Ford Motor Company — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Dollar amounts are U.S. dollars. Ford began reporting under a new structure in 2023: Ford Blue, Ford Model e, Ford Pro, Ford Next, and Ford Credit; comparative segment results were adjusted retrospectively.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $45.0B | $40.2B | $86.4B | $74.7B |
| Net income attributable to Ford | $1.9B | $0.7B | $3.7B | $(2.4)B |
| Diluted EPS | $0.47 | $0.16 | $0.91 | $(0.61) |
| Adjusted EBIT (non-GAAP) | $3.8B | $3.7B | $7.2B | $6.0B |
| Net income margin | 4.3% | 1.7% | 4.3% | (3.3)% |
| Adjusted EBIT margin (non-GAAP) | 8.4% | 9.3% | 8.3% | 8.1% |
| Operating cash flow | $5.0B | $2.9B | $7.8B | $1.9B |
| Adjusted free cash flow (non-GAAP) | $2.9B | $3.6B | $3.6B | $3.0B |
Q2 revenue rose 12% year over year; first-half revenue rose 16%. Q2 net income increased primarily because the prior-year period included a large Rivian investment mark-to-market loss. Q2 adjusted EBIT increased by $64 million, but adjusted EBIT margin declined 0.8 percentage points. First-half 2023 results also compare against a 2022 loss that included substantial Rivian valuation losses.
Segments and operating trends
- Ford Blue: Q2 revenue was $25.0B and EBIT was $2.3B, down $196M year over year; margin was 9.2%. Higher wholesales and pricing were offset by currency effects and the non-recurrence of a prior-year insurance recovery.
- Ford Model e: Q2 revenue was $1.8B and EBIT loss was $1.1B, $570M worse year over year. Higher volume was outweighed by lower pricing and increased launch, warranty, engineering, and selling costs.
- Ford Pro: Q2 revenue was $15.6B and EBIT was $2.4B, up $1.5B; margin was 15.3%. Pricing, volume, and lower commodity costs drove improvement, partly offset by material and warranty costs.
- Ford Credit: Q2 EBT was $390M, down $549M. Higher borrowing costs, increased credit losses, weaker lease residual performance, and derivative valuation adjustments weighed on results. Net receivables were $126B, up 9% year over year; U.S. loss-to-receivables was 21 basis points.
Cash, debt, and liquidity
- At June 30, total cash, cash equivalents, marketable securities, and restricted cash were approximately $43.0B. Company cash excluding Ford Credit was $29.8B, and Company liquidity was $47.3B.
- Company debt excluding Ford Credit was $19.6B, down from $19.9B at year-end 2022. Company cash net of this debt was $10.3B.
- Ford Credit debt was $123.7B; Ford Credit net liquidity available for use was $28.8B. Its financial-statement leverage was 9.9:1, within its 9:1–10:1 target range.
- First-half capital spending was $3.7B. Ford paid $3.8B in dividends in the first half, including a supplemental dividend declared in Q1.
- Inventories increased to $17.7B from $14.1B at year-end, primarily reflecting higher finished-goods inventory, including in-transit and in-plant vehicles.
Outlook, commentary, and risks
- 2023 guidance, issued July 27, 2023: adjusted EBIT of $11B–$12B; adjusted free cash flow of $6.5B–$7B; capital spending of $8B–$9B; and Ford Credit EBT of about $1.3B.
- Segment outlook: Ford Pro EBIT approaching $8B; Ford Blue about $8B; Ford Model e EBIT loss about $4.5B; Ford Credit EBT about $1.3B. Management cited pricing and volume strength, while noting EV pricing pressure, launch and warranty costs, and ongoing investment.
- Management identified inflation, economic uncertainty, incentives, warranty costs, currency, and union negotiations as headwinds; improved supply, higher industry volumes, the new Super Duty, and lower commodity costs as potential tailwinds.
- U.S. UAW labor agreements were due to expire September 14, 2023, and the Canadian Unifor agreement September 18, creating production-disruption risk.
- Q2 included $1.2B of pre-tax special-item charges, primarily China restructuring and a $300M accrual for a Transit Connect customs matter. Ford estimated 2023 restructuring charges of $1.5B–$2B.
- Ford disclosed reasonably possible losses above recorded accruals of up to about $1.4B for material indirect-tax and customs matters, and up to about $1B for material field-service and customer-satisfaction actions. Outcomes remain uncertain.
- Other risks include supply constraints and raw-material commitments, EV demand and pricing, product defects and recalls, credit losses and lease residual values, market access and interest rates, cyber incidents, and litigation. Ford estimated maximum raw-material offtake commitments of about $12B through 2035 based on current price forecasts; actual costs may vary.
Important facts for investors to verify
- Whether full-year adjusted EBIT, adjusted free cash flow, and segment guidance are achieved; these are non-GAAP measures and depend on assumptions that may change.
- Progress and costs associated with UAW and Unifor negotiations, including any production interruptions.
- Ford Model e pricing, losses, launch costs, warranty expense, and demand relative to management’s outlook.
- Whether Ford Pro’s elevated pricing and margins are sustainable, and how Ford Credit’s funding costs, credit losses, and lease residuals develop.
- Cash use for capital spending, restructuring, pension contributions, dividends, and EV-related material commitments.
- Developments in the Transit Connect customs matter, other tax and customs claims, and warranty or field-service exposures.