Ford earnings weighed down by Rivian stake

Ford reported Wednesday a multibillion-dollar loss in the first-quarter due to a massive write-off on the value of its stake in Rivian.

Shares still rose in after-hours trading as investors focused more on Ford’s fundamentals — including beating analysts’ estimates on revenue and adjusted earnings — and not its Rivian holding.

Ford generated $34.5 billion in revenue in the first quarter of 2022. That beat analysts’ expectations of $31.2 billion worth of revenue, albeit falling from its year-ago result of $36.2 billion.

That Ford managed to beat revenue expectations but still lost so much money might surprise you. Investors were not shocked, with Ford reporting adjusted profits within a penny per share of estimates. Still, the car company lost $3.1 billion in GAAP terms in Q1, largely due to a write-off of the value of its stake in Rivian, an electric car company that has had a tumultuous life on the public markets.

Ford told investors that its quarterly net loss was “primarily attributable to a mark-to-market loss of $5.4 billion on the company’s investment in Rivian.” If the scale of the Rivian-induced hit to profitability surprises you, recall that the EV company’s stock crested at $179.47 per share according to Yahoo Finance data, before suffering from a decline to $31.22 today at the close of regular trading.

In simpler terms, the value of Ford’s stake in Rivian fell by more than half from $10.6 billion at the end of 2021 to just $5.1 billion as of the quarter ended March 31. Rivian’s stock has shed another double-digit percentage of its worth since that date, indicating that Ford could take another paper loss in the second quarter.

Ford would not comment on Rivian further when questioned by investors during Wednesday's earnings call.

Past the company’s accounting-induced net loss, Ford earned $2.3 billion worth of adjusted EBIT (earnings before interest and taxes) according to its earnings report.

EVs and supply chain

While the supply chain issues spurred by the pandemic have created numerous headaches for nearly every industry attempting to reach production goals, in at least Ford's case, it might have inspired a strategy of vertical integration that could weather future storms. During Wednesday's earnings call, the automaker expressed a positive outlook for 2022 backed by its efforts the past few years to secure battery and EV manufacturing in-house and serious demand in its EV lineup.

CEO Jim Farley even openly sent a message out to metal and mining industry that Ford is looking for good deals on lithium and nickel and will invest capital to move processes from overseas to North America.

Positive outlook notwithstanding, Ford said it shipped 970,000 vehicles in the first quarter, down 9% from a year ago as a continuing global shortage of semiconductors held down the automaker’s January and February production and shipments. In fact, the automaker has about 53,000 vehicles completed and sitting around waiting for the installation of certain components affected by the semiconductor supply shortage, according to John Lawler, Ford's chief financial officer.

Ford did cite “significantly improved” manufacturing rates during March, signals that the second quarter and full year numbers could improve. The company also exceeded its previous record of electrified vehicle sales year to date with an increase of about 38%, according to its March U.S. sales report.

The automaker attributed its recent manufacturing success as the result of hard work with suppliers at every level of the value chain to break constraints, as well as expediting freight to pull ahead of available supply. At the same time, the company says it has taken design actions over the past year to alleviate potential constraints which are coming online now and in the second half of the year, along with deals with wafer and chip suppliers that Ford expects to come online at the back end of the year.

The company entered the second quarter with what Ford CEO Jim Farley called an “extremely healthy” order bank, and says it is on track to scale high-demand EVs to 600,000 units by the end of next year and expects production to go ahead as scheduled for E-Transit vans in the U.S. and Europe, as well as the F-150 Lightning pickup in the U.S.

Ford’s EV ambitions are largely tied up in the success of the F-150 Lightning pickup truck, which went into production this week. The automaker said it has 200,000 reservations for the F-150, which has prompted the company to double its planned annual production to 150,000 vehicles in 2023.

Guidance

Looking ahead, Ford reaffirmed its 2022 guidance of positive adjusted EBIT of $11.5 billion to $12.5 billion, alongside “adjusted free cash flow” of $5.5 billion to $6.5 billon; Ford closed the quarter with cash and equivalents worth $29 billion and reported $45 billion in total liquidity inclusive of its Rivian stake.

While Ford’s unit volume dipped in Q1 compared to the year-ago period, the company expects “vehicle wholesale volumes [to increase] 10% to 15% from 2021” by the end of the year. That unit volume figure includes a stated assumption of there being more chips available in the market by the back half of 2022.

The high demand for Ford's new EVs might help the automaker achieve its goal for the year of significantly higher profits in North America and collective profitability worldwide, but Ford executives were realistic about inflationary pressures being unlikely to ease anytime soon. Ford is baking $4 billion worth of higher commodity costs in its estimates, along with what the company described as “inflationary effects on a range of other expenses.”

Once again, cost cutting and finding production efficiencies took center stage in the company's strategy to reach production goals. That should help meet demand as the company gears up for the second half of the year, when Ford sees volumes improving based on better availability of supply, according to Doug Field, Ford's chief officer of EVs and digital systems.

"Our opportunity is really around our costs and our Blue business," said Field. (Ford Blue is the automaker's legacy internal combustion engine business, which was established as a separate entity from Ford Model e, the automaker's EV business, last quarter.) "In terms of investing we need to invest in a fully networked advanced electric architecture. We need to invest in Level 2 and Level 3 autonomy. We need to invest in a new portfolio and in changing our industrial system over to these electric digital products. We need to invest in our OS software that supports all of that. And we believe very strongly, we need to invest in Level 4 autonomy. Our Ford Plus plan is so specific about where to invest that at this point in time our real work that we need to do is to get after these inefficiencies and improve the productivity of our base business."

This story has been updated to reflect new information from the earnings call.