Semiconductor Shortage Could Hurt Ford’s Bottom Line

Even as it prepares to double its investment in battery-electric vehicles, Ford estimates the company’s production of new vehicles it has planned for the first and second quarters could drop 10% to 20% due to the shortage of semiconductor chips.

John Lawler, Ford’s chief financial officer, says the production shortfall could reduce the company’s earnings between $1 billion and $2.5 billion. Ford’s current guidance for investors says it expects to earn between $8 billion and $9 billion in 2021 after losing $1.3 billion in 2020, including $2.8 billion in the fourth quarter.

“The situation is very fluid,” Lawler says, noting during a conference call with analysts that the company has been working with suppliers for weeks to figure out a path forward. The company expects to have more and better information by the end of the first quarter.

Meanwhile, Ford continues to curtail production, dropping shifts at assembly plants in Dearborn, MI, and Kansas City, MO, next week. The temporary reductions at the two plants, where the company builds the popular F-150 pickup truck, come as supply of the vehicles on dealer lots is 53 days – lower than it has been in years, Ford executives say.

Even if the semiconductor shortages persist, Ford should recover some of the lost production in the second half of 2021, Lawler says. “We should have more details on how this is going to fall out at the end of the first quarter,” he adds. “We think it’s premature to predict what the impact will be.”

Despite the red ink in 2020, Ford’s earning power is steadily improving, Lawler says. Ford of Europe posted its strongest quarterly profit in four years, while Ford’s market share in China increased during the fourth quarter and losses declined for the third straight quarter.

“I am very excited about our future,” Jim Farley, Ford’s CEO and president, tells analysts. “We’re competing like a challenger now.

“The (Mustang) Mach-E is the first credible mass-market competitor to the Tesla,” Farley says of the battery-electric vehicle that went on sale in December. Ford has 127,000 individual federal tax credits worth $7,500 each to help bolster the Mach-E marketing effort, he says.

Farley says Ford has nearly 200,000 reservations for the Bronco (pictured below), and demand for top-of-the-line F-150 models is strong.

Bronco 4 Door black_jpeg - Copy_0

Ford also is moving to bolster its commercial business with a battery-electric version of the Transit van, which will come in not one but three different lengths and three different heights, Farley says.

“It’s stunning how fast the industry is changing,” he says. “We’re moving with urgency. We will allocate more capital to areas where we have an edge including pickups, utility vehicles and commercial vehicles.”

Farley says Ford intends to put more capital into electric and autonomous vehicles.

“The transformation of Ford is happening and so is our leadership of the EV revolution and development of autonomous driving,” he says. “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.”