How Ford Makes Money

Automotive generates the most sales, but wasn't profitable in the last quarter

Ford Motor Co. (F), founded in 1919 by Henry Ford, is a leader in the global automotive industry. Ford designs, manufactures, sells, and services a full line of cars, trucks, and utility vehicles. The company also offers a broad range of financial services to support car dealers and vehicle sales. The company currently is focused on boosting electric car production, mobility services, and self-driving technology. Ford has operations worldwide and employs about 186,000 people globally. Ford's competitors include established automobile companies such as General Motors Co. (GM) and Japan-based Toyota Motor Corp. (TM) as well as newer entrants such as electric vehicle makers Tesla Inc. (TSLA) and China-based NIO Inc. (NIO).

Key Takeaways

  • Ford is an automotive company that sells cars, trucks, and sports utility vehicles. It also provides vehicle service and financing.
  • The vast majority of the company's revenue comes from automotive sales.
  • Mobility is the smallest operating segment by revenue, but also the fastest-growing.
  • Ford Credit was the only operating segment to report positive earnings for the most recent quarter, as measured by earnings before interest and taxes (EBIT).
  • Ford announced in September 2021 a total of $11.4-billion in investments in two U.S. sites that will focus on electric vehicle (EV) production and batteries.

Ford's Financials

Ford's most recent earnings report was for Q2 2021, ended June 30, 2021. The company posted net income of $553 million, down substantially from net income of $1.1 billion for the prior-year quarter. Despite that, Ford reported company-wide adjusted earnings before interest and taxes (EBIT) of $1.1 billion in Q2 2021 compared to adjusted EBIT of -$1.9 billion in the same quarter a year earlier. The company's total revenue for Q2 2021 was $26.8 billion, up 38.1% year-over-year (YOY) as sales began to recover from the major disruptions to the economy caused by the COVID-19 pandemic beginning in early 2020. Throughout the pandemic, Ford's business has been negatively affected by production suspensions and the global semiconductor supply shortage. After suspending production at facilities around the world in March 2020, Ford returned to normal production schedules in June of that year.

Ford's Business Segments

Ford operates through three business segments: Automotive, Mobility, and Ford Credit. The company breaks out revenue and adjusted EBIT for each segment. EBIT is a measure of profitability calculated as revenue minus expenses excluding tax and interest. Additionally, Ford reports corporate governance expenses, interest income, and gains and losses from investments under a fourth category, Corporate Other, although this is not considered an operating segment.

Automotive


Ford earns the vast majority of its revenue by selling vehicles, service parts, and accessories around the world under the Ford and Lincoln brands. The automotive segment includes revenues and costs related to development, manufacture, distribution, service, and electrification vehicle programs. It also sells vehicles wholesale to dealers and distributors in five major geographical segments: North America, South America, Europe, China (including Taiwan), and International Markets Group.

With Q2 2021 revenues of $24.1 billion, Ford's Automotive segment accounted for 90.2% of revenues for Q2 2021. Automotive revenues grew by 45.1% YOY in that quarter, the second-fastest rate among Ford's three operating segments. However, the Automotive segment reported a loss for Q2 2021, measured by adjusted EBIT, of -$95 million. That was a dramatic improvement from -$2.1 billion EBIT in the same quarter a year earlier.

For Q2 2021, Ford's adjusted EBIT for its Automotive business in North America and International Markets Group were each positive, while its adjusted EBIT for the Automotive operations in South America, Europe, and China were all negative. Combined, Automotive adjusted EBIT for South America, Europe, and China totaled -$493 million for the quarter.

Mobility

Ford's Mobility segment includes development costs for the development and production of autonomous vehicles. It also includes Ford's equity ownership of Argo AI, a developer of autonomous driving systems, and investments in Spin, a micro-mobility service provider.

Mobility is the smallest of Ford's segments by revenue. It generated just $21 million of revenue for Q2 2021, or about 0.1% of total quarterly revenue. It was the fastest-growing segment by revenue, tripling YOY for that period, though that growth was off of an extremely small base. Mobility reported adjusted EBIT of -$182 million for Q2 2021, an improvement from -$286 million in the same quarter a year earlier.

Ford Credit

The Ford Credit segment is comprised of the company's vehicle-related financing and leasing operations. The company offers a variety of automotive financing products to and through dealers worldwide. Most of the Ford Credit business involves financing of vehicles, supporting dealer operations, and lease contracts.

Ford Credit posted quarterly revenue of $2.6 billion for Q2 2021, or roughly 9.7% of total revenues. This figure was down by 5.0% YOY, making Ford Credit the only one of the company's operating segments to see declining revenues YOY for the quarter. Despite that, Ford Credit generated adjusted EBIT of $1.6 billion in Q2 2021, nearly tripling YOY, as it benefited from the rebound in vehicle sales compared to a year earlier. It was the only operating segment to report positive adjusted EBIT in the quarter.

During the quarter, Ford Credit benefited from an historically low loss-to-receivables (LTR) ratio, which reflects low losses and strong net recoveries. Ford Credit's U.S. auction values also were 39% higher than a year ago, reflecting robust demand for used cars.

Ford's Recent Developments

Under the leadership of Chief Executive Officer (CEO) Jim Farley since fall of 2020, Ford has heavily prioritized electric vehicles and related technologies. In May 2021, the company announced that it aimed to be a leader in electric vehicles and connected services. Ford anticipates that 40% of its global vehicle volume will be fully electric by 2030 and plans to spend more than $30 billion on electrification and battery development by 2025. On Sept. 27, 2021, Ford announced a series of steps to increase its electric vehicle technology and production. Ford will create a 6-square-mile campus in Tennessee to build the next generation of F-Series electric pickup trucks and advanced batteries. Ford also will build twin battery plants in Kentucky. The company plans to invest $11.4 billion in the two sites, creating about 11,000 new jobs.

Also in September, the company announced a partnership with retail giant Walmart Inc. (WMT) and Argo AI to launch an autonomous vehicle delivery service in select markets in the U.S. The service aims to use Ford self-driving vehicles to deliver Walmart orders to customers. This launch is an early effort in what Ford describes as "large-scale autonomous vehicle operations across a broad footprint of U.S. cities."

Article Sources
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  1. Ford Motor Co. "Form 10-K for the Fiscal Year Ended Dec. 31, 2020," Page 1. Accessed Oct. 6, 2021.

  2. Ford Motor Co. "Form 10-Q for the Quarterly Period Ended June 30, 2021," Page 2. Accessed Oct. 6, 2021.

  3. Ford Motor Co. "Form 10-Q for the Quarterly Period Ended June 30, 2021," Page 35. Accessed Oct. 6, 2021.

  4. Ford Motor Co. "Form 10-Q for the Quarterly Period Ended June 30, 2021," Pages 33, 36. Accessed Oct. 6, 2021.

  5. CNBC. "Ford, Fiat Chrysler Returning to Pre-Coronavirus Production Levels." Accessed Oct. 6, 2021.

  6. Ford Motor Co. "Form 10-Q for the Quarterly Period Ended June 30, 2021," Page 31. Accessed Oct. 6, 2021.

  7. Ford Motor Co. "Form 10-Q for the Quarterly Period Ended June 30, 2021," Page 36. Accessed Oct. 6, 2021.

  8. Ford Motor Co. "Form 10-K for the Fiscal Year Ended Dec. 31, 2020," Page 6. Accessed Oct. 6, 2021.

  9. "Form 10-Q for the Quarterly Period Ended June 30, 2021," Page 43. Accessed Oct. 6, 2021.

  10. Ford Motor Co. "Superior Value From EVs, Commercial Business, Connected Services Is Strategic Focus of Today’s ‘Delivering Ford+’ Capital Markets Day," Page 1. Accessed Oct. 6, 2021.

  11. Ford Motor Co. "Ford to Lead America’s Shift to Electric Vehicles with New Mega Campus in Tennessee and Twin Battery Plants in Kentucky; $11.4B Investment to Create 11,000 Jobs and Power New Lineup of Advanced EVs," Page 1. Accessed Oct. 6, 2021.

  12. Ford Motor Co. "Ford, Argo AI, and Walmart to Launch Autonomous Vehicle Delivery Service in Three U.S. Cities," Page 1. Accessed Oct. 6, 2021.

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