Ford's Balance Sheet Remains Cash-Rich to Help Fund EV Transition

Sector Strategist

David Whiston

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International Markets Group

Ford Blue

Ford Model e

Ford Pro

Wholesale Units

Revenue segments as reported by the company.

Automotive

Mobility

Company excluding Ford Credit

Ford Credit

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Ford is turning itself around by focusing on light-truck models in the United States, which we think is the right move, since light trucks are nearly 80% of U.S. industry new light-vehicle sales. Ford's challenge is to increase share profitably while elevating Lincoln into a global luxury brand. The mostly no-moat nature of the auto industry makes these tasks difficult, and we see headwinds from areas such as restructuring, commodities, and exchange while investments in mobility and electrification take years to bear fruit. Ford targets 50% global all electric volume by 2030 and an annual production rate of over 2 million battery electric vehicles by 2026, though CEO Farley in July 2023 indicated flexibility on the latter's timing.

Ford is also focused on spending on the most profitable vehicles. The March 2022 split of combustion and battery electric vehicles into their own segments (Ford Blue and Ford Model e) allows talent to focus on combustion hits like the Bronco and F-Series as well as build on the success of the F-150 Lightning BEV and Mustang Mach-E. Restructuring remains a constant with the global redesign program incurring $9.8 billion in charges and $3.9 billion of cash outflow from 2018-22. Ford Blue seeks about $3 billion in cost reductions and CEO Jim Farley in February 2023 lamented about the firm having too many engineers. Twelve days later, Ford announced a 3,800, mostly U.K. and German, headcount reduction by 2025 including 2,800 product development jobs. With more EVs, Ford does not seem to need the same people it's had.

Ford is building more models on common platforms, which should improve economies of scale. This move allows Ford to switch production faster to meet changing demand while cutting costs via better economies of scale. In the past, Ford had a different platform in each segment for each part of the world, which wasted billions. Lincoln entered China in fall 2014, and the Mustang Mach-E EV is bringing new customers in U.S. coastal markets, with 70% of its early buyers new to Ford. Many F-150 Lightning pickup customers are also new to Ford. In addition, the Transit BEV helps commercial customers save money.

Business Strategy & Outlook

Ford does not have a moat, and we do not expect that to change. Vehicle manufacturing is a very capital-intensive business, but barriers to entry are not as high as in the past. The industry is already full of strong competition, so it is nearly impossible for one firm to gain a durable advantage over another. Foreign automakers from China and India may soon enter developed markets such as the U.S., and South Korea's Hyundai and Kia as well as Tesla have become formidable competitors. Furthermore, the auto industry is so cyclical that in bad times even the best automakers cannot avoid large declines in return on invested capital and profit. Cost-cutting helps ease the pain, but it does not restore all lost profit.

None

Economic Moat

Ford Motor Company

Lincoln is a division of the Ford Motor Company that markets luxury vehicles under the Lincoln brand. The product line currently includes sedans, crossovers, sport utility vehicles, and versions for limousine/livery use. They are marketed primarily in North America and China. Lincoln vehicles are also officially sold in the Middle East and South Korea.

Lincoln

Ford Motor Co. engages in the manufacture, distribution, and sale of automobiles. It operates through the following segments: Ford Blue, Ford Model E, and Ford Pro, Ford Next, and Ford Credit. The Ford Blue, Ford Model E, and Ford Pro segment includes the sale of Ford and Lincoln vehicles, service parts, and accessories, together with the associated costs to develop, manufacture, distribute, and service the vehicles, parts, and accessories. The Ford Next segment focuses on development costs for autonomous vehicles and related businesses, equity ownership in Argo AI, and other mobility businesses and investments. The Ford Credit segment is involved in the credit business on a consolidated basis, which is primarily vehicle-related financing and leasing activities. The company was founded by Henry Ford on June 16, 1903 and is headquartered in Dearborn, MI.

Earnings data Q4 2023

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