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Ford Eyes EV, AV with $29B

February 5, 2021

Ford Motor Company ended 2020 strongly, improving its automotive and credit businesses in the fourth quarter while showing and shipping must-have new vehicles designed to delight customers, expand profitability and sustain free cash flow.

“The transformation of Ford is happening and so is our leadership of the EV revolution and development of autonomous driving,” said Ford President and CEO Jim Farley. “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.”

Mustang Mach-E

Ford now plans to invest about $7 billion on autonomous vehicles over 10 years through 2025 – $5 billion of that from 2021 forward – as part of its Ford Mobility initiatives. During the quarter, the robust algorithms of Argo AI’s comprehensive self-driving system enabled address-toaddress autonomous deliveries of fresh produce and school supplies through a charitable goods pilot in Miami. Separately, Ford’s Spin subsidiary improved its per-trip economics in 2020, while winning an overwhelming majority of the scooter permits it applied for from U.S. municipalities.

Doubling Down on Connected EVs

Farley said Ford will now invest at least $22 billion in electrification through 2025, nearly twice what the company had previously committed to EVs. He said the company is “all in and will not cede ground to anyone” in developing and delivering connected electric vehicles and services in mainstream areas of strength for Ford: pickups, commercial vans and SUVs.

“We are accelerating all our plans – breaking constraints, increasing battery capacity, improving costs and getting more electric vehicles into our product cycle plan,” Farley said. “People are responding to what Ford is doing today, not someday.”

The Mustang Mach-E, he said, is receiving great customer and critical reviews, and will be followed by the first E-Transit commercial van (late 2021) and an all-electric F-150 pickup (mid2022). He added that EVs will be fundamental to the Lincoln luxury brand and the Transit commercial lineup, the latter across a variety of body styles and customized interiors.

Ford’s development and delivery of connected vehicles will be enhanced by a new, six-yearpartnership with Google announced earlier this week. The two companies are establishing a collaborative group – Team Upshift – to unlock personalized consumer experiences, and create and make the most of data-driven opportunities.

The relationship will help Ford accelerate its transformation in key areas – modernizing operations, disrupting how it does things, partnering for expertise and efficiency, and creating must-have products and services – through Google’s operating system, apps and services.

As EVs become primary in Ford’s lineup, he said, dedicated manufacturing capacity for them will expand around the world. To date, the company is producing electric vehicles or plans to in Michigan (F-150); Missouri (E-Transit); two plants in Canada (SUVs); and Mexico and China (Mach-E), with others to follow.

Outlook

Ford’s Lawler said the company was on course to earn $8 billion to $9 billion in adjusted EBIT – including a $900 million noncash gain on its investment in Rivian – and generate $3.5 billion to $4.5 billion in adjusted free cash flow in 2021. That scenario anticipated continued EBIT improvement in each of Ford’s regional businesses, except South America. However, the global semiconductor shortage is creating uncertainty across multiple industries and will influence Ford’s 2021 operating results.

“The semiconductor situation is changing constantly, so it’s premature to try to size what availability will mean for our full-year performance,” he said. “Right now, estimates from suppliers could suggest losing 10% to 20% of our planned first-quarter production.”

According to Lawler, production losses in that range projected across the entire first half of the year – along with assumptions for some cost offsets and volume make-ups in the second half – could imply that the shortages will lower Ford’s 2021 adjusted EBIT by $1.0 billion to $2.5 billion. He said the company expects full-year cash and EBIT effects to be about equal – with quarterly cash implications more volatile, given the mechanics of company working capital.

“Our team is working with suppliers around the clock to optimize the constrained supply and minimize profit impact, while prioritizing customer orders, new-vehicle launches and compliance with CO2 emissions regulations,” said Lawler.

Ford plans to provide an update on the semiconductor issue when it reports first-quarter 2021 financial results on April 28.

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