Ford Reports Strong 1Q, Expects 2Q Drop Due to Semiconductor Shortage

Dearborn’s Ford Motor Co. says it had one of the strongest global operating performances for the first quarter in years, and attributes the success to first-quarter operating improvements, customer receptivity to new products, and management of the effects from a worldwide semiconductor shortage.
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2021 F-150
Ford’s first-quarter revenue in North America increased 5 percent to $23 billion, benefiting in part from customer demand for the 2021 F-150 (pictured). // Photo courtesy of Ford Motor Co.

Dearborn’s Ford Motor Co. says it had one of the strongest global operating performances for the first quarter in years, and attributes the success to first-quarter operating improvements, customer receptivity to new products, and management of the effects from a worldwide semiconductor shortage.

Quarterly adjusted earnings before interest and taxes (EBIT) were $4.8 billion and included a noncash gain of $902 million on Ford’s investment in Rivian. The gain, from Rivian’s Series F funding round in January, was factored into 2021 guidance Ford provided in early February.

The strength of the results were geographically broad-based with automotive EBIT outside North America totaling $454 million, compared to a loss of $526 million last year.

Reported first-quarter cash flow from operations was $4.5 billion. Despite the strong quarterly adjusted EBIT, adjusted free cash flow was $-396 million, primarily reflecting the temporary effects of adverse timing differences and higher inventory resulting from the semiconductor shortage.

“Our team is relentlessly executing our plan to turn around our automotive business so that we can create and deliver the high-value, always-on experience that our Ford and Lincoln customers deserve,” says Jim Farley, president and CEO. “There’s no question we’re becoming a stronger, more resilient company.”

John Lawler, CFO of Ford, says semiconductor availability, which was exacerbated by a fire at a supplier plant in Japan in March, will get worse before it gets better. Currently, the company believes the issue will bottom out during the second quarter, with improvement through the remainder of the year.

In the meantime, he says the company’s attention is on managing the supply chain and enhancing execution in Ford’s underlying business. First-quarter warranty costs improved by more than $400 million from a year ago.

“Seeing our people transforming Ford at the same time they’re navigating the effects of a global pandemic and serious supply chain issues is impressive and gratifying,” Lawler says. “We’re changing the trajectory of our earnings power and our ability to invest in customer experience and growth.”

First-quarter revenue in North America increased 5 percent to $23 billion, benefiting from customer demand for Mustang Mach-E, the 2021 F-150, and Bronco Sport, as well as tight vehicle inventories related to semiconductor-related production declines. SUVs and pickups both accounted for increased shares of regional sales. EBIT rose to $2.9 billion.

The semiconductor shortage has prompted Ford to accelerate modernization of its sales processes, incorporating new ordering capabilities to make them more appealing to customers, raise inventory turn rates, and reduce and maintain inventories below traditional levels.

The Mustang Mach-E shows related potential: 70 percent of customers who purchased the SUV are new to Ford. So far, two-thirds of reservations for the vehicle have been converted to orders.

In Europe, Ford generated $7.1 billion in revenue, up 13 percent and $341 million in EBIT, more than reversing a year-ago loss, and posted an EBIT margin of 4.8 percent. The company introduced the new FORDLiive uptime system for commercial customers. Ford Otosan, the company’s joint venture in Turkey, was confirmed as the source for a next-generation commercial van. It will be sold as part of Ford’s Transit lineup and by Volkswagen through a strategic alliance between the two companies.

Ford began shipping the Mustang Mach-E to European customers in the quarter and announced plans to invest $1 billion to create the Ford Cologne Electrification Center in Germany to manufacture electric vehicles. The company expects all of its passenger vehicles to be all-electric and two-thirds of its commercial vehicles to be all-electric or plug-in hybrid in Europe by 2030.

In China, best-ever first-quarter retail sales of Lincoln brand vehicles helped Ford to a nearly break-even EBIT. The first quarter was the fourth straight quarter of year-over-year EBIT improvement. Volumes of higher-end Ford SUVs and commercial vehicles were also strong. Light trucks, vans, buses, and pickups accounted for 48 percent of Ford’s China sales.

At last week’s Shanghai Auto Show, Ford introduced additions to its China portfolio, including the Escape plug-in hybrid SUV and a localized version of the Mustang Mach-E.

In South America, an EBIT loss of $73 million represented a sixth consecutive quarter of better year-over-year results. A restructuring of Ford’s operations in the region, announced in January, is proceeding as planned, with structural costs in the period down one-third. The company had strong quarterly sales of the Ranger pickup.

The International Markets Group had its highest quarterly EBIT to date with 18 percent lower structural costs and was profitable in all markets except India. Shares for the Ranger and Everest SUV both were up and exceeded 14 percent. Ford says it will spend more than $1 billion to update and boost production capacity at the plant in Silverton, South Africa, where the group manufactures Ranger.

Within Ford Mobility, Argo AI and Ford are simulating ride-hail and delivery operations during daily fleet testing in six U.S. cities ahead of customer pilot programs scheduled to begin later this year. Ford AV LLC marked its third anniversary in Miami with the addition of a new command center. Ford’s Spin subsidiary continues to progress, improving per-trip economics more than 60 percent from first-quarter 2020.

Ford Credit’s operating performance was strong. Earnings before taxes of $1 billion was higher the previous quarter and year, when results were held down by anticipated pandemic-related effects on the unit’s activities.

Lawler says Ford expects to lose about 50 percent of its planned second-quarter production, up from 17 percent in the first quarter, due to the fire in Japan that worsened the semiconductor shortage. The company expects the flow of semiconductors from the supplier will resume by the end of the second quarter, but the broader global semiconductor shortage may not be fully resolved until 2022. Ford assumes it will lose 10 percent of planned second-half 2021 production.

This year, the company expects to lose about 1.1 million units of production this year and expects full-year 2021 adjusted EBIT to be between $5.5 billion and $6.5 billion, including an adverse effect of about $1.5 billion from the semiconductor issue. Adjusted free cash flow for the full year is projected to be $500 million to $1.5 billion.

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