Company Reports

Ford’s stock rose over 2% in April 24 after-hours trading after reporting adjusted first-quarter diluted earnings per share of $0.49, down 22.2% year over year but beating the $0.42 LSEG consensus. Ford raised its free cash flow guidance to a midpoint of $7 billion versus $6.5 billion previously on lower capital expenditure as it delays electric vehicle capacity increases. Management kept full-year total company adjusted EBIT guidance of $10 billion-$12 billion but said results are tracking to the higher end of that range—which is a considerable improvement from 2023’s $10.4 billion, but still down slightly excluding the $1.7 billion UAW strike impact. Segment level guidance is unchanged and Ford still expects to lower costs by $2 billion on less spending in freight, materials, and engineering. We keep our fair value estimate.

Higher inventories and discounting continue to bring consumers back to showrooms this year with March US light-vehicle sales up 4.6% year over year. Wards put the seasonally adjusted annualized selling rate at 15.49 million, up from 14.93 million in March 2023. The chip shortage is mostly behind the industry, so inventories are at their highest levels since early 2021, which is bringing incentives off ultralow levels as a percentage of average transaction price, or ATP. Incentives per Cox Automotive have recently trended at nearly 6% of ATP, about double the rate in early 2023 but still far below prepandemic levels in the low teens. We expect continued inventory growth and higher incentives, which, combined with a possible interest rate cut or cuts this year, may fuel higher demand.

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 about 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 Jim Farley in July 2023 indicated flexibility on the latter's timing.

Ford’s stock rose by over 6% in Feb. 6 afterhours trading after the firm reported a good fourth quarter despite the United Auto Workers strike costing about $1.6 billion in lost quarterly profit. Adjusted diluted EPS of $0.29 far exceeded the $0.14 LSEG consensus but fell 43% year over year, while adjusted free cash flow excluding Ford Credit was still $2 billion, down from $2.4 billion. We are not changing our fair value estimate but will reassess all modeling inputs shortly after the 10-K is filed. Ford initiated 2024 guidance of total company adjusted EBIT between $10 billion and $12 billion, which at the midpoint is down from 2023’s $12.1 billion excluding the full-year $1.7 billion strike impact. We agree with management’s assumption for the year of flat to modestly higher U.S. industry auto sales and lower pricing than in 2023. Ford expects a 2% pricing decline and capital spending of $8 billion to $9.5 billion with 40% of that on electric vehicles.

Most automakers reported final sales numbers for 2023 on Jan. 3, while Ford reported on Jan. 4. Adjusting for one selling day fewer, Wards put the year-over-year December sales increase at 17.3% and the seasonally adjusted annualized selling rate at 15.83 million, up from 13.55 million in December 2022. Full-year sales increased 12.4% to 15.46 million. We think the worst of the chip shortage is finally behind the industry, but we expect some supply shortages in 2024. As inventory continues to recover, we expect incentives as a percentage of average transaction price to keep rising from artificially low levels of barely above 2% in late 2022 (currently just over 5%), which will pressure automaker and dealer margins in 2024 relative to the past two years. Better inventory and U.S. interest rates likely done rising should bring some consumers back to the showroom. Affordability remains a challenge, though, so we expect only a small increase in 2024 light-vehicle sales to the high 15 million range.

Ford CFO John Lawler spoke at a Nov. 30 conference and gave some detail on the company’s recently ratified UAW contract that expires in spring 2028. Further details are in our Oct. 26 note. Lawler said the strike cost Ford $1.7 billion in 2023 EBIT, with $1.6 billion of that in the fourth quarter. Wholesale volume will be about 100,000 units lower than planned. Ford announced it is resuming 2023 guidance with total company adjusted EBIT of $10 billion to $10.5 billion and automotive adjusted free cash flow of $5 billion to $5.5 billion—the latter is roughly half of what GM guided on Nov. 29. In July, Ford guided EBIT to be $11 billion to $12 billion and cash flow of $6.5 billion to $7 billion. Deducting $1.7 billion from the old guidance’s $11.5 billion midpoint is $9.8 billion but Ford’s new guidance midpoint is $10.25 billion, so its outlook excluding the strike has improved.

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 Jim Farley in July 2023 indicated flexibility on the latter's timing.

Ford’s third-quarter results only had about a $100 million EBIT hit from the United Auto Workers strike, but had higher year-over-year losses in the Model e electric vehicle segment. A disappointing $1.2 billion warranty headwind plus other cost increases led to an adjusted diluted EPS of $0.39, missing the Refinitiv consensus of $0.45, sending the stock down 4% in Oct. 26 afterhours trading.

The United Auto Workers union announced the night of Oct. 25 that it reached a tentative new 4.5-year contract with Ford. The deal is not effective until ratified by a majority vote of Ford’s approximately 57,000 UAW workers. UAW’s Ford national council will meet in Detroit on Oct. 29 to vote on sending the contract to all members. If they vote to do so, the union that night will host a live video to give members details and release summary literature. There will then be local chapter meetings to discuss the deal and eventually a vote. The union has instructed Ford workers to return to work during the voting process to pressure GM and Stellantis to make a deal. The strike started at all three firms on Sept. 15. We expect the deal to be ratified.

The United Auto Workers' strike against GM, Ford, and Stellantis is a month old and the union escalated the strike on Oct. 11 by striking at Ford’s Kentucky truck plant. This plant is the first severe wound inflicted because the UAW is now hitting full-size SUV and pickup truck plants, the most profitable vehicles. Per Ford, the Kentucky truck plant generates $25 billion in annual revenue contributing, by our estimate, roughly $5 billion in operating profit, mostly making Super Duty pickups but also the Expedition and Navigator SUVs. We expect GM’s only SUV plant, which is in Arlington, Texas, and Stellantis’ Warren, Michigan plant that makes the Grand Wagoneer to be on strike any day. We’ve read predictions that striking the most lucrative vehicles will cause the strike to end soon, but we don’t think that will happen unless the automakers are willing to give in to further wage increases above the as-much-as 23% already offered and also to capitulate on reopening pensions and retiree healthcare to current workers, something we don’t think the firms can afford. The union is not happy with Ford’s offer, but Ford said at an Oct. 12 press conference that its offer has reached the limit of what it can do without hurting its ability to reinvest in the business. That doesn’t sound like a strike that is about to end.

Most automakers reported third-quarter or September U.S. auto sales on Oct. 3, with Wards putting the month's deliveries to end customers up 18.5% from September 2022, or 13.9% after factoring in one more selling day this September. Third-quarter deliveries grew by 16.8%. The month’s seasonally adjusted annualized selling rate was 15.67 million, up from 13.70 million a year ago. J.D. Power estimated September incentives per unit at $1,806, which is 81% higher year over year but off a very low base as poor supply from the chip shortage made discounting a low priority. Incentives as a percentage of average MSRP are only 3.7%—quite low in absolute level terms, even though it’s up 160 basis points year over year. Demand remains robust as consumers realize pent-up demand from the start of the pandemic. The UAW strike will not help fourth-quarter numbers, and the Detroit Three entered September with about 40% less dealer inventory than just before the 40-day GM strike four years ago. However, the strike is hitting certain vehicles rather than all plants at once and as of Oct. 4 has not affected full-size pickups or full-size SUV production.

In an Aug. 25 note, we said Stellantis is the most likely automaker to suffer a UAW strike when the union’s contracts with each of the Detroit Three end at 11:59 PM Eastern time on Sept. 14. Since that time, UAW president Shawn Fain has said the union will strike any automaker that it does not have a new agreement with. The sides remain far apart on every key issue, so we now expect a strike against all three firms simultaneously (which has not happened previously), starting on Sept. 15. We see 2023 earnings guidance in jeopardy, but we will likely keep our fair value estimates in place until we know what a new contract looks like. We expect a strike to potentially last several months due to the large gap between the UAW’s desired wage increase and the low-double-digit percentage increases already offered, as well as due to the union wanting to reinstate bygone benefits such as pensions, retiree healthcare, and a 32-hour workweek that would force the automakers to hire more workers than it needs.

In 2022, battery electric vehicles represented nearly 10% of global auto sales, up from a little less than 6% in 2021. Much of the growth occurred in China, which has been a leader in EV sales over the past decade. However, with national EV subsidies in China expiring in 2022 and far lower sales in the U.S. and Europe, the market questions if EV sales can continue to grow without subsides.

On Aug. 25, the United Auto Workers announced 97% member approval of strike authorization against General Motors, Ford, and Stellantis, affecting almost 150,000 hourly workers. This vote does not guarantee a strike will happen; it’s procedural and done every negotiation so the UAW can immediately strike if it chooses to once its contract with each firm expires at 11:59 p.m. Eastern time on Sept. 14. We continue to think a strike against Stellantis is the most likely outcome, but UAW president Shawn Fain has made it clear that a simultaneous strike against all three firms is possible. This has never occurred.

Ford’s second quarter showed remarkable strength from the Ford Pro commercial vehicle segment driving adjusted diluted EPS up 5.9% year over year to $0.72, beating the $0.55 Refinitiv consensus. We raise our per share fair value estimate to $20 from $19 on time value of money and 2023 revenue progressing ahead of our prior model.

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.

During the week of July 3, automakers have reported June or second-quarter sales. Wards has June sales up 19.9% year over year and the month’s seasonally adjusted annualized selling rate at 15.68 million, up from 13.05 million in June 2022. J.D. Power said on June 23 that the month’s incentives were tracking to rise 95.9% from June 2022, albeit off a low base of $918 per vehicle. With J.D. Power putting incentives as a percentage of average transaction price at only 3.7%, we don’t see sales reliant on discounting. Also, the most expensive trim packages continue to be in demand. We expect third-quarter demand to remain healthy amid continued pandemic and chip shortage recovery.

The May 22 Delivering Ford+ capital markets day showed detail for the company’s 2026 goals of low-double-digit adjusted EBIT margin for the Ford Blue combustion segment, midteens for Ford Pro commercial vehicles, total company adjusted EBIT margin of 10%, and by late 2026, 8% for the Model e electric vehicle segment.

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.

Ford’s first quarter gave us no reason to change our fair value estimate, and our overall thoughts on the stock are about the same as before the earnings release. Adjusted diluted EPS of $0.63 comfortably beat the $0.41 Refinitiv consensus, but the stock still fell by about 2% in May 2 after-hours trading. We think that continued macroeconomic fears beyond management’s control may be holding the stock back as well, in that Ford confirmed but did not raise its 2023 guidance—whereas GM modestly increased its 2023 expectations on April 25. Ford finished the quarter with a balance sheet we see in solid shape to handle recession risk, with net automotive cash of about $9 billion. Automotive cash and securities totaled $28.6 billion, and credit line availability brings total available funds to $46.2 billion.