Ford’s commercial business was once seen as a weakness, but that’s far from the case today.
It’s always nice when management at a major company such as Ford Motor Company (F -0.84%) can flip a weakness into a strength. Ford has done exactly that with its commercial business. It was once a black eye for the company as it sold fleets of vehicles to rental companies at razor-thin margins and, sometimes, losses.
Right now, Ford Pro, the company’s commercial division, is thriving and even outproducing Ford’s traditional business on the bottom line. Here’s a look at how strong Ford Pro has become.
Zero to hero
What Ford Pro has accomplished is extremely impressive, especially when compared to Ford’s other business divisions. These include Ford Blue, its traditional vehicle business, and Ford Model e, the company’s electric-vehicle (EV) division.
While Ford Pro sold fewer wholesale units than Ford Blue, the difference in margins, growth, and bottom-line results are staggering. Ford Blue’s sales declined 13% during the first quarter on 11% less wholesale revenue. Meanwhile, Ford Pro’s wholesale revenue boomed 21% and its sales jumped 36% compared to the prior year.
But the impressive figures don’t stop there. Ford Pro’s earnings before interest and taxes (EBIT) jumped $1.64 billion to over $3 billion during the first quarter, while Ford Blue generated only $905 million in EBIT. Those results were boosted largely by Ford Pro’s better-than-expected margins, which checked in at nearly 17%, well ahead of the mid-teens that were expected and far ahead of Ford Blue’s 4.2% EBIT margin.
Ford Pro’s success couldn’t come at a better time as the company’s model e unit continues to bleed cash. In fact, the Ford model e lost over $1.3 billion in the first quarter alone on revenue that declined 84%, compared to the prior year.
What’s driving Ford Pro?
Ford Pro achieved its results thanks to higher production of Super Duty trucks and Transit vans. More and more companies are looking to electrify their fleets, including the United States Postal Service, which anticipates buying roughly 9,250 E-Transit vans through the end of 2024.
What’s more interesting is that over the past 12 months through the first quarter, roughly 13% of Ford Pro’s EBIT came from software and physical services, including parts and accessories. It’s well on its way to achieving 20% within a few years — software subscriptions with commercial customers grew 43% year over year with more than 560,000 subscriptions during the first quarter.
Ford isn’t resting on its laurels, either. It’s growing its business in Europe and recently introduced a new extended range option for the E-Transit, which is expected to widen its potential customer base. Already, Ford owns the top-selling large EV van in Europe and outsold its nearest competitor by more than 5 to 1.
As Ford Pro and its services continue to add value and vehicle fleet insights for its customers, it’s also adding awards to its cupboard. In the 19th annual Vincentric Best Fleet Value in America Awards, Ford Pro won eight awards, double the amount of any other brand.
What it all means
Ford Pro is booming and doing so with margins at levels its traditional automotive business can’t reach. It’s also hugely important that software service subscriptions continue to generate more and more revenue.
The company’s commercial business is no longer a black eye for the company to fill production capacity but is a core strength, especially at a time when Ford anticipates losing $5.5 billion from its EV business in 2024. In other words, investors should be thrilled with its commercial business going from zero to hero and that expectations for the business are only moving higher.
Daniel Miller has positions in Ford Motor Company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.