February 4, 2022
With the shift to battery-electric vehicles under way, Ford is evolving into two different companies: one for making BEVs and another dedicated to building vehicles with internal-combustion engines.
CEO Jim Farley, however, dismisses speculation the automaker might actually split into two distinct enterprises even as its ICE and BEV businesses continue to evolve independently.
“I don’t want to speculate on rumors,” he says. “But I will go back to something I’ve said over and over again which is, running a successful ICE business and a successful BEV business are not the same.
“The customers are different. We think the go-to-market is going to have to be different. The product development process and the kinds of products we develop are different,” Farley (pictured, below left) says.
The supply chains also require different kinds of talent, he adds.
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In addition, Ford is preparing to take full advantage of a “first-mover” position in the fully electric pickup truck market starting with the F-150 Lightning, Farley says. “We are well on our way to achieve at least a 40% mix of BEVs by 2030 with strong margins and equal to our higher market share in the key high-profit high-volume segments (in which) we compete,” he says.The company anticipates reaching global BEV production capacity of at least 600,000 by 2023.
“When you look at the ICE transition, I think there are still a lot of opportunities for us to improve that business,” the CEO says. “Fear of change and risk has never served legacy automakers well in the past couple of decades. We’re done with incremental change.”
John Lawler, chief financial officer, says Ford continues to focus on reducing structural costs.
“We're looking at operating with much lower stock levels as our business continues to develop,” he says. “So, we'll operate at leaner inventories than we have in the past, which will help our top line and continue to strengthen that top line.”
Ford’s restructuring in Europe and South America has positioned the company to grow profitability going forward, Lawler says, adding: “In China, we’re now set up to play a much bigger role in the EV boom going on there. We’ve quietly grown Lincoln into a strong contender in the world’s largest luxury vehicle market.”
Operations outside the U.S. collectively posted their best results since 2017, he says.
Vehicle quality is improving, resulting in a $1.4 billion reduction in warranty costs in 2021, Ford says.
Full-year benefits from those lower warranty costs, as well as strong mix and net pricing, more than offset the effects of the production losses and higher commodity costs, the automaker says. As a result, automotive EBIT of $7.4 billion and margin of 5.9% for 2021 were both significantly higher than in 2020.
For the fourth quarter. adjusted EBIT was $2 billion with a margin of 5.4% due to lower sales, but the company generated $2.3 billion in free cash flow.
Lawler says Ford Credit, whose profits and dividends are an important source of capital, delivered a strong year. EBIT was $4.7 billion, as auction values were at record highs and credit losses were near record lows. Free cash flow was $4.6 billion, and Ford ended the year with $36 billion in cash and $52 billion in liquidity, which includes the automaker’s stake in EV start-up Rivian valued at $10.6 billion at the end of the year.
Lawler also says Ford reinstated the regular dividend of 10 cents per share in the fourth quarter.
“We also further strengthened our balance sheet by repurchasing $7.6 billion of high-cost debt, deleveraging the balance sheet and significantly reducing our ongoing interest expense,” he says.
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