The News: Ford Motor Company (NYSE: F) reported second-quarter (Q2) revenue of $47.8 billion, up 6% year-over-year (YoY), with a net income of $1.8 billion and adjusted EBIT of $2.8 billion. Ford Pro, Ford’s commercial solutions business, posted quarterly EBIT of $2.6 billion – a 15% margin – on a 9% revenue gain. Blue hybrid sales went up 34%, making up nearly 9% of the company’s global vehicle mix. Ford, however, reported a $1.1 billion loss in its EV business, and the downward pressure this exerted on the company’s margins made it miss forecast consensus. Expectations for full-year 2024 adjusted EBIT remained unchanged in the range of $10 billion to $12 billion, while adjusted free cash flow outlook was adjusted up roughly $1 billion, to between $7.5 billion and $8.5 billion. Read the full press release here.
Ford Pro Delivers Another Record Quarter, Highlighting Importance of Software-Enabled Vehicle Opportunity
Analyst Take: While the Street appeared to focus almost exclusively on disappointing results from Ford’s EV business, the rest of the company remains on strong footing. Per CEO Jim Farley “Ford+ is on track, underlying quality is improving, and Ford Pro is showing the huge upside we’ve got in all our businesses,” among other positive signs of solid execution.
Three critical insights bear highlighting to better understand why Ford’s miss on EVs may be overblown:
- The EV segment’s downcycle: The first insight is that while the EV market as a whole is experiencing a downcycle at the moment, there is no reason to believe that the EV segment won’t return to growth. The question isn’t so much a question of if but rather a question of when. (With Ford expecting that its EV business could lose between $5.0 billion and $5.5 billion this year, the downcycle could persist into 2025). Looking at Q2, Ford’s Model e business had an EBIT loss of $1.1 billion, much of which is attributable to downward pricing pressures in the market despite a roughly $400 million in YoY cost reductions in the segment.
Let’s quickly tackle that: On the profitability end, industrywide pricing pressures on first gen EVs and lower wholesales are challenges that Ford continues to work on addressing. On the revenue and adoption momentum end, not enough EV options in the $30K-$40K price range continues to create friction for many potential EV owners. I did manage to pluck two glimmers of tangible hope from the earnings call that may help address these challenges, however:
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- Jim Farley’s mention of upcoming “very differentiated” work and adventure-themed EVs priced in the $30K to $40K range caught my attention, as this is precisely what the market needs to reach the next tier of EV buyers. (For some insight into the importance of adding affordable options to an EV portfolio, look no further than the European market, where Chinese EV makers have managed to capture significant market share against EU and US incumbents in recent years by delivering budget-friendly options to consumers.
- Farley also mentioned the possibility of pursuing partnerships in the EV space (beyond existing technology partnerships), and my interpretation of that hint is that Ford could be looking to partner with budget-focused EV makers to bring more affordable EV models to some of its key markets sooner rather than later.
- EVs are just part of the story: The second insight is that while EVs are an important part of Ford’s product portfolio, the company’s diversification strategy, which can be clearly observed across its fleet of traditional, EV and hybrid vehicles, as well as its services and solutions businesses (like Ford Pro), acts as a long-term hedge against short-term hiccups in the EV market. To that point, revenue rose 6% to $47.8 billion, partly due to momentum from the new F-150 pickup lineup and strong demand for Transit commercial vans, the latter of which may create even more uplift for the company’s Ford Plus digital solutions.
- Don’t forget to read the fine print: The third is that profitability may have also been impacted by an increase in warranty reserves, which seems a bit more like an adjustment than a trend, as the company’s efforts to improve the quality of new products start to pay off (translation: fewer repair instances, lower repair costs, and higher customer satisfaction).
Per Farley, “the remaking of Ford is not without its growing pains,” and he isn’t wrong. For the most part, Ford is executing remarkably well, and at scale, in every vehicle segment in addition to its growing services business. The entire automotive industry is adjusting to two entirely parallel disruptions: vehicle electrification, and the evolution of software-defined vehicles. Managing one of these disruptions would be challenging enough for automakers. Having to manage both simultaneously, especially as many brands as a company that size manages across multiple continents and markets, is an incredibly complex endeavor. “Growing pains,” as Farley calls them, are to be expected. This may be a good time to remind everyone not to let perfection stand in the way of progress.
One of the most important insights about the auto industry that I find myself having to remind people the most lately is that EVs aren’t the only tech track they should be thinking about. Yes, EVs are important. Yes, EVs may someday constitute the majority of vehicles on the roads. But the more important opportunity for automakers and their technology partners for the foreseeable future, in my view, is software-defined vehicle technology – what Qualcomm defines as “the digital chassis” – which consists of ADAS/AD systems, cockpit and telematics solutions, connectivity, infotainment, security, and additional services attach opportunities, most of which are drivetrain-agnostic. It doesn’t matter much if a vehicle is an EV, a hybrid or has a traditional combustion engine: these systems and the service layer that can be incorporated into them scale across all drivetrain platforms. I find the way in which Ford’s evolving business tackles this much larger opportunity far more important than the quarterly ups and downs of the EV market, let alone the pace of EV adoption. These two market opportunities are set along entirely different timescales, and we should do well to consider them both on their own merits.
Ford Pro and Ford Blue continue to deliver
Ford Pro’s Q2 EBIT was $2.6 billion – an increase of 7% with a 15% margin. Segment revenue was $17.0 billion, up 9% – a whopping 3x times the rate of growth in product shipments during the period. Additionally, demand from commercial customers for Super Duty trucks and Transit commercial vans continued to exceed production capacity, prompting Ford to announce a week ago that it would be adding a third North America assembly plant to meet demand for these vehicles. (Beginning in 2026, the company’s Oakville Assembly plant in Ontario, Canada will add capacity for up to 100,000 Super Duty trucks. A version with multi-energy technology is also planned to be added to the company’s Kentucky Truck and Ohio Assembly plant capacity.
Another key highlight from Ford Pro’s Q2 performance was the number of subscriptions to Ford Pro software, which went up an impressive 35% in the quarter. This growth continues to make the case for the viability of the software-defined vehicle service attach opportunities that I mentioned earlier in my analysis -though specifically for commercial customers, in this case. Uplifted by this growth, Ford Pro also reported that mobile repair orders fulfilled by the company’s growing fleet (about 2,000 service vehicles for now) more than doubled.
To get some sense of the enthusiasm for these results and the potential for growth in this segment, look to Jim Farley’s commentary on the topic: “The capabilities we’re developing in electric vehicles and software-enabled and physical services are wide competitive moats between Ford Pro and other companies. For customers, from small businesses to the largest enterprises, they’re bridges to transforming their organizations at the same time we’re remaking ours. Over time, we’ll build out those same kinds of benefits for Ford Blue and Ford Model e customers and further distinguish us from other automakers, traditional and new ones.”
Q2 wholesales and revenue for Ford Blue were up 3% and 7%, respectively, the latter reaching $26.7 billion, with truck volumes still growing and overall pricing remaining healthy. EBIT of $1.2 billion was down YoY, but that seems attributable in great part to the warranty costs adjustment already discussed. Meanwhile, sales of hybrid vehicles increased 34% in Q2, now accounting for nearly 9% of all Ford vehicles worldwide (two points higher than Q2 2023.
H2 2024 Outlook
Ford’s guidance range for adjusted EBIT remains $10 billion to $12 billion and expectations for adjusted FCF have been raised by $1 billion to between $7.5 billion and $8.5 billion. Capital expenditures for the year are still anticipated to be between $8.0 billion and $9.0 billion, with an enterprise-wide objective for the lower end of the range.
Outlook for full-year EBIT is up for Ford Pro (expected to land between $9 billion and $10 billion,) on continued growth and favorable product mix. Outlook is slightly down for Ford Blue (expected to land between $6 billion and $6.5 billion), again due to the warranty costs adjustment previously discussed. The expected full-year loss of $5 billion to $5.5 billion for the Model e business remains unchanged for now.
Ford expects to report Q3 2024 financial results following the close of the market on October 28.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other Insights from The Futurum Group:
Ford Q1 2024 Earnings Show Ford Pro’s Momentum Is Accelerating
Ford Pro Looks to Be on a Growth Trajectory
Market Insight Report: Electric Vehicle Market
Author Information
Olivier Blanchard has extensive experience managing product innovation, technology adoption, digital integration, and change management for industry leaders in the B2B, B2C, B2G sectors, and the IT channel. His passion is helping decision-makers and their organizations understand the many risks and opportunities of technology-driven disruption, and leverage innovation to build stronger, better, more competitive companies. Read Full Bio.
