Ford Motor Company — Q3 2023 Form 10-Q
Reporting period: Quarter ended September 30, 2023; unaudited. Comparisons are primarily with Q3 2022 and, where noted, the first nine months of 2022.
Financial performance and position
| Metric | Q3 2023 | Prior comparable period | First nine months 2023 |
|---|---|---|---|
| Revenue | $43.8 billion | $39.4 billion | $130.2 billion |
| Net income attributable to Ford | $1.20 billion | Loss of $827 million | $4.87 billion |
| Diluted EPS | $0.30 | Loss of $0.21 | $1.21 |
| Company adjusted EBIT (non-GAAP) | $2.20 billion | $1.80 billion | $9.36 billion |
| Adjusted EBIT margin (non-GAAP) | 5.0% | 4.6% | 7.2% |
| Operating cash flow | $4.6 billion | $3.8 billion | $12.4 billion |
| Company adjusted free cash flow (non-GAAP) | $1.2 billion | $3.6 billion | $4.8 billion |
Q3 GAAP net income margin was 2.7%, compared with a 2.1% loss margin a year earlier. Q3 adjusted EPS was $0.39, versus $0.30. Ford reported $487 million of Q3 pre-tax special-item charges, mainly pension and OPEB remeasurement, China restructuring, and the Transit Connect customs matter.
At September 30, cash and cash equivalents were $26.4 billion and marketable securities were $14.7 billion; cash, cash equivalents, and restricted cash totaled $26.6 billion. Ford reported $29.1 billion of Company cash and $50.6 billion of Company liquidity, excluding Ford Credit. Company debt excluding Ford Credit was $19.8 billion; Ford Credit debt was $122.9 billion. Ford Credit had $27.0 billion of net liquidity available for use and $126.3 billion of net receivables.
Operating cash flow for the first nine months increased from $5.7 billion to $12.4 billion. Adjusted free cash flow fell from $6.6 billion to $4.8 billion, with higher capital spending and unfavorable working capital among the factors. Capital spending was $5.9 billion year to date. Inventories rose to $18.3 billion from $14.1 billion at year-end 2022; Ford attributed the increase primarily to in-plant and in-transit vehicles, including vehicles held for quality control.
Material changes and segment results
- Ford Blue: Q3 EBIT rose to $1.72 billion from $1.47 billion; margin increased to 6.7% from 6.2%. Higher net pricing and lower commodity costs helped, partly offset by warranty and material costs.
- Ford Model e: Q3 EBIT loss widened to $1.33 billion from $612 million; margin was negative 75.6%. Higher material and manufacturing costs, lower pricing, and warranty costs contributed. The company also cited about $160 million of volume-related battery and other commodity obligations.
- Ford Pro: Q3 EBIT rose to $1.65 billion from $402 million; margin increased to 12.0% from 3.4%. Higher net pricing and lower commodity costs were key drivers; lower wholesales and higher warranty and other costs partly offset them.
- Ford Credit: Q3 pre-tax earnings declined to $358 million from $599 million. Lower lease residual performance, higher borrowing costs, and higher credit losses weighed on results. U.S. loss-to-receivables increased to 38 basis points from 18 basis points a year earlier, which Ford characterized as normalization from historically low levels.
Ford’s year-over-year Q3 net-income improvement was driven substantially by the absence of the 2022 Argo AI impairment; the prior-year period also included a Rivian investment gain. Adjusted EBIT improved by $395 million, led by Ford Pro and Ford Blue, partly offset by a larger Ford Model e loss and lower Ford Credit earnings.
Outlook, risks, and unusual items
- Guidance withdrawn: Ford withdrew its full-year 2023 guidance after previously affirming adjusted EBIT of $11–$12 billion and adjusted free cash flow of $6.5–$7 billion. The company cited UAW-related disruption, effects on suppliers and production ramps, and uncertainty pending ratification of the tentative agreement.
- Labor disruption: Ford estimated the strike’s full-year impact at about 80,000 units and approximately $1.3 billion of adjusted EBIT reduction as of October 26, 2023. The Q3 impact was about $100 million. Ford also expects a significant increase in labor costs over the life of the tentative agreement.
- EV demand and commitments: Ford cited slower-than-expected EV adoption and pricing pressure, accrued about $0.2 billion of Q3 charges related to EV suppliers, and warned that further supplier-related charges could be substantial. Estimated maximum purchases under existing raw-material offtake agreements were about $12 billion through 2035, based on current price forecasts and subject to contract conditions.
- Capital and restructuring: Full-year 2023 capital spending was expected to be $8–$8.5 billion. Ford estimated about $1.5 billion of 2023 restructuring charges; potential additional Saarlouis-related charges were not included and could be significant.
- Warranty and legal exposure: Warranty and field-service accruals were $10.8 billion, up from $9.2 billion at year-end 2022. Estimated reasonably possible costs above accruals for material field-service and customer-satisfaction actions were up to about $1.5 billion. Ford also disclosed up to about $1.4 billion of estimated aggregate risk of reasonably possible losses beyond accruals for indirect tax and customs matters, plus a preliminary European EV supplier claim for which it could not estimate potential loss.
- Georgia product-liability case: A jury award included $16.8 million in compensatory damages apportioned to Ford and $1.7 billion in punitive damages. The trial court denied Ford’s post-trial motions; Ford filed an appeal in October 2023 and stated that it believes it is entitled to a new trial.
- Other risks: The filing highlights supply-chain and component availability, inflation and commodity costs, pricing and demand, credit losses and lease residual values, interest and foreign-exchange exposure, product defects and recalls, regulatory compliance, litigation, and access to funding markets.
Most important facts for investors to verify
- Whether the UAW tentative agreement was ratified and the ultimate production, supplier, and labor-cost effects; 2023 guidance was withdrawn.
- Whether Ford Model e losses, EV pricing, adoption, and supplier commitments evolve as management expects.
- Whether the Q3 cash-flow decline in adjusted free cash flow and higher inventory persist, and whether planned capital spending remains within range.
- Ford Credit’s credit-loss trends, auction values, lease residual performance, funding access, and leverage; reported leverage was 9.7:1.
- Developments in the Georgia appeal, customs and indirect-tax matters, European supplier claim, and warranty/field-service costs.