Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ford Motor Co (F, Financial) reaffirmed its adjusted EBITDA guidance for the year and raised its outlook for adjusted free cash flow.
- Ford Pro business is tracking towards $70 billion in revenue this year, with further opportunities for profitable growth outside of vehicle sales.
- Ford's global hybrid portfolio is on track to grow 40% this year across nine nameplates.
- Ford leads in over-the-air updates (OTAs) according to the 2024 OEM OTA capability rankings in North America.
- Ford Pro's software and physical services are expected to contribute 20% of EBIT by 2026.
Negative Points
- Ford Motor Co (F) experienced an increase in warranty costs in Q2, tied to new technologies and inflationary pressures.
- Ford Model Y generated a loss of $1.1 billion due to continued industry pricing pressures and a decline in wholesales.
- Ford's EBIT was flat sequentially despite revenue growth, reflecting higher warranty and manufacturing costs.
- Ford is facing emerging headwinds in warranty and inflationary pressures in Turkey.
- Ford's balance sheet, while strong, shows a significant expansion in the capital base without a corresponding improvement in returns.
Q & A Highlights
Q: Jim, you mentioned Ford is a different company from three years ago, but the stock market doesn't seem to reflect that. Do you think Ford's stock is undervalued?
A: Yes, I believe Ford's stock is undervalued. We have many exciting investment opportunities, especially in Ford Pro, which is a significant part of our profit. We are focusing on non-vehicle activities and expanding our service base, which will drive growth and profitability.
Q: Can Ford bring EVs to market at a low cost and profitably without help from partners in China?
A: We have a strategic partnership with CATL, the largest battery maker, to localize LFP cells in North America. Our approach is to partner on components rather than using a Chinese platform globally. We believe this is essential for our company's know-how and competitiveness.
Q: What is leading to persistent warranty issues, and how can investors build confidence in Ford's earnings trajectory?
A: The JD Power IQS survey shows significant improvement in our initial quality, which will reduce warranty costs over time. We are also addressing issues at launch and using OTA capabilities to fix problems, which will help manage warranty reserves better.
Q: How do you view the sustainability of strong pricing in Ford Pro, given the current demand and supply imbalance?
A: We expect some top-line moderation as we move into 2025, but there are underserved segments like chassis that will provide price stability. About 60% of our business comes from fleet contracts, which are negotiated annually, and initial indications for 2025 are positive.
Q: How might Ford's electrification strategy change depending on the outcome of the US presidential elections?
A: Our strategy is not dependent on election outcomes. We believe in the long-term fitness of EVs and are committed to making money on small EVs and commercial vehicles. We will continue to offer customers choice and flexibility in manufacturing.
Q: What went into the higher warranty provision this quarter, and how do you see future costs?
A: The higher warranty costs are due to issues with older models, such as rear axle problems in 2021 models and oil pump issues in 2016 models. We are improving our near-term quality, which will help reduce overall warranty accruals over time.
Q: How do Ford's new software capabilities impact your ability to troubleshoot or prevent warranty issues?
A: Our connected vehicle data and digital electrical architecture allow us to detect issues early and address them through OTA updates or preventative maintenance, reducing the need for costly recalls and improving overall warranty performance.
Q: Can you provide more details on the capacity expansion for Super Duty trucks in Ontario and its expected impact?
A: The expansion will include a diverse powertrain offering and address the aged fleet in the chassis business. This investment has a strong payback potential and will meet long-term demand driven by infrastructure investments and other factors.
Q: What are your expectations for used vehicle residual values and their impact on Ford Credit?
A: Auction values are down 9% year-over-year but up 3% sequentially. We expect values to continue declining in the second half of the year, with return rates increasing. This will impact Ford Credit, but we are managing it closely.
Q: How is Ford addressing the structural cost challenges faced by legacy automakers?
A: We are focusing on efficiency in design and development processes, leveraging vertical integration, and investing in electric architectures and digital products. This will help us achieve lower costs and improve overall competitiveness.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
