Ford is Losing Money While Investing in a Promising Future

February 5, 2021
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Ford Motor Co. (NYSE: F) reported earnings on Thursday, revealing that it lost -$1.7 billion in net income during the final quarter of last year. Despite this, stocks were trading higher, with investors confident that the company’s focus on electric vehicles will pay off.

Ford’s long-term strategy has shifted to the electrification of its lineup, making it one of several major automakers that have signaled a move away from internal combustion engines.

Ford’s 2020 in Focus

Despite underperforming in the final quarter, Ford’s year was overall positive considering the unique conditions presented by the Coronavirus Pandemic.

The company reported 2020 EBIT (Earnings before Interest or Taxes) of $2.8 billion. This was down from the $6.4 billion reported in 2019. The drop in earnings wasn’t only related to the health crisis. The company generated additional costs from the launches of the 2021 Ford F-150 pickup, 2021 Bronco Sport, and electric Mustang Mach-E. The company also paid $1.5 billion in pension costs during 2020, which impacted the bottom line.

Full-year revenue was $127 billion, down from $156 billion in 2019.

The only profitable units were North American car sales and Ford Credit. Vehicle sales units in Europe, South America, China, the Middle East, and Africa all lost money.

Accounting for the change in fiscal performance, Ford will pay eligible factory workers profit-sharing checks of $3,625. This is just over half of the $6,600 that was paid last year.

A Better Future Ahead

Ford’s Chief Financial Officer, John Lawler, said that “We’re turning around the business.” He told investors that Ford will make good on its promise to lead the auto industry, by investing more than $22 billion into the full electrification of its lineup. The company will also invest an additional $7 billion into autonomous vehicle research and development. Existing factories will be converted to produce electric vehicles.

Ford’s massive manufacturing and supply infrastructure will help it to compete with younger and relatively inexperienced companies like Tesla.

Ford is now on track to have a positive 2021, with Lawler projecting that the company will earn between $8 billion and $9 billion of adjusted EBIT while generating up to $4.5 billion of free cash flow.

The stock trades at a bargain today. With a future as an electric vehicle maker, it wouldn’t be unfeasible to see things turn around in the coming years.

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