Ford Motor Company ended 2020 strongly, improving its automotive and credit businesses in the fourth quarter while showing and shipping must-have new vehicles designed to delight customers, expand profitability and sustain free cash flow.
“The transformation of Ford is happening and so is our leadership of the electric vehicle (EV) revolution and development of autonomous driving,” said Ford president and chief executive officer Jim Farley. “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.”
Customers in the U.S. in the fourth quarter began taking delivery of the all-electric Mustang Mach-E; the Bronco Sport, ahead of the summer return of the legendary Bronco; and the 2021 F-150 pickup – all expected to be significant contributors to 2021 results.
In fourth quarter 2020, the company generated $1.9 billion in adjusted free cash flow and ended the year with sequentially higher cash (nearly $31 billion) and total liquidity (almost $47 billion).
Ford produced quarterly company adjusted EBIT (earnings before interest and taxes) of $1.7 billion, up from $485 million, and an adjusted EBIT margin of 4.8 percent. (Unless otherwise noted, all comparisons are year-over-year.) The automotive EBIT margin was 3.8 percent. Gains were broad-based and largely resulted from improved pricing and lower structural costs, as well as the overlap with UAW contract-ratification costs in 2019.
According to John Lawler, Ford’s chief financial officer, the third and fourth quarters of 2020 provided evidence of progress against the plan to turn around the company’s automotive business and improve profitability. Financial objectives of the plan include:
•Maintaining a strong balance sheet and sharp discipline in allocating capital
•Deriving greater benefits from the ongoing redesign of Ford’s global business and its products and services portfolio
•Targeting an 8 percent adjusted EBIT margin – 10 percent in North America and 6 percent in Europe, with all regions profitable – and healthy adjusted free cash flow, increasing the company’s financial flexibility
•Investing in strategic areas like EVs, connected services and autonomous vehicles – the returns on which are expected to further fortify the balance sheet and fuel growth.
“We are profoundly changing the trajectory of our earnings power,” said Lawler, “unlocking the tremendous value Ford can create for customers, shareholders and other stakeholders.”
The company improved quarterly operating results in every one of its regional auto businesses along with Ford Credit. Cumulative EBIT outside of North America was $666 million better than a year earlier.
North America EBIT was up 53 percent to $1.1 billion. The increase was attributable to yield management and the absence of UAW contract ratification costs in the quarter – offset, as expected, by lower vehicle volumes because of manufacturing changeovers at two plants to introduce the all-new, 2021 F-150. Under the UAW-Ford collective bargaining agreement, the company’s North America pre-tax profits will generate about $3,625 in profit-sharing payouts per eligible UAW-represented employee on a full-year basis. The payments will be made in March.
Ford will now invest at least $22 billion in electrification through 2025, nearly twice what the company had previously committed to EVs. He said the company is “all in and will not cede ground to anyone” in developing and delivering connected electric vehicles and services in mainstream areas of strength for Ford: pickups, commercial vans and SUVs.
“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. “People are responding to what Ford is doing today, not someday.”
The Mustang Mach-E, he said, is receiving great customer and critical reviews, and will be followed by the first E-Transit commercial van (late 2021) and an all-electric F-150 pickup (mid 2022). He added that EVs will be fundamental to the Lincoln luxury brand and the Transit commercial lineup, the latter across a variety of body styles and customized interiors.
Ford’s development and delivery of connected vehicles will be enhanced by a new, six-year partnership with Google. The two companies are establishing a collaborative group – Team Upshift – to unlock personalized consumer experiences, and create and make the most of data-driven opportunities.
The relationship will help Ford accelerate its transformation in key areas – modernizing operations, disrupting how it does things, partnering for expertise and efficiency, and creating must-have products and services – through Google’s operating system, apps and services.
As EVs become primary in Ford’s lineup, he said, dedicated manufacturing capacity for them will expand around the world. To date, the company is producing electric vehicles, or plans to produce them, in Michigan (F-150); Missouri (E-Transit); two plants in Canada (SUVs); and Mexico and China (Mach-E), with others to follow.
Published in the March 2021 Edition