Ford posts $1.3 billion loss, ups EV spending, warns of microchip shortage
In a year marred by coronavirus-dampened sales and historic production disruptions, Ford Motor Co. booked its first full-year loss since the Great Recession on Thursday — and predicted more headwinds to come because of a global microchip shortage now hitting its most profitable vehicles.
The Dearborn automaker reported a $1.3 billion loss on $127.1 billion in revenue for 2020 and a $2.8 billion net loss on $36 billion in revenue in the fourth quarter. Meanwhile, the Blue Oval said it would increase its planned investments in electric and autonomous vehicles to more than $22 billion and $7 billion, respectively, through 2025.
“The transformation of Ford is happening and so is our leadership of the EV revolution and development of autonomous driving,” CEO Jim Farley said in a statement. “We’re now allocating a combined $29 billion in capital and tremendous talent to these two areas, and bringing customers high-volume, connected electric SUVs, commercial vans and pickup trucks."
Ford's increased commitment comes on the heels of crosstown rival General Motors Co.'s recent pledge to exit gas- and diesel-powered engines by 2035 and be carbon neutral by 2040. GM in November said it would increase its spending on EVs and AVs by 35% to $27 billion through 2025, and would in the same time frame have 30 new EVs globally.
“Ford can’t just talk about the game," said Dan Ives, an analyst at Wedbush Securities, adding that GM's announcements have put pressure on Ford to match its aggressiveness on EVs. “This is a big enough ocean for more than a few boats.
"There's going be a lot of success stories with EVs, and also a lot of failures," he said. "But there’s a window of opportunity here and I think Ford … [doesn't] want to be in the shadows of GM when it comes to the EV race.”
Ford shares closed up 1.53% to $11.37 at the market close, just minutes before the automaker released its financials. Shares rose in after-hours trading following the report.
In the fourth quarter, Ford began delivering its first all-electric vehicle, the Mustang Mach-E, as well as its new Bronco Sport SUV and the redesigned 2021 F-150 — its production now slowed by the nagging microchip shortage.
The automaker reported Wednesday that its new-vehicle sales in the U.S. dropped 8.3% — to 143,578 units — in January compared to the same month in 2020. Strong SUV and truck sales to retail customers, however, drove retail sales for the month up 5.5%.
Industry analysts have pointed to high-margin truck sales as a lifeline for the Detroit automakers as they mounted a recovery from the early days of the pandemic.
“Trucks served as a bright spot for Ford throughout most of 2020: their popularity and profitability helped soften blows dealt by the pandemic that might have been otherwise more challenging to bounce back from," said Jessica Caldwell, executive director of insights for auto information website Edmunds.com Inc.
"But," she added, "Ford hit a bump in the road in Q4 as it faced the challenge of transitioning its F-150 lines to the 2021 model year while still attempting to recover from supply shortages created by pandemic factory shutdowns, and GM was able to swoop in and take advantage of the situation to steal some truck share.
"Looking ahead, things aren’t likely going to get much easier for Ford’s inventory issues. The current chip shortage poses a big threat of further slowdowns in production for the entire industry.”
In the fourth quarter, Ford generated adjusted free cash flow of $1.9 billion. It ended the year with $31 billion in cash and total liquidity of nearly $47 billion. In North America, pre-tax earnings were up 53% to $1.1 billion in the fourth quarter. In Europe, Ford posted pre-tax earnings of $414 million.
The automaker lost money in the other regions of the world where it operates, though it noted that it made improvements in all of those regions.
Chief Financial Officer John Lawler forecast that the automaker is on track to earn between $8 billion and $9 billion in adjusted pre-tax earnings this year. The major caveat: how a global shortage of microchips plays out. Short supply of the components powering automated and electronic features in vehicles could result in a 10% to 20% production loss in the first quarter.
If current estimates were projected across the first half of the year, Lawler said the shortage could produce significant business headwinds likely to result in an adjusted pre-tax earnings loss of between $1 billion and $2.5 billion this year.
“Our team is working with suppliers around the clock to optimize the constrained supply and minimize profit impact, while prioritizing customer orders, new-vehicle launches and compliance with CO2 emissions regulations,” he said in a statement.
Ford plans to provide an update on the issue when it releases first-quarter 2021 results on April 28. In the meantime, Lawler said the automaker will be looking to "maximize profitability" by allocating its limited chip supply to high-margin vehicles.
The automaker confirmed Thursday that the shortage was having an impact on production of the F-150, Ford's highest-volume and most-profitable vehicle. The two plants where F-150 are built — Dearborn Truck and Kansas City assemblies — will operate on reduced shifts next week.
In a note, Nick Shields, senior analyst at investment research firm Third Bridge Group, said F-150 production would be "something to watch as we move forward in ." The projected Q1 production loss "would be highly problematic to say the least," he said.
The automaker, though still in what Farley describes as the "first inning" of the transition to EVs, signaled its intent to compete by electrifying its most popular nameplates.
"We are accelerating all our plans — breaking constraints, increasing battery capacity, improving costs and getting more electric vehicles into our product cycle plan," Farley said.
Ford has started to deliver the Mustang Mach-E — which Farley dubbed "the first credible mass-market competitor to Tesla." An electric version of the Transit commercial van is slated for release later this year. And an electric version of F-150 is coming in 2022. Meanwhile, Farley said EVs will be "fundamental" to the automaker's luxury Lincoln brand.
"The majority of the EV spend will be on expanding our portfolio of battery-electric vehicles," said Lawler.
Even as he and Farley fielded questions from Wall Street analysts and reporters about what exactly the EV spending will fund, they declined to comment on the number of new nameplates that could come, planned EV volume, or the timing of new battery-electric offerings.
Executives hinted, though, that there could be more to come on Ford's contemplation of whether or not to build it's own electric battery cells.
"The $22 billion does not include the potential for investing in vertical integration of battery production by Ford or a joint venture," said Lawler. "And as EVs continue to quickly gain favor, especially with commercial customers, we want to be clear that we will not cede ground to anyone in areas that are key to Ford and where millions of customers rely on us, and that’s namely in our pickup trucks, commercial vehicles and SUVs.
"Our attention is on delivering high-volume, must-have connected EVs right now, and not someday.”
Staff Writer Kalea Hall contributed.