Ford Motor Company (F) on Q2 2021 Results - Earnings Call Transcript

Operator: Good day, ladies and gentlemen. My name is Holly and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company Second Quarter 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. At this time, I would like to turn the call over to Lynn Antipas Tyson, Executive Director of Investor Relations. Lynn hand it to you. Lynn Antipas Tyson: Thank you, Holly. Welcome to Ford Motor Company's Second Quarter 2021 Earnings Call. With me today are Jim Farley, our President and CEO, and John Lawler, our Chief Financial Officer. Also joining us for Q&A is Marion Harris, CEO of Ford Credit. Today's discussions include some non-GAAP references. These are reconciled to the most comparable U.S. GAAP measures in the appendix of our earnings deck. You can find the deck along with the rest of our earnings materials, as well as content from our Capital Markets Day at ford.com. Today's discussion also includes forward-looking statements about our expectations. Actual results may differ from those stated. The most significant factors that could cause actual results to differ are included on page 21. Unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS, and free cash flow are on an adjusted basis and product mix is volume weighted. A quick update on our upcoming IR events on Monday, August 2nd, Barclays will host a fireside chat with John Lawler and Drake , our Chief Operating Officer for North America. On Tuesday, August 3rd, Jefferies will host a virtual fireside chat with Alex Purdy, our Director for Business Operations for Enterprise Connectivity. And on August 11th, JPMorgan will host a virtual fireside chat with Hau Thai-Tang, our Chief Product Platform and Operations Officer. Now, I will turn the call over to Jim Farley. Jim Farley: Thank you, Lynn. Hello, everyone. And thanks for joining us today. Early in the second quarter, 2 months ago, we detailed our strategy for the future Ford. Put simply, our Ford Plus plan is focused on 2 things, really distinctive products that only Ford could do and an always-on relationship and experience for our customers that gets better and better over time. We're building on our foundational strengths, our iconic products, the uniquely appealing vehicles, our manufacturing excellence, and the industry's best captive finance company. But we're now adding new capabilities and new talents, and we're investing in new businesses that will accelerate our value we create for customers and our investors. We're committed to delivering a richer experience for our Ford and Lincoln customers, one that improves over time with things like our over-the-air software upgrades, data-driven experiences, productivity and uptime services for our critical commercial customers, charging software, and a lot more. Ford Plus also means introducing the industry's most compelling, high-volume, electric vehicle line-up and investing the capital and human resources required to design and build world-class batteries and electric powertrain components. John Lawler: Thank you, Jim. So first I want to reiterate that everything we do and every decision we're making, including capital allocation, it's squarely focused on delivering our Ford Plus plan. And you'll see that as I share our key takeaways from the quarter, our full-year outlook, and describe how we're positioned for even stronger performance heading into 2022. And as Jim said, we delivered better-than-expected results, given the semiconductor constraints. Year-over-year, our automotive business improved across several key financial metrics as we overlap the industry-wide COVID-related manufacturing shutdowns we saw in the second quarter of last year. Now, for a more accurate picture of our true trajectory in this present environment, we're focusing more on sequential comparison, and we think those are more appropriate. While wholesales were down 28% sequentially, our teams optimized from revenue and profit with disciplined incentive spending and mix management. We allocated chips to customer orders, new launches, and our more profitable vehicles. In addition, the strength of our sales order bank gives us confidence in our ability to drive a more balanced performance of wholesales, revenue, and profit in the second half of this year, including sequential improvement in wholesales and share. So let's turn to our results. On a consolidated basis, wholesales and revenue were up 18% and 38% year-over-year respectively, and we delivered adjusted EBIT of 1.1 billion with adjusted margin of 4%. Outside of North America, our underlying trajectory continues to improve despite the impact of the semiconductors and that's driven by more focused product portfolios, geographic footprint, as well as, lower costs. And Ford Credit continued to deliver strong performance with record quarterly EBT of 1.6 billion. And that's demonstrating why it's a strategic asset and critical to enabling Ford Plus. And a prime example is through the launch of a new service like Ford Pro FinSimple, which provides bundled financing for commercial vehicles, services and EV charging. And so it's another example of Ford Credit being a strategic weapon for us. Now, turning to the regions. North America posted a 40% sequential decline in wholesale due to the semiconductor shortage. Now, as we managed the chip constraints, we focused our efforts on customer or customers ordering vehicles for future delivery. We exited the second quarter with our U.S. customer sold order bank up more than seven times compared to a year ago. And with new models to come, we are clearly poised for a rebound in North America when the semiconductor supply stabilizes and aligns with demand. On a year-over-year basis, EBIT was up 1.1 billion. Outside of North America, the turnaround of our operations remains on track. Operator: Our first question comes from the line of Brian Johnson, Barclays. Brian Johnson: I got a couple of questions. First, a little bit of housekeeping. but just thinking ahead to '22. If we take the second half exit rate of 3.5 billion, but also bear in mind that your first half is typically the stronger half of the year for Ford, is there any read through for 2022? John Lawler: Hi, Brian. Thanks. Yeah. I think the way we see it is that we've got strength in the underlying performance of our business. As we head into 2022, we also know that the product lineup is going to get stronger, right? We're just launching Bronco now. We've got F-150 Lightning next year. We have Maverick next year. And we also expect that we should get to more of a full line rate on our manufacturing of all our other vehicles in new vehicles that we've had this year. So we do see strength in the product line heading into next year. But what we also see heading into next year are a few headwinds. Ford Credit, we expect that to be more normalized to our run rate that we normally see, and that's because we see auction values coming down. And then we shouldn't -- we should see our credit reserves and our credit losses normalize as well. We also see that next year as volumes increase and stocks increase across the industry, we should see some pricing moderation. Again, we also see commodities being higher next year as well. And we're going to continue to invest in our new product portfolios. We've got the launches coming in next year. We've got our Ford Plus plan. So we see that continuing as we head into next year as well. So, there are some headwinds, but the underlying strength of the business continues to be positive. And with that, we see that trajectory continuing into 22 and then on our way to the 8% EBIT margin for 23. Brian Johnson: Okay. And just a follow up, 1.5 billion 2H headwind from investments in modernization, is that something new that was planned for this year, but maybe back-end loaded due to management focusing on the chip shortage or how do you think about that? John Lawler: Well, that was planned, that's coming in. Part of that's due to the launches of the vehicle; with the launch costs comes advertising. But we're also investing in connectivity, the IT we need to put in place for the connectivity, as well as, customer experiences, digital experiences, user experiences with the vehicle. So we're continuing to invest to build out our Ford Plus plan. Jim Farley: And we're not slowing down our modernization because of the chip situation; in fact, we're doing the opposite. Brian Johnson: Okay. And a question for Jim. As you look at the order book for the F-150 Lightning and what's shaping up for the Bronco and the Maverick, any sense of how many of those customers are, as you mentioned, (ph) new to Ford, but also maybe new to that segment. So for example, SUV buyers migrating to the E Lightning due to the storage or the bi-directional charging or other features? Jim Farley: Great question. Put simply, what we've learned about our very large order bank for Lightning is way over indexed on the coast. Almost 80% are new to Ford, what’s interesting 2 out of 5 are people who are going to trade in an ICE pickup which is very important because it indicates a move little bit faster to full-size truck BEV than maybe are our optimistic assumptions. And so I would say what we've learned so far is that the customers are largely new to Ford, but they aren't new to the segment. These are customers who really like these silhouetted vehicles. What is really interesting for me is some would portray the full-size truck industry as kind of a conservative customer. It's not what we're seeing, is these very large order bank for F-150 Lightning, they're new to BEV, and they are excited to move to BEV. And they are -- more than half of them are pickup truck customers. Brian Johnson: Okay. Thank you. Operator: Next question comes from the line of Rod Lache with Wolfe Research. Rod Lache: Hi everybody. I just first wanted to clarify the answer that you gave to Brian's question. So you're going to be annualizing at 6 billion to 8 billion in the back half, and I think what a lot of people want to understand is, is that kind of a fair bridging-off point for us to think about what happens from here into 2022 and beyond. So did you assume some moderation of pricing already in that number? Is that level of investment kind of the run rate? And how should we think about the incremental benefit from that run rate for Bronco, Maverick, for the warranty improvement and some of the international improvements that you're working on? John Lawler: Hi, Rod. Thanks. So in the second half, we show the net number there for the volume net of the manufacturing production costs and other market factors. So what we are assuming is that in the second half of the year, particularly in the fourth quarter, we start to see some moderation in pricing due to the fact that we should see volumes in inventories and stocks coming up a bit. So that is something that we do have built into that number for the second half, particularly in the fourth quarter. And then when it comes to 2022, Bronco is just getting up now -- up and running now, launched now. As Jim said, we have a hefty order bank there. And then F150 Lightning Maverick, they're launching next year. So our product portfolio is strong today, it's going to be even stronger next year. And so we see that contributing to the run rate as well. So I think coming out of Capital Markets Day, we talked about the trajectory of the business. 2022 being definitely stronger than '21 as we walk towards 2023 and the 8% EBIT margin that we plan to hit. Rod Lache: And just secondly, really interesting comment about that sevenfold increase in your order bank and changing the way the vehicles are sold, can you just talk a little bit about what that actually means from a volume perspective? Because I don't think we've ever really known what your actual customer order bank actually what was the magnitude of that? Maybe you could just tell us what that number was a year ago and any thoughts on what this actually means for pricing? Obviously, it's positive, but those units are not going to land on dealer lots for very long. So it would seem that it's really not a big reason to significantly boost incentives anytime soon if they're leaving lots very quickly. Jim Farley: Thank you, Rod. Put simply, we're really committed to both going to an order based system and keeping our inventories between 50 and 60 days' supply. I've been here at Ford for 13 years. There were many years after the financial crisis where our day supply was 20, 30, 40 days. And in those years, the maximum retail order bank we had in the U.S. was 1000 to 2000 a month. We're now at 70,000 units on our way to 80,000 units. That gives you the order of magnitude difference in the way we are looking at this order bank change for the company. Lot of people in our industry are making big deal about the move online? Sure. But for Ford, we think there's massive benefit across all stakeholders for going to an order bank system. It put pressure on our industrial system to deliver quickly. It reduces our dealers costs more than just low day supplies, you mentioned. It allows us to significantly reduce our incentives. And I –guarantee you, I don't know how much money we're wasting. I know we're wasting money on incentives, I just don't know where. With an order based system, we will have much less risk of that. It requires us to dramatically reduce our order complexity as well. So there are a lot of enablers that have been put in place to move us to this new system and new go-to-market approach. I'd love to talk to you more about it, but I'll try to give you the high hard ones. Rod Lache: Thanks. Makes sense. Thanks, everybody. Operator: Our next question comes from John Murphy, Bank of America. John Murphy: I just wanted to actually follow up quickly on that. Jim, you mentioned getting back to 50 days to 60 days supply. That sounds closer to normal than not, but you're also -- the way you're describing the order bank, it looks -- sounds like 20%, 25% of your sales would be built-to-order, the horseshoes and hand grenades. So I'm just curious how you decide where that balance lands? how you keep the inventory tight, your partners to dealership, happy, and selling and creating value for you. But then also big part of the story is the tightness in the secondary market, and the used market, keeping (ph) high, which is helping the new vehicle pricing and it certainly helping out at Ford Motor Credit. So there's a seesaw effect you get the benefit on both sides. Just how do you figure out where this should land and how you actually execute on it. Jim Farley: Really good question. So the team has done a lot of work on this. I will try to answer it very simply. Our target is 50 days to 60 days supply. That means trucks will be a little bit higher. We have a lot -- about a third of our truck dealers (ph) county, 5 trucks to them could be a 100-day supply, but they need 5 trucks for the local community. And for urban and suburban dealers, it will be less than that range. Different segments will have different targets. We actually did this post-financial crisis for a few years. And then over time, (ph) discipline. And this is quite important for this management team. We have a weekly and monthly operations review, where we'll look at this very carefully by segment for each of the regions. That's the kind of soft wiring or management judgment. Going to an order bank, I would say is a hardwired way of reducing the stock. And I think it's going to take both for Ford to make this transition. It can't be just relying on management. keeping within that range. We certainly will have an exception process to go beyond that, and there will be a pretty tough discussion with our operating teams. But I think what I'm more excited about is the hardwiring of going to an order-to-delivery order system, which actually our new launches gave us that gift. Because for Bronco, and Mach-E, and some of the other high demand vehicles, we moved the reservation system into an order bank system. We then realized, my God, why don't we do this for all the vehicles, not just those vehicles. And that's when we had to put a series of incentives and more policy changes like order complexity reduction in the system to make it kind of the way we do things at Ford. I think it's going to require both changes. John Murphy: Okay. That's helpful. And just a follow-up on that, current state of affairs of retail versus fleet mix. It seems like can you talk to the dealers, is an emphasis on retail. The dealers, certainly at your level, just curious, if fleet comes back -- I mean, the demand is there, how are you balancing that – Jim Farley: Sure, it is. John Murphy: -- current days and go forward. I mean, because the demand is there, it's just some of it is getting fulfilled in the used market. They're going after auctions instead of ordering from you guys. So how do we think about that recovery go forward and where does it stand right now? Jim Farley: Really good question. So it depends on the region. Of course, we're a dominant commercial brand in multiple regions like Western Europe and the U.S., even in China in certain segments. And we're seeing in Europe a very dramatic order bank on our vans. It is -- it is something I've never seen in my career. We're talking months and months and months of back orders. So the demand for our commercial vehicles in Europe is extremely strong and the order bank is months and months. In the U.S. we're very fortunate that our commercial business is heavily focused on transit and Super Duty, and of course, F-150 is kind of mix. And so for those vehicle lines, transit and Super Duty, it's very easy to -- we don't have to prioritize between retail and commercial because those vehicle lines are almost a 100% commercial. The one that's challenging for us to balance is F-150. And we -- as you could see in this quarter, we're very carefully mix managing. But we are very respectful of the needs of our commercial customers. We know where our toast is buttered. And those customers are really important for us. In fact, we’re in discussions with them right now about the trade-off between feature content and availability. We have many commercial customers in the U.S. that have been waiting for months and months for their vehicle. And we are discussing with them, would you be willing to take off feature content to get your vehicles now? And that's -- and you can expect us to be balanced about that discussion and negotiation and compromise. And it's -- we'll make the right call for the company and for the customer. But they are pushing us for availability now, even if it means lower feature content. John Murphy: That's very helpful. Thank you. Operator: Our next question comes from the line of Adam Jonas, Morgan Stanley. Adam Jonas: Thanks. A great call so far. And Jim, I have to say, I did a Ctrl+F for the word hybrid in the and in the press release and I don't see it, man. No hybrid. It's a beautiful thing. So good. Yeah. But they're dead. They're gone. All right. My question on EVs, your BEVs. When do you think that they can be positive profit on a fully costed basis, not contribution. Like, when can they be profitable? And do you think it's 2022 is still too early for that? My first, and I have a follow-up. John Lawler: Thanks, Adam. Actually, Mach-E is profitable. Contribution margin, positive and profitable on the bottom line today. Adam Jonas: Wow. John Lawler: So we've seen strong demand for that. Yeah. So I think when we look at it over time, as we talked about , and we've talked about with you. We've got to ride that technology curve down. We've got to get to the $80 per kilowatt hour for the battery pack before the end of the decade. We've got to scale the BEV content. We have commonality, and the top hats, and other components that will help us as well. And then, of course, we need to build on our services and such to really improve the profitability of the as we move forward. But I can tell you that Mach-E is profitable today. Adam Jonas: Wow, that's incredible at 50,000 type run rate for that to be correct. Okay. My follow-on question, Jim, is about always on and the order bank. I mean, really huge. Just really interesting when you combine the order bank system with always on, where you go connect -- can engage the consumer directly for services and F&I and insurance and the OTA. But I am talking to some dealers that are freaking out. That some Darwinian forces could be at work where you're not, let's say, directly infringing on the franchise laws, but you're dancing close as you probably should given all the technological changes over the past 70 or 80 years since these laws came. So what's your message to them? What if order book goes to 80% of your units or the majority, and then the dealers are just these delivery centers? And then, you're going direct on all the other wonderful services. What's the message to the dealers? Jim Farley: Great question. Well, we're going to have a couple of different population of dealers. We are going to have our professional dealers and the answer is a little different for them versus our retail dealers. We'll have our rural dealers and the answer is a little bit different for them than suburban and urban dealers. The -- I would say the message we're giving to our team, our dealers is, look, we're going to have to work really carefully together, so -- because the customers are going to have a lot of questions on Ford BlueCruise, for example. So we want to make sure the dealers are very knowledgeable about these new OTA features, that are really meaningful in the use of the customer's life. That's one. The second one is service, service, service, service. Service. That is the most important thing for us, is wiring a closed loop between the vehicle, the condition of the vehicle, the service capacity of the dealers, and the customer is going to be the most important ballet we're going to have to play together with the dealers. This is especially true for Ford Pro. And in fact, today, we already have 160 remote trucks doing service for our commercial customers at their business. Warranty work, that's a good example of the evolution of the business model, where they're taking their Service Department from a fixed hub and going on the road with their service capacity. And those trucks have to be cooked into the vehicle data and the prognostics. Our parts legacy system to order parts and the dealers on dispatch system. That has to be a closed loop. So, all I would say to you is the orchestration and our benefit, our chance to win. Just like maybe targets, a chance to win versus online retailers is that in-person service, especially in professional customers. Operator: Our next question will come from the line of Colin Langan with Wells Fargo. Colin Langan: Great, thanks for taking my question, and congrats on a good quarter. Inventory levels. We've never seen them at these levels obviously before and obviously it's impacting your market share. Any sense of how much of that you think you could recoup and how much are you concerned may switch to other brands because people might only wait for so long? John Lawler: Yeah. Hi, Colin. It's John. So I think what we're seeing here from a market share drop is completely related to the fact that our stocks reduced so much. We have the chip issue. We lost the volumes that we lost in the second quarter. We expect that as we work to improve the run rate and through the third quarter, we're very focused on maintaining this high turn rate, filling the orders that we have. As Jim said, we're going to continue to work on retail orders. And continue to bring our customers along that way as well. So we think that we have a good chance to regain that share, especially with the strong lineup that we have. and so we see this as a temporary issue related to the chip issue and the volume and production we had in the quarter. Jim Farley: And we will not cede truck leadership to anyone. Colin Langan: Okay. touch on Connected Services. You rolled out Ford Liive in Europe on commercial vehicles. I -- I believe it's free right now. I mean, how is that rollout going? And when do you try to monetize that and get revenue out of these services? Jim Farley: Great question. So we do -- we just launched FORDLiive, as Jim mentioned, in the UK and Spain. We have 5 more EU countries covered by the end of the year to launch, so we're really excited about FORDLiive. What we've committed to so far is in the next couple of years by 2025, we expect our digital and charging revenue in Ford Pro to be about 1 billion dollars today. I wish we had more time to focus on this frankly. We have about just under 200,000 unique subscriptions for our telematics and data services. We grew at about 20,000 units in the quart -- 20,000 subscriptions in the quarter. And we feel like that digital telematics and data like fuel tank information plus adding the charging services like Electriphi for Depot charging for our customers, our high-growth area with the revenue to that level in the next couple years. The monetization of FORDLiive is really around our traditional parts business, which has very high margins and we have a very low share. So the opportunity for us upside is tremendous, post warranty. Even our commercial customers, we get very few of those customers. And so the real payoff for this closed loop is going to be much higher share post warranty of that very profitable business. Colin Langan: Thanks for taking my question. Operator: Our next question will come from the line of Ryan Brinkman with JPMorgan. Ryan Brinkman: Thanks for taking my question. One thing that especially stood out in your results, I think, is on Slide 6, where it shows that units wholesaled in the quarter rose 18% year-over-year, but that revenue was up by more than twice as much by 38%. So just a few questions around pricing and overall revenue per unit. I can see from the on Slide 9 that Net pricing helped EBIT by 1.9 billion or kind of 10% of last year's revenue, which seems suggests about the idea that half of the growth in revenue over unit volume into Q was driven by price and the other half by makes. Is that roughly correct? And what do you think the outlook is for continuing to grow revenue in excess of the change in volume? John Lawler: Yeah. Thanks, Ryan. I think pricing is the majority of what was behind that growth. We had a very strong quarter relative to pricing as we saw, our inventory shrink. And we see the strength in the underlying demand of the products that we have. And so I think I would think about it more as pricing, a little bit of mix in there, but more of it is pricing. Ryan Brinkman: Okay, very helpful. And then just as a follow-up, we saw some estimates that your incentive spending in June in the U.S., it may have fallen like 50% year-over-year, leading the decline in industry-wide incentives. I'm curious how much of the decline in incentives do you think maybe driven by hot new products like the F-150, Bronco, Bronco Sport, Mach-E, et cetera, versus how much is the function of the low inventory environment or maybe just a general inflationary environment? And to that end, it might be helpful to know if carryover pricing, which I think usually declines year-over-year, if that might also be tracking stronger and what your outlook is for incentive spending going forward, maybe in light of some of the comments you made earlier on the call about inventories and order bank, etc.? John Lawler: that's a great question. I think we've been working this as you'd expect. It's a combination of all of the above, right? We have strong products. We see continued demand for those strong products, supply is well short of that, it's allowed us to continue to keep the pricing strong and improve the pricing in the second quarter versus what we had expected. And I think as long as you see this imbalance between supply and demand, we'll continue to have stronger pricing power. As we've seen through the first quarter and the second quarter. As we go through the year, when we start to see supply and demand normalize. we'll see some of this pricing come off a little bit in the fourth quarter and then we'll have to see how that runs through next year. But given the strength of our product lineup and the demand we see, we expect to have a relatively strong pricing power for the near foreseeable future. Ryan Brinkman: Thank you. Operator: Our next question will come from the line of Joseph Spak with RBC Capital Markets. Joseph Spak: Thanks. Good afternoon. I wanted to get back to the investments in, in modernization and maybe frame that in the context of the 2023 view you laid out at the Capital Markets Day. How does that investment trend through those years as you think about the margin targets you laid out and there's an assumption that by the time you got to '23 or maybe a little bit later, there's a return on that investment, such that it becomes a neutral or even positive to the margin. John Lawler: Yes, thanks. Of course. as we make our capital allocations and we make these investments, we expect that we're going to get a return on them. And that's all part of our walk up into 2023, the 8% margin. We're also continuing to work on cost reductions elsewhere. right? These are investments that we're making in our new products with the launches and connectivity and IT. We've got advertising in there for these launches, and then, of course, customer experiences as I talked about earlier. But we're also driving cost reductions elsewhere as we continue to improve the business towards that 8% margin in 2023. So we'll invest in certain areas. We will see costs go up in certain areas, but we should also see cost coming down another areas, particularly material costs, et cetera. Jim Farley: One particular area? of modernization that doesn't I don't think get enough attention in where we're investing as a Company. Certainly 30 billion in electrification, and the vertical integration of batteries and our, of course our investment on autonomy. I think you all know about where we're spending our money in the general categories. The 1 I really want to highlight is the very significant investment in our embedded electrical architecture upgrade. This is really a significant move by Ford to not just invest in electrification, but move those products to fully digital updatable in all modules and go to a fully modern zonal electric architecture. I'm not going to go through the details, but this is a very expensive transition, but it will enable a whole new capability for the always -on experience than even today's connected vehicles like Mustang Mach-E. And I want to highlight that because it often gets lost in the other categories of investment and monetization. Joseph Spak: Okay, so just to clarify, so the EV spend is included in that bucket you mentioned? Jim Farley: Yes. Yes. So when we talk about upgrading our electric vehicles, it's much more fundamental than just the investment, and the tooling, and the engineering of the electric vehicle and its components and propulsion. It also includes a completely new approach to an embedded software and hardware system. Joseph Spak: Okay, And just -- and going back to the order bank, which is clearly interesting, that's -- it seems like an easier task, quite frankly, when you have great product like you do with the Bronco, the Mach-E, and the Lightning, which are -- seem well-received and also limited. I guess what I'm wondering is how are you going to sort of balance that with inventory as you think about like you're an explorer and your 4 or 5 of its product lifecycle or like is the plan to still keep inventories of the older products or more mature products tight such that you can still get some into the order bank or are there other plans to keep the product fresh throughout the lifecycle. That can lead to – Jim Farley: Sure. We'll have ground stock for sure in dealers. And we obviously have to keep the vehicle fresh. More and more of that will be the digital freshness of the vehicle. But I would say if you look at our 60 plus thousand unit order bank in North America, a lot of -- not all of those are Bronco s and Mustang Mach-Es. We're doing this for our whole brands. Joseph Spak: Thank you. Operator: Our next question will come from the line of Philippe Houchois with Jefferies. Philippe Houchois: Yes. Good afternoon. Thank you very much. I've got 2 questions. The first one, sorry, I'll go back on this order bank and inventory levels. To be honest, I'm a bit surprised you talking about 50 days to 60 days of inventory in the few Trump because that's done much lower than what we've had in the past. And I would've thought the order bank would actually enable to actually carry much inventory and we've seen that benefit to pricing. So I wonder if the 56 days is the first step, but do you think you can do better in the future? And along those lines and then maybe more on the Ford Credit side. But when I look at European car companies, they carry more finished products on their balance sheet, the core balance sheet. And then to be less on the Cinco balance sheet, through the dealer receivables, where you guys are proxying. It's the opposite in the U.S. And I'm just wondering if you look at a situation where you go to more order banking for your production. If you end up carrying more inventory on your Industrial balance sheet, which would increase your working capital requirement from an industrial standpoint, that was my first question. And the second one, if I can ask, briefly on China. It seems like you're stalling a bit in China, and because you've localized lot more of Lincoln, more profit able. You had big losses I before, and side before. And I'm just wondering, can you comment maybe on what is happening generally in China? Is there -- there seems to be concern about how the Chinese brands are making good progress by some of the EVs launched by your competitors are not quite getting the love from customers that was expected. And I'm just wondering if you see a more difficult environment in China for you in the balance of the year into next year. Thank you. John Lawler: Yes. I will take the working capital. Now, where we see the order bank helping us is we actually see it simplifying the industrial system because we'll know exactly what we're going to build. So we're actually working through that now and trying to use that to simplify and reduce things like working capitals. So I think if anything, it would have the opposite impact. It would increase working capital. We use it to drive down working capital. And then on the day supply. What we've seen in the past is around a 75-day supply. So 50 day, it's a 25-day reduction. so we do see that as substantial. And, of course, that'll be different across the different vehicle lines. So we do see that as a substantial pull back in the day supply. Jim Farley: And just remember, in Europe, just Ford of Europe, the cross-border issue in Europe is not so small. We have holding centers and lots of ways to manage the stock. We don't plan to implement that system in the U.S. It evolved over time and we have one country. So I think we're getting -- our intention is, as John said, is not to handle it that way. In China, the team has made tremendous progress from a $1.5 billion loss hovering around breakeven now was slightly below that. And we're in a very important time for Ford in China. Lincoln is now profitable, and we just localized those models. We only launched Lincoln in 2015. I was there. So it's a recent phenomenon. And we're just about to launch a whole plethora of brand new vehicles, like we're doing in North America today. So we're on the eve of the Mustang Mach-E launch localized, and then we have all these new vehicles, the Evos, I can go on a long list, and it will be just like what we're seeing in North America, full of freshness, and that will play out over the next couple of years. So China is very important for our profit plans. I think the team has done a tremendous job in stabilizing our sales situation and improving our cost, and now And now it's going to be a growth story in China. We're just commercializing and industrializing the vehicles as we speak. And Mustang Mach-E, it's the first major one. Thanks. Philippe Houchois: Thank you very much. Operator: And our final question for the day will come from the line of Dan Levy with Credit Suisse. Dan Levy: Hi. Good evening. Thank you for squeezing me in. First, wanted to just ask on the chip shortage and I fully recognize the situation is very fluid and your crystal ball was as good as anyone else's. But do you have a sense for how long it might take until you're no longer supply-constrained on production or something that's fully resolved, by your best guess by early next year or do you think that this -- there might be still some supply constraint lasting much longer and deeper into 2022. So just the baseline expectations around that. John Lawler: So Dan Yes, I mean, I think my guess is as good as anybody is on this. We do see that the chip issue running through this year, and we could see it bleeding into the first part of next year. But I think we won't really have a good feel for that, until later in this year. We know that, as we've had discussions with the suppliers, they're telling us they're reallocating capital, they're increasing supply for automotive et cetera. But I think this is one of those things where we need to see the release coming through before we can really feel comfortable that we're out of the woods here. Dan Levy: Great. I understand. And second question is just on ICE versus BEV. And clearly you're deemphasizing ICE, and presumably that means the investment is coming down. I assume that part of that 30 billion headline number you gave includes some reallocation from ICE to EV. But I think we also know right now that, and maybe this is just a function of the market, but ICE sales are extremely strong in the U.S.. It could remain the case for a while. So what should we expect on margin for ICE vehicles, especially as some of that investment comes down? Is it possible that the outgoing margin on some of the ICE vehicles actually increases and you could potentially run into a negative mix issue as we -- as you start to pivot from ice to the beds? Jim Farley: Yeah. It's a good question. Generally speaking, that certainly could happen. We don't know how the demand will shift. Obviously, our guess is 40% of , 240 gigawatt capacity by 2030. So we're busy making all that happen as you say, 40% is a lot -- is a lot higher than today and I think we have -- well, I know we have the right strategy for the Company. But so much of this transition is going to depend on government support, infrastructure buildout. And we need to be patient. And I think agility will become a very important skill for the Company. So far, the first inning would imply that Ford 's number 1 in sports car is Mustang, we're number one in vans with transit, we're number 1 in pickups with F-150. We're electrifying all 3 of those in the next 6 months. And so far, the demand is actually higher than we expected. So I don't know what's going to happen. We don't know what's going to happen. The support in China, but especially in Europe, has accelerated the BEV adoption in those regions. But as you say, we get into the next phase of expansion with a lot more product offering and all that capital pointed at BEV s, it's hard to say. And it's hard to handicap the government's policy at a government level. over time. I think the most important thing isn't how much money we're spending, because that's necessary -- that's enough. It is our agility and the kind of execution of our BEVs and our management of the profitability of those vehicles, and that's where we're putting our energy. The agility of our industrial system, our manufacturing, our focus on the profitability improvement and the vertical integration for key electric components, and making our vehicles different and more competitive than others. I know it's a very general answer, but I don't think we know enough to answer your question. Dan Levy: Understood. That's helpful, nevertheless. But thank you very much. Operator: Thank you. And with that, this concludes the Ford Motor Company's Second Quarter 2021 Earnings Conference Call. We'd like to thank you for your participation. You may now disconnect.
F Ratings Summary
F Quant Ranking
Related Analysis

Ford Motor Company's Stock Update and Safety Investigation

  • Ford Motor Company maintains a Neutral rating from Piper Sandler with a stock price of $10.25.
  • The stock has experienced a 2.5% increase, with a yearly high of $14.85 and a low of $9.06.
  • Ford faces a federal investigation into approximately 1.3 million F-150 trucks for safety concerns related to unexpected downshifting.

Ford Motor Company, trading under the symbol "F" on the NYSE, is a major player in the automotive industry, known for its wide range of vehicles, including cars, trucks, and SUVs. The company faces competition from other automotive giants like General Motors and Toyota. Recently, Piper Sandler updated its rating for Ford to Neutral, maintaining a hold action, with the stock priced at $10.25.

The stock's current price reflects a 2.5% increase, translating to a gain of $0.25. Throughout the day, the stock fluctuated between $10.01 and $10.25. Over the past year, Ford's stock has seen a high of $14.85 and a low of $9.06. The company's market capitalization is approximately $39.9 billion, with a trading volume of 102.6 million shares.

Ford is currently under scrutiny as federal regulators investigate approximately 1.3 million Ford F-150 trucks from model years 2015 to 2017. The National Highway Traffic Safety Administration (NHTSA) has received 138 complaints about these vehicles unexpectedly downshifting at high speeds, leading to rapid deceleration and potential crashes.

This investigation follows Ford's recent recall of over 240,000 Explorer models due to improperly secured seatbelts. The F-150 probe highlights significant safety concerns, as this model is one of Ford's most popular. The sudden downshift issue can cause the rear wheels to lock temporarily, complicating vehicle control and increasing the risk of accidents.

Ford Shares Drop 6% as Weak 2025 Outlook Dims Strong Q4 Performance

Ford Motor (NYSE:F) saw its shares drop over 6% in pre-market today after issuing a downbeat profit forecast for 2025, overshadowing its better-than-expected fourth-quarter results.

The automaker anticipates adjusted earnings before interest and taxes (EBIT) of $7 billion to $8.5 billion for 2025, a sharp decline from the $10.2 billion reported in 2024. Ford cited ongoing market pressures as key headwinds and warned that the first half of the year would be particularly challenging.

The company expects first-quarter EBIT to hover around breakeven, attributing the weakness to lower wholesales and a shift toward producing less profitable vehicles. Additionally, major production transitions at key U.S. plants in Kentucky and Michigan are expected to weigh on early-year performance.

Despite the cautious outlook, Ford wrapped up 2024 on a high note, delivering fourth-quarter earnings that beat expectations. The company posted adjusted earnings per share of $0.39 on revenue of $48.2 billion, exceeding analysts’ forecasts of $0.36 per share on $47.79 billion in revenue.

While Ford’s long-term strategy remains focused on adapting to shifting consumer demand and production realignments, investors appear wary of the near-term profitability squeeze and broader economic uncertainties.

Ford (NYSE:F) Maintains "Sector Perform" Rating by RBC Capital Amid Upcoming Financial Results

  • RBC Capital maintains a "Sector Perform" rating for Ford (NYSE:F), with a current stock price of $10.22.
  • Ford is expected to report a fourth-quarter earnings increase to 33 cents per share and a slight revenue growth to $43.25 billion.
  • Despite a positive earnings outlook, Ford's stock was downgraded by Jefferies analyst Philippe Houchois from Hold to Underperform, indicating a cautious stance.

On February 5, 2025, RBC Capital maintained its "Sector Perform" rating for Ford (NYSE:F), advising investors to hold the stock. At the time, Ford's stock price was $10.22. This recommendation comes as Ford prepares to release its fourth-quarter financial results, which are highly anticipated by analysts and investors alike.

Ford Motor Company, a major player in the automotive industry, is expected to report earnings of 33 cents per share for the fourth quarter, up from 29 cents per share in the same period last year. The company is also projected to announce quarterly revenue of $43.25 billion, slightly higher than the $43.21 billion reported a year ago. Ford has a track record of exceeding analyst revenue estimates, having done so in eight of the last ten quarters.

Despite the positive earnings outlook, Jefferies analyst Philippe Houchois recently downgraded Ford's stock from Hold to Underperform, suggesting a more cautious stance. This downgrade contrasts with RBC Capital's recommendation to hold the stock. Ford's stock has shown some volatility, with a recent 2.7% increase, closing at $10.16, and currently trading at $10.22, reflecting a 0.60% increase.

Ford's stock has experienced fluctuations over the past year, reaching a high of $14.85 and a low of $9.49. The company's market capitalization is approximately $39.90 billion, with a trading volume of 54.37 million shares. As Ford prepares to release its financial results, investors will be closely watching for any developments that could impact the stock's performance.

Jefferies Downgrades Ford to Underperform, Stock Drops 3%

Jefferies analysts downgraded Ford (NYSE:F) from Hold to Underperform, cutting the price target on the stock to $9 from $12. As a result, shares fell more than 3% intra-day today. The move reflected growing concerns over inventory management, strategic uncertainties, and cost pressures that could weigh on the automaker’s near- and long-term performance.

While a potential loosening of emissions regulations under a Trump administration offered some relief, the timing and scope of such changes remained uncertain. Meanwhile, Ford’s inventory levels continued to rise, reaching 96 days in November—26 and 18 days higher than General Motors and Stellantis, respectively—despite a 15% year-over-year increase in U.S. sales. The analysts noted that sustained production has supported the company’s reduced 2024 guidance but could make for a more challenging start to 2025.

Ford also faced critical strategic decisions in the coming quarters. These included the potential need to resize or exit its European operations, which currently contribute about 25% to its 2024 earnings per share. Additionally, the company’s yet-to-be-announced electrification strategy may focus on range-extender vehicles (EREVs), further complicating its EV roadmap. Persistent structural cost issues, combined with an $8.5 billion gap between warranty and quality provisions and actual cash outflows since 2020, added to the pressure.

The analysts highlighted that while Ford’s balance sheet was solid, it offered limited flexibility. Restructuring and warranty-related claims could leave little room for shareholder returns if the company aimed to maintain a conservative financial profile.

Ford Earns an Upgrade at Goldman Sachs

Goldman Sachs analysts upgraded Ford (NYSE:F) to a Buy, citing strong margin potential from its growing software and services business, particularly through its commercial arm, Ford Pro.

The investment bank expects software and physical services to account for 20% of Ford Pro’s EBIT by 2026, with paid software subscriptions expanding at an annual rate of 35-40%. Ford is targeting $1 billion in software revenue by 2025, driven by improvements in fleet services and advanced driver assistance systems (ADAS).

Goldman also highlighted Ford's cost-cutting efforts in both internal combustion engine (ICE) and electric vehicles (EVs) as key to offsetting industry challenges like slower demand growth and increased competition from Chinese automakers.

While Ford shares have dropped 13% year-to-date due to cyclical concerns and higher-than-anticipated warranty costs in early 2024, Goldman sees a 23% upside to its new 12-month price target of $13. The stock is currently trading at 5x next twelve months (NTM) EPS estimates, at the lower end of its historical valuation range.

Ford Motor Company (NYSE: F) Receives New Price Target from Deutsche Bank

On Monday, September 9, 2024, Deutsche Bank analyst Edison Yu set a new price target for Ford Motor Company (NYSE: F) at $11, suggesting a modest upside potential of 3.19% from its current trading price of $10.66. This valuation comes with a "Hold" rating, indicating that Deutsche Bank views Ford as a stable investment, but not necessarily one poised for significant growth in the near term, as reported by TheFly.

Ford, a leading global automotive manufacturer, finds itself at a critical juncture. The company's stock has been experiencing fluctuations, with recent trading sessions showing a slight increase of $0.08, or approximately 0.76%, to $10.66. This performance is part of a broader trend observed over the past year, where Ford's shares have swung between a low of $9.49 and a high of $14.85. Despite these movements, Ford maintains a substantial market presence, with a market capitalization of around $41.62 billion and a significant trading volume of 34,029,162 shares.

However, Ford's financial landscape is not without its challenges. The initiation of a class action lawsuit by Pomerantz LLP against Ford Motor Company underscores potential legal and financial risks that could impact shareholders and potential investors. This lawsuit highlights the importance of closely monitoring Ford's legal standing and its implications for the company's financial health.

The combination of Deutsche Bank's "Hold" rating and the ongoing legal challenges presents a complex picture for Ford. While the bank's analysis suggests a slight optimism regarding Ford's stock price, the legal uncertainties introduced by the class action lawsuit could pose risks to the company's financial stability and growth prospects.

Investors and shareholders of Ford must navigate these developments with caution. The potential for stock price appreciation as indicated by Deutsche Bank's analysis is tempered by the legal and financial scrutiny from the class action lawsuit. As such, Ford's future performance will likely be influenced by a mix of market dynamics, legal outcomes, and the company's ability to address and mitigate these challenges effectively.

Ford Motor Company's Strategic Position in the Automotive Industry

  • Ford Motor Company (NYSE:F) showcases a promising outlook with a potential stock price growth of 197.25%.
  • The company's solid financial health is highlighted by a price-to-earnings (P/E) ratio of 11.21 and a dividend yield of 10.25%.
  • Ford's strategic foray into the electric vehicle market positions it as a significant player amidst the high-growth EV sector.

Ford Motor Company (NYSE:F) stands as a testament to over a century of innovation and resilience in the automotive sector. With its establishment in 1903, Ford has evolved from producing the iconic Model T to a diverse lineup that includes trucks, commercial vehicles, and luxury cars. The company's strategic segmentation into Ford Blue, Ford Model e, and Ford Pro; Ford Next; and Ford Credit segments demonstrates its adaptability and commitment to meeting the varied needs of its customers, ranging from individual consumers to commercial fleets and governments.

Currently, Ford's stock is priced at $11.04, with an ambitious target stock price of $32.82. This indicates a potential growth of 197.25%, a figure that underscores the company's promising outlook. With a market capitalization of $43.89 billion and a price-to-earnings (P/E) ratio of 11.21, Ford showcases solid financial health. The earnings per share (EPS) of $0.96, coupled with a generous dividend yield of 10.25%, further highlight Ford's attractiveness to investors seeking both growth and income.

In the competitive landscape of the automotive industry, Ford's performance and potential can be contextualized by comparing it with its peers. For instance, Rivian Automotive, Inc. (NASDAQ:RIVN) and Lucid Group, Inc. (NASDAQ:LCID) show negative EPS and P/E ratios, indicating their current lack of profitability compared to Ford. On the other hand, established players like Toyota Motor Corporation (NYSE:TM) present a more comparable financial footing with a P/E ratio close to Ford's but with a significantly higher market cap. This comparison not only showcases Ford's competitive pricing but also its potential for growth amidst both traditional and emerging automotive companies.

The electric vehicle (EV) market, represented by companies like Tesla, Inc. (NASDAQ:TSLA) and NIO Inc. (NYSE:NIO), highlights the evolving dynamics of the automotive industry. Despite Tesla's substantial market cap and positive EPS, Ford's strategic foray into the electric vehicle segment through its Ford Model e division positions it as a significant player in this growing market. NIO's standout growth potential of 521.23% further emphasizes the high-growth nature of the EV sector, where Ford is poised to make its mark.

Ford's balanced approach, combining traditional automotive manufacturing strengths with an eye towards the electric vehicle market, positions it as a compelling investment option. Its solid financial metrics, significant growth potential, and strategic positioning within a competitive landscape underscore Ford's resilience and adaptability. Investors considering Ford's stock are looking at a company that not only has a rich legacy but is also geared towards future growth in the evolving automotive industry.