Business Description
Ford Motor Company is a global automotive leader, operating through three main customer-centered business segments: Ford Blue, Ford Model e, and Ford Pro. The company is renowned for engineering iconic gas-powered, hybrid, and electric vehicles, as well as providing comprehensive services and software for commercial customers . Additionally, Ford offers financial services through Ford Motor Credit Company, enhancing customer loyalty and generating new revenue streams .
- Ford Blue - Engineers iconic gas-powered and hybrid vehicles, significantly contributing to the company's revenue and profitability .
- Ford Pro - Serves commercial customers with a comprehensive suite of vehicles, services, and software, achieving substantial growth in revenue and profitability .
- Ford Model e - Develops breakthrough electric vehicles (EVs) and related software, establishing itself as a leading EV brand in the U.S. with increasing shipments and sales .
- Ford Motor Credit Company - Provides financial services that support customer loyalty and create new revenue streams .
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Q2 2024 Summary
What went well
- Ford Pro is exhibiting strong growth and profitability, contributing a significant portion of the company's earnings and offering high-margin opportunities beyond vehicle sales, such as parts, services, and software.
- Ford is implementing innovative design and development processes through its Skunkworks team, focusing on cost-efficient production of affordable EVs, and aiming to match competitors like Tesla and Chinese OEMs in cost and efficiency.
- Strategic partnerships, such as with CATL for battery technology, are enabling Ford to secure competitive advantages in EV production without over-reliance on external platforms, enhancing capital efficiency and maintaining control over core competencies.
What went wrong
- Despite higher earnings, Ford's capital base has expanded significantly, so returns have not improved, raising concerns about capital efficiency and structural costs not decreasing in the near term.
- Ford is not returning capital to shareholders via share buybacks, with the Board refusing to authorize them, indicating potential concerns about immediate shareholder value and suggesting better uses of capital that may not immediately boost shareholder returns.
- There is uncertainty about the sustainability of pricing strength in the Ford Pro segment, with expectations that "we expect, as we move into the '25 model year, that there will be some of the top line coming off, and that's in our guidance", implying potential risks to future revenues and margins as pricing may decline.
Q&A Summary
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EV Strategy and Competition
Q: Can Ford profitably make low-cost EVs without China's help?
A: Ford is developing its own low-cost EV components through its Skunkworks team, aiming to produce affordable EVs profitably without relying on Chinese platforms. They have a strategic partnership with CATL for battery technology but focus on designing breakthrough EV components that are better and cheaper, ensuring they remain competitive globally. -
Persistent Warranty Costs
Q: What's causing ongoing warranty issues?
A: Ford faces warranty costs due to issues in older models, such as rear axle bolts in 2021 vehicles and oil pumps in 2016 models. While recent quality improvements are evident in better J.D. Power IQS scores, there's a lag before warranty costs decrease. Ford is enhancing testing protocols and utilizing over-the-air updates to detect and fix problems early, aiming to reduce future warranty expenses. -
Capital Allocation Strategy
Q: Why not authorize a share buyback given stock value?
A: Ford believes investing capital in growth opportunities offers better returns than share buybacks. They are channeling funds into exciting ventures like Ford Pro, electric architectures, and service businesses, which have high-margin potential and significant growth prospects, rather than repurchasing shares. -
Ford Pro Pricing Sustainability
Q: Is strong pricing in Ford Pro sustainable?
A: Strong demand and product freshness support sustained pricing in Ford Pro. Although some moderation is expected, the demand-supply imbalance remains favorable. About 60% of Ford Pro's business is from fleet contracts negotiated annually, and early indications for the 2025 model year are positive. Investment in new products across the lineup enhances competitiveness and supports pricing. -
Electrification Amid Policy Shifts
Q: How might elections impact Ford's EV strategy?
A: Ford's commitment to electrification remains firm irrespective of potential policy changes. Believing that competition from Chinese EV manufacturers will shape the industry, Ford is focused on being fully competitive globally. They emphasize manufacturing flexibility and offering customers choice, investing in both EVs and partial electrification solutions. -
Super Duty Capacity Expansion
Q: Will demand absorb increased Super Duty capacity?
A: Ford is confident that increased Super Duty capacity will be absorbed by strong demand, particularly in the chassis segment, which comprises 25% of Super Duty sales. With aging fleets in industries like infrastructure and emergency services, and a diverse multi-energy powertrain offering, Ford anticipates sustained demand for many years. -
Used Vehicle Residual Values
Q: What's the outlook for used vehicle residuals?
A: Auction values are down 9% year-over-year but have increased 3% sequentially. While a continued decline in auction values is expected in the second half, constrained supply in the used market may support new vehicle pricing. Ford Credit is monitoring return rates and market trends closely.
Key Metrics
Revenue by Segment - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Ford Blue | 34,301 | 35,208 | 34,512 | 36,606 | 140,627 | 33,495 | 26,670 | 26,238 | ||||||||||||||||||||||||||||||||||||||||||||||
- External Revenues | - | - | 1 | - | - | 1 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Intersegment Revenues | - | - | 241 | - | - | 21 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Ford Model e | 716 | 2,006 | 1,999 | 1,805 | 6,526 | 136 | 1,149 | 1,173 | ||||||||||||||||||||||||||||||||||||||||||||||
Ford Pro | 13,249 | 15,589 | 13,829 | 15,391 | 58,058 | 18,019 | 16,988 | 15,655 | ||||||||||||||||||||||||||||||||||||||||||||||
Ford Next | 1 | 0 | 1 | 1 | 3 | 1 | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||
Ford Credit | 2,389 | 2,527 | 2,625 | 2,749 | 10,290 | 2,887 | 2,997 | 3,127 | ||||||||||||||||||||||||||||||||||||||||||||||
Corporate Other | 4 | 2 | 1 | 2 | 9 | 1 | 2 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||
Eliminations/Adjustments | (9,186) | (10,378) | (9,166) | - | - | (11,762) | - | (10,651) | ||||||||||||||||||||||||||||||||||||||||||||||
Vehicles, Parts, and Acc. | 37,927 | 41,241 | 39,916 | 41,968 | 161,052 | 38,645 | 43,542 | 41,665 | ||||||||||||||||||||||||||||||||||||||||||||||
Used Vehicles | 469 | 457 | 482 | 465 | 1,873 | 510 | 489 | 532 | ||||||||||||||||||||||||||||||||||||||||||||||
Services and Other Rev. | 662 | 732 | 753 | 755 | 2,902 | 708 | 768 | 841 | ||||||||||||||||||||||||||||||||||||||||||||||
Leasing Income | 1,093 | 1,075 | 1,062 | 1,054 | 4,284 | 1,064 | 1,084 | 1,119 | ||||||||||||||||||||||||||||||||||||||||||||||
Financing Income | 1,301 | 1,426 | 1,563 | 1,69 | 5,980 | 1,819 | 1,889 | 2,002 | ||||||||||||||||||||||||||||||||||||||||||||||
Insurance Income | 22 | 23 | 25 | 3 | 100 | 31 | 36 | 37 | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 41,474 | 44,954 | 43,801 | 45,962 | 176,191 | 42,777 | 47,808 | 46,196 | ||||||||||||||||||||||||||||||||||||||||||||||
Revenue by Geography - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
United States | - | - | - | - | 116,995 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Canada | - | - | - | - | 13,391 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
United Kingdom | - | - | - | - | 8,968 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Germany | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Mexico | - | - | - | - | 2,774 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
All Other Countries | - | - | - | - | 34,063 | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
North America | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
South America | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Europe | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
China (Including Taiwan) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
International Markets Group | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Middle East & Africa | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Asia Pacific | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 41,474 | - | - | - | 176,191 | - | - | - |
Executive Team
Questions to Ask Management
- Despite higher earnings, Ford's capital base has expanded such that returns haven't improved. How are you addressing the trajectory of structural costs, and what steps are you taking to improve returns on capital?
- With many traditional automakers investing billions in R&D to achieve affordable EVs at scale, why isn't Ford pursuing more partnerships to share costs and risks, especially given your focus on capital efficiency?
- Given the significant investment to add 100,000 units of Super Duty capacity in Canada, how confident are you that demand will sustain these high levels, and can you elaborate on the incremental margins and expected payback period for this investment?
- Ford Model e generated a loss of $1.1 billion in the quarter, and you are forecasting a full-year loss of $5 billion to $5.5 billion due to pricing pressures and investments. What specific actions are you taking to turn around Model e, and when do you anticipate reaching profitability in this segment?
- Considering that Ford's stock ranks near the bottom of the S&P on P/E ratio and the market hasn't reflected the company's transformation, why does the Board refuse to authorize a share buyback, and do you genuinely believe there are better uses of capital than returning it to shareholders?
Past Guidance
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Full Year Company Adjusted EBIT: $10 billion to $12 billion .
- Adjusted Free Cash Flow: $7.5 billion to $8.5 billion .
- Capital Expenditures (CapEx): $8 billion to $9 billion, focusing on the low end .
- Ford Pro EBIT: $9 billion to $10 billion .
- Model e Losses: $5 billion to $5.5 billion .
- Ford Blue EBIT: $6 billion to $6.5 billion .
- Ford Credit EBT: About $1.5 billion .
- U.S. SAAR: 16 million to 16.5 million units .
- Industry Pricing: Decrease by roughly 2% .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024
- Guidance:
- Full Year Company Adjusted EBIT: $10 billion to $12 billion, tracking toward the high end .
- Adjusted Free Cash Flow: $6.5 billion to $7.5 billion .
- CapEx: $8 billion to $9 billion, expecting the lower end .
- Ford Pro EBIT: $8 billion to $9 billion .
- Model e Loss: $5 billion to $5 billion .
- Ford Blue EBIT: $7 billion to $7.5 billion .
- Ford Credit EBT: About $1.5 billion .
- SAAR: 16 million to 16.5 million units .
- Industry Pricing: Lower by roughly 2% .
- Hybrid Sales Growth: 40% growth .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- Adjusted EBIT: $10 billion to $12 billion .
- Adjusted Free Cash Flow: $6 billion to $7 billion .
- Capital Expenditures: $8 billion to $9.5 billion, with 40% for EVs .
- Ford Pro EBIT: $8 billion to $9 billion .
- Model e Losses: $5 billion to $5.5 billion .
- Ford Blue EBIT: $7 billion to $7.5 billion .
- Ford Credit EBT: About $1.5 billion .
- U.S. SAAR: 16 million to 16.5 million units .
- Industry Pricing: Lower by roughly 2% .
- Cost Reduction Initiatives: $2 billion benefit .
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: N/A
- Guidance: The documents do not contain information about Ford's guidance for Q3 2024. They only provide details up to Q2 2024.
Latest news
Recent developments and announcements about F.
Financial Actions
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Balance Sheet Impact: The guarantee of 50% of the loan means Ford is potentially liable for up to approximately $4.8 billion if BOSK defaults. This could significantly impact Ford's liabilities and financial ratios.
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Covenants and Defaults: The agreement includes covenants similar to Ford's existing credit agreements, which impose restrictions on Ford's financial operations, such as maintaining a minimum liquidity level of $4 billion. Breaching these covenants could lead to defaults, affecting Ford's creditworthiness and financial stability .
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Long-term Commitment: The loan's maturity is expected in July 2040, indicating a long-term financial commitment that could affect Ford's strategic financial planning and resource allocation .
New Share Buyback Program
Ford Motor Company has announced a new buyback program as part of its financial strategy. The program is designed to enhance shareholder value by repurchasing shares of its common stock. This initiative reflects Ford's confidence in its business prospects and its commitment to returning capital to shareholders. The buyback program is expected to be executed over a specified period, subject to market conditions and other factors .
Debt Issuance
On December 13, 2024, BlueOval SK, LLC ("BOSK"), a joint venture involving Ford Motor Company, entered into a significant financial arrangement with the Department of Energy (DOE). This arrangement involves a Loan Agreement where the DOE will facilitate the Federal Financing Bank to purchase notes from BOSK, allowing for advances up to $9,633,040,000. This loan is intended to finance the construction of battery manufacturing plants in Tennessee and Kentucky. As part of this agreement, Ford has committed to guarantee 50% of BOSK's payment obligations under this loan .
Potential Effects on Ford's Financial Health:
This financial obligation highlights Ford's strategic investment in electric vehicle technology but also underscores the financial risks associated with such large-scale commitments.
Legal & Compliance
- Ford Motor Company: A Delaware corporation involved in the joint venture.
- SK Innovation Co., Ltd.: A corporation from the Republic of Korea, participating as a sponsor.
- SK On Co., Ltd.: Another Korean corporation involved as a sponsor.
- SK Battery America, Inc.: A Delaware corporation and subsidiary of SK On.
- BlueOval SK, LLC (BOSK): The borrower and joint venture entity.
- United States Department of Energy (DOE): The lender through the Federal Financing Bank.
- Ford Motor Company, along with SK Innovation and its subsidiaries, has entered into a significant financial arrangement with the DOE. This involves a Loan Arrangement and Reimbursement Agreement to finance the construction of battery manufacturing plants in Tennessee and Kentucky. The total loan amount is up to $9.63 billion .
- A Sponsor Support, Share Retention, and Subordination Agreement (SSA) was also executed, under which Ford guarantees 50% of BOSK's payment obligations under the DOE loan .
- Financial Obligations: Ford is responsible for guaranteeing half of the loan obligations, which could impact its financial stability if BOSK defaults .
- Covenants and Defaults: The SSA includes covenants similar to Ford's existing credit agreements, such as maintaining a minimum liquidity of $4 billion. Breaching these covenants could lead to defaults, affecting Ford's financial operations .
- Operational Impact: The successful execution of the project could enhance Ford's capabilities in electric vehicle technology, but any delays or issues could affect its market position and operational efficiency .
Legal Proceedings
Summary of the Legal Matter Involving Ford Motor Company
Key Parties Involved:
Nature of the Proceedings:
Potential Financial or Operational Consequences for Ford:
This legal matter is crucial for Ford as it involves substantial financial commitments and strategic operational developments in the electric vehicle sector.