Ford’s Surprise Profit Paves Way for Electric-Car Investment

(Bloomberg) — Ford Motor Co.’s gas-powered SUVs and trucks helped haul in an unexpected fourth-quarter profit, providing a down payment on the $29 billion the automaker plans to spend developing electric and autonomous next-generation vehicles.

The manufacturer almost doubled its planned spending on EVs Thursday to $22 billion through 2025, a response to the bold initiative outlined by General Motors Co., which aims to go to all zero-emission models by 2035. Dearborn, Michigan-based Ford also plans to spend $7 billion on driverless-car technology.

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Inside The 2018 Consumer Electronics Show

James Farley

Photographer: David Paul Morris/Bloomberg

Chief Executive Officer Jim Farley is trying to demonstrate Ford’s ambitions are just as aggressive as its crosstown rival’s, while he also works to grow profits with products such as the latest version of its F-150 pickup — the top-selling vehicle in the U.S for four decades.

“We have no intention to cede ground to others in vehicle segments where Ford is the established leader,” Farley said on a call with analysts. “Our time is now at Ford, we’re not talking about aspirations.”

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Ford posted adjusted earnings per share of 34 cents that easily blew past the 7-cent loss analysts predicted on average. Adjusted earnings before interest and taxes of $1.7 billion exceeded the $347 million average estimate.

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Farley said sales are brisk for the redesigned F-150, the company’s cash cow, with models lasting less than a week on dealer lots.

Ford shares rose as much as 4.3% in after-market hours before paring gains to trade up 0.6% as of 7:30 p.m. The stock earlier closed up 1.5% to $11.37.

‘Mainstream’ EVs

Executives at the automaker are quick to distinguish GM’s future goals with Ford’s here and now: They pointed to new EVs such as the plug-in Mustang Mach-E, a battery-powered F-150 pickup due out next year and an early investment in startup Rivian Automotive Inc., which will begin production of its own electric vehicles later this year.

“You’re seeing us deliver on our promise to deliver on EVs in mainstream segments where Ford is strong,” Chief Financial Officer John Lawler said on a call with reporters.

Most of Ford’s income still comes from gas-powered SUVs and trucks. Lawler said the company is on course to earn $8 billion to $9 billion in adjusted earnings before interest and taxes — including a $900 million non-cash gain on its investment in Rivian — and generate $3.5 billion to $4.5 billion in adjusted free cash flow in 2021.

Ford said investments in next-generation technology go well beyond the powertrain.

The automaker also is rapidly moving into Big Data and connected car services, partnering earlier this week with Alphabet Inc.’s Google unit to bring Android to its cars and also hinting at a coming announcement with Microsoft Corp. for commercial vehicles. Farley declined to provide details on the deal with Microsoft, saying only that it’s something “we’ll tell you about some other day.”

Chip Headwinds

But Ford also faces headwinds including a global semiconductor shortage that is curtailing production of its F-150 just as the automaker is building inventory on dealer lots of the redesigned truck. Ford said the shortage could cut planned first-quarter production by as much as 20% and reduce adjusted earnings before interest and taxes this year by an estimated $1 billion to $2.5 billion.

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A Ford Motor Dealership Ahead Of Earnings Figures

F-150 pickup trucks for sale at a dealership in Colma, California, on Feb. 1.

Photographer: David Paul Morris/Bloomberg

It also suffered setbacks with the failure of talks to form a joint venture in India with Mahindra & Mahindra Ltd. and a $610 million airbag recall safety regulators required last month after denying Ford’s appeal.

Farley inherited a slow-moving restructuring effort his predecessor, Jim Hackett, initiated in 2018. The new CEO, who took over in October, said Ford has spent $7.1 billion in earnings before interest and taxes and $1.6 billion in cash on its global overhaul.

Revenue was $36 billion in the fourth quarter, 9% less than a year ago — before the onset of the global coronavirus pandemic.

Lost Decade

North American operations continued to drive Ford’s results, with earnings before interest and taxes in the latest quarter of almost $1.1 billion, up 53% from the $700 million of a year ago. In Europe, which has long been a loss maker, it reported a $414 million fourth-quarter profit — what Ford says is the highest quarterly profit in the region in more than four years.

The automaker’s pretax quarterly loss of $66 million in China, where sales have surged lately, improved from the $207 million loss last year. And in South America, where Ford announced last month it would cease production in Brazil after a century of carmaking, Ford lost $105 million compared with a $176 million loss a year earlier.

Over the past decade, Ford has lost $4.5 billion in South America — which Farley said is “not acceptable.”

(Updates with CEO comments and other details from fourth paragraph.)

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