they did the bait and switch thing, however, I cancelled my reservation.)

Did they fail to plan for the end of tax credits?

 

[John Becker]

The short answer is that it's a matter of allocating research and development costs as well as plant and equipment costs to each vehicle. The greater the quantity of vehicles produced, the lower the per unit cost.
By ending production, an enormous amount of dollars had to be written off as a loss. The MBAs at Ford apparently thought that was a good idea. And maybe it was. Evidently, the sales forecast didn't support a profitable outlook in an acceptable amount of time.
Sometimes it's best to cut your losses and move on.

 

[ZeusDriver]

Production equipment and real estate:

Somehow, Tesla, in 2022 was making $17,000 per car sold, despite having invested in new production facilities. Still they are making about half that, last I checked.

Ford has a lot of old facilities and real estate, that could, i would think, be repurposed, at lower cost than having to build from scratch. So shouldn't that give them an advantage over Tesla, not a disadvantage?

Is it wise or unwise that Ford started up its own fuel injector line a few decades ago? (I helped them do that, in a very small way.) I assume that they no longer make their own, something that Bosch and Nippon Denso are probably better equipped to do.

Does Ford build too much of their own parts?

My naive take on it: Most auto manufacturers build very few of their own parts. That seems to make sense and was the general trend when I was working with the industry a couple decades ago. I wonder if Ford is trying to be too vertically integrated?

When I built my little PHEV prototype, I had little choice but to buy parts, modifying some (like the engine) to suit the purpose. After writing business plans and getting them reviewed (usually positively) I was unable to round up funding... maybe a good thing. I'd since decided to develop the business (if I were to do so -- probably not) as a boutique, assembling the vehicles in small rental spaces, and scaling up by building them in more and more places, rather than building a conventional "factory". For anyone who has worked as a mechanic, or body person, the idea of assembling a car in a small shop is not unreasonable. I've thought that a team of five people could assemble these little cars. I think (probably optimistically) that on a small scale I could build these little vehicles, profitably at a price that people would find sufficiently attractive... without having to sell a super expensive version first.

But maybe for Ford, it would have made more sense to price the vehicle at closer to its manufacturing cost? I assume that the Chinese companies have the advantage of government subsidies, so that the R&D costs and tool up costs are spread over the whole society. We did that with the space program.

Instead of tax credits, maybe manufacturer subsidies for the kind of vehicles that benefit everyone are appropriate? Great opportunity for graft, yes?

 

[ZeusDriver]

When is good enough good enough?

More naivety:

My little PHEV used two 91% efficient electric machines for motive power and for generation. They were off-the-shelf. There was a more efficient motor, (a claimed 94%, perhaps) at that time, that was 5 times the price. I could have asked some motor vendor to joint venture on an even more efficient motor... maybe as much as 96% efficient. (Then if I only sold ten vehicles, the motor would cost $100,000 per copy, in a micro car I hoped to sell for the price of a mid range motorcycle: $17,995).

Clearly, to me at least, better to suffer a loss in range (say from 42 miles to 40 miles) than to incur far higher motor cost. Colin Chapman said "Simplicate and add lightness." Seems better to make a simpler, perhaps slightly less efficient vehicle that could be sold at a profit, and would not incur so much R&D.

My little PHEV had far less than 1K of code for the basic controls. Anything fancy like music or GPS? That's what cell phones are for.

Another approach, that of the Cadillac IQ, is to make the vehicle really slick and luxurious and price it accordingly. That might be a safe bet. The price of a new Harley ($45K) makes me fall over. (Given the choice between one of those and a Kawasaki Ninja 400 ($4500) id go for the Ninja in a heartbeat if someone offered me either for free.) (My first Indian was $50... admittedly in a basket. Cost me $25 to get it running.) People are willing to pay stunningly high prices for even the least technically developed bikes in the world for intangibles that I do not completely understand.

 

[ZeusDriver]

Going Fast

This is aimless reminiscing, brought on by thinking about how much people pay for intangibles:

Many years ago, I raced in 24 hour motorcycle road races. One year we ran a fairly conservatively tricked-out Honda 350cc four cylinder. We could (and did) pass anything in the corners (Ducatis, a factory-supported BMW, Nortons, 900cc Kawasakis etc. etc. etc. ) Virtually everything would pass us on the straights. However, there were a couple tricked out Harley Sportsters (883cc) that were among the very few bikes we could pass on the straights. That little 350 beat every 500 class bike, every 750 class bike and every open class bike. The only bike that beat us was a 350cc Yamaha. The little Honda spent all 24 hours at between 11,000 and 15000 rpm, only dropping below that when coming into the pits to change tires and refuel.

 

[hturnerfamily]

a friend invested in a new McDONALD'S location... $100k just to start it.

he sold his first hamburger. It cost him only .15 to build.
His accountant then told him that he had then a loss of $99,999.35

in the first year, he sold 100,000 hamburgers
At this time, he had a cost of 15,000 to build them, with a LOSS of .50 each

 

[Newton]

Ford is a financial holding company with a boutique car building business that is useful to extort state and local government subsidies. It must be advantageous for the bean counters to take a large tax loss at the moment for reasons that us mere mortals can't really understand. It is like the movie studios who produce movies that they never release so that they can take a tax loss which by financial magic can be turned into cash. Don't try to understand it, it is a late-stage capitalism thing.

 

[flabrent]

If Ford stops paying a dividend to shareholders, that's the time to worry about their finances and/or the direction of the company.

 

[ZeusDriver]

Consistent Growth in Sales

2022 16K
2023 24K
2024 34 K

End of 2024: Wow, we've got a hit here!
End of 2025: Yikes, this is a disaster! Were only selling as many as we did in 2023!
Let's bail.

What happened at the end of 2024?

Most of the Ford ICE's I see for sale every day on my computer screen are $60,000 on up, with the mean price being about $75,000. Jim says that people cannot afford those. What is the plan for making ICE trucks affordable? If only they could be sold for say $65,000, the rice of a Lightning Flash.

 

[PJnc284]

Does Ford build too much of their own parts?

My naive take on it: Most auto manufacturers build very few of their own parts. That seems to make sense and was the general trend when I was working with the industry a couple decades ago. I wonder if Ford is trying to be too vertically integrated?

There were a ton of inefficiencies noted in the Munro teardown. Ford used a hodgepodge of modules from here there and everywhere in the rush to get to market. They apparently couldn't even manage to use the same fasteners on the hv connectors on the modules.

 

[RLXXI]

Consistent Growth in Sales

2022 16K
2023 24K
2024 34 K

End of 2024: Wow, we've got a hit here!
End of 2025: Yikes, this is a disaster! Were only selling as many as we did in 2023!
Let's bail.

What happened at the end of 2024?

Most of the Ford ICE's I see for sale every day on my computer screen are $60,000 on up, with the mean price being about $75,000. Jim says that people cannot afford those. What is the plan for making ICE trucks affordable? If only they could be sold for say $65,000, the rice of a Lightning Flash.

They must have come down in price, my 25 Flash was 72k msrp. 61k otd.

 

[Roy2001]

Say it costs 10B to develop it, if Ford sold one Lightning, the cost is 20B, if Ford can sell 200k per year for 5 years, then R&D cost per truck is $10k.

 

[Deleted member 21405]

Lots of cluelessness in this thread but good entertainment to share on social media. Keep it coming!

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