Ford Motor has dodged some of the pain and losses that rival General Motors experienced in the second quarter.
Ford reported Wednesday $40.2 billion in revenue, a 50% increase from the same period last year, and an adjusted operating income that tripled to $3.7 billion. Those figures, which absolutely crushed Wall Street expectations, sent shares up as much as 6% in after-hours trading. Shares have since settled and are up 5.18%.
Analysts polled by Yahoo Finance expected Ford to hit $34.78 billion in revenue and earnings per share of $0.45 on average. Ford reported second-quarter adjusted earnings per share of $0.68, up from $0.12 in Q2 2021.
That's quite the turnaround from Ford's first-quarter results when it reported a net loss of $3.1 billion largely driven by the loss in valuation of its stake in EV startup Rivian. And it stands out from rival General Motors, which reported Tuesday a 40% drop in profits in the second quarter.
The entire automotive sector has struggled with supply chain disruptions that have caused production bottlenecks and consequentially led to lower sales. Ford also saw supply chain constraints cause losses in its China business. However, those losses were offset by sales growth in North America and Europe.
In the U.S. sales were up 1.8% in the second quarter from a year ago. SUVs and crossovers were the big winners with an 8% year-over-year increase in sales. This pushed Ford's Q2 net income up to $667 million versus the $561 million it reported in the same quarter of 2021.
Internationally, Ford said it continues to be sustainably profitable as a result of previous restructuring efforts. Europe’s sales were strong, with a 22% increase to 222,000 vehicles, which helped offset the adverse effects of Russia-war-related supply chain disruptions, according to John Lawler, Ford's chief financial officer. As a result, Ford was able to make a modest profit in Europe.
Ford's wholesale shipments in China were down 24% this quarter to about 114,000 vehicles.
“In China we posted a loss as the local economy and auto industry were significantly disrupted by pandemic related restrictions and lockdowns,” said Lawler. “Now, Lincoln continues to be a profit pillar for the region, gaining share in the quarter along with commercial vehicles.”
Ford affirmed its guidance for full-year 2022 results, expecting to bring in an adjusted EBIT of $11.5 billion to $12.5 billion, which would be up 15% to 20% from the previous year. Ford hopes to finish the year strong with $5.5 billion to $6.5 billion in cash.
Ford's CEO Jim Farley said during Wednesday's earnings call he expects the company to produce 14,000 EVs globally this month, 600,000 in the next year and 2 million by 2026.
Despite the expectation for increased sales, Ford warned that profits will take a hit due to inflation and higher prices for key commodities and transportation.
EV supply chain
Keen to avoid the same headaches experienced during the COVID-19 pandemic, Farley emphasized the company's work to shore up its supply chain, particularly around EVs.
Farley said Ford has been quick to tap into the available supply for OEMs and is also diversifying its battery chemistry.
Last week, Ford announced plans to use lithium iron phosphate batteries, which are considered to be a cheaper cell chemistry, for some of its EVs. The automaker also said it had secured 100% of the battery supplies to deliver 600,000 EVs per year by the end of 2023.
That doesn't mean Ford is immune to global supply chain issues that could develop in the future, specifically in Europe. Farley addressed the upcoming energy crisis in Europe, identifying 550 active suppliers in high-risk countries like Czech Republic, Germany and Slovakia.
“We think that the risk is between now and mid ‘23 when they can manage through the energy issues,” said Farley. “We have about 130 supplier for our North America vehicle production in that 550 list, and we now have a 30-day buffer stock. So we are doing everything we can with the things we know.”
Farley also noted that Ford's suppliers were dealing with labor shortages, and as a result, costs have gone up, but that Ford is well-positioned to deal with the costs it can predict.
Dealer model changes
One of the ways Ford is positioning itself to trim costs is to make changes to its dealer model.
Ford seems to be empowering dealers to make more sales of EVs by eating some of the distribution costs. However, Ford is also moving to a low-inventory model — a direct sales type model in which a customer might order a vehicle online and a month later it will be shipped directly to them.
Whether a customer is at a dealership or “in their bunny slippers,” Farley said Ford will ensure a smoother e-commerce experience. The CEO also said Ford will invest in a post-purchase marketing model.
“So I see dealer margins still being very competitive, but they are going to shift the makeup of those margins going forward,” said Farley.
Future reporting structure
As Ford shared in March, the automaker intends to start operating and reporting financial results via its three new business segments rather than under just one combined automotive segment: Ford Model e, which is dedicated to EVs, software and connected vehicle technology; Ford Blue, which will continue to build out internal combustion vehicles to drive profitability; and Ford Pro, which provides commercial and government customers with work-ready ICE and electric products and services to manage fleets.
Ford Next will take the place of the mobility segment on the balance sheet, and that will report on Ford's moves in autonomous rideshare and delivery. And finally Ford Credit, the automaker's financial services arm.
Lawler said Ford will also share 2022 results that have been revised for these new segments early next year.
Ford has said this restructuring will also allow the automaker to trim $3 billion in annual costs from its ICE development efforts, which suggests job cuts are coming, and most likely in the ICE department.
“We absolutely have too many people in certain places. No doubt about it. And we have skills that don’t work anymore, and we have jobs that that need to change,” said Farley. “We have lots of new work statements that we’ve never had before. We are literally virtually reshaping our company, like every part of our company. And you know the ICE business, we want to simplify it, we want to make sure the skills we have and the works statements we have are as lean as possible. We know our costs are not competitive at Ford. That’s what I mean by we are not satisfied.”