Ford Motor Q1 2022 Earnings Report

Ford Motor EPS Results

• Actual EPS: $0.38
• Consensus EPS: $0.39
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: $0.89

Ford Motor Revenue Results

• Actual Revenue: $32.11 billion
• Expected Revenue: $30.39 billion
• Beat/Miss: Beat by +$1.72 billion
• YoY Revenue Growth: N/A

Ford Motor Announcement Details

• Quarter: Q1 2022
• Date: 4/27/2022
• Time: After Market Closes
• Conference Call Date: Wednesday, April 27, 2022
• Conference Call Time: 10:17AM ET

Ford Motor (NYSE:F) (NYSE: F) is an American multinational automaker headquartered in Dearborn, Michigan. Founded by Henry Ford in 1903, the company became an early pioneer of mass-production techniques with the Model T and the adoption of the moving assembly line. Today, Ford designs, manufactures, markets and services a broad range of vehicles and mobility solutions under the Ford and Lincoln brands, spanning passenger cars, SUVs, pickup trucks and commercial vehicles.

Ford’s business activities extend beyond vehicle production to include parts and aftermarket services, fleet and commercial sales, and automotive financing through Ford Motor Credit Company. In recent years the company has focused on electrification and connected-vehicle technologies, introducing battery-electric and hybrid models alongside traditional internal-combustion vehicles. Ford serves customers globally with manufacturing, assembly and distribution operations across North America, Europe, Asia Pacific, Latin America and other regions.

Leadership at Ford has combined legacy family involvement and professional management; as of the most recent publicly available information the company’s executive leadership includes Jim Farley as chief executive officer and William Clay Ford Jr. in an executive chairman role. Ford continues to balance its long industrial history with investments in new vehicle architectures, commercial services and digital capabilities to address changing consumer preferences and regulatory environments worldwide.

Ford Motor Q1 2022 Earnings Call Transcript

Key Takeaways

• Ford’s new F-150 Lightning electric truck launched on time with unprecedented demand, primarily from incremental buyers, highlighting strong EV market traction.
• First-quarter adjusted EBIT fell to $2.3 billion (6.7% margin), down year-over-year due to elevated commodity costs and lower volume/mix despite net pricing gains.
• Automotive supply chain constraints persist but production run-rate improved in March and Ford ended Q1 with a $17 billion U.S. order bank poised to boost future revenues.
• Ford reaffirmed full-year guidance of $11.5 billion–$12.5 billion in adjusted EBIT and set ambitious 2026 targets including a 10% EBIT margin and 2 million annual EVs.
• Free cash flow was negative $600 million, driven by higher inventory levels of completed vehicles awaiting component installations.

Presentation

[Operator]

Good day, ladies and gentlemen. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company Q1 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, you may press Star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note this event is being recorded. At this time, I would like to turn the call over to Lynn Antipas Tyson, Executive Director of Investor Relations. Please go ahead.

[Lynn Antipas Tyson, Executive Director of Investor Relations at Ford Motor Company]

Thank you, Andrea. Welcome to Ford Motor Company's Q1 2022 earnings call. With me today are Jim Farley, our President and CEO, and John Lawler, our Chief Financial Officer. Also joining us for Q&A is Marion Harris, CEO of Ford Credit, Hau Thai-Tang, Chief Industrial Platform Officer, and Doug Field, Chief EV and Digital Systems Officer, Ford Model e. Today's discussions include some non-GAAP references. These are reconciled to the most comparable US GAAP measures in the appendix of our earnings deck. You can find the deck along with the rest of our earnings materials and other important content at shareholder.ford.com. Today's discussions also include forward-looking statements about our expectations. Actual results may differ from those stated. The most significant factors that could cause actual results to differ are included on page 28. Unless otherwise noted, all comparisons are year-over-year.

[Lynn Antipas Tyson, Executive Director of Investor Relations at Ford Motor Company]

Company EBIT, EPS, and free cash flow are on an adjusted basis, and product mix is volume-weighted. With that, I'll turn the call over to Jim.

[Jim Farley, President and CEO at Ford Motor Company]

Hello, everyone. Thank you, Lynn, and thanks for joining our Q1 2022 earnings call. Yesterday, I was with Bill Ford and our incredible team at the Rouge factory, where my grandfather worked, to celebrate job one for the F-150 Lightning. We were all so proud as a team for delivering a truly breakthrough electric truck and delivering it on time as a launch. The excitement around the truck is like nothing I've ever seen in my career. In fact, the power went out in the facility, and we ran most of the presentation with F-150 Pro Power Onboard. While we have work ahead to fully scale production and fill an extraordinary order bank, both for our retail Lightning customers and Ford Pro, make no mistake, this is a very important moment for us at Ford. We're accelerating our significant transformation.

[Jim Farley, President and CEO at Ford Motor Company]

We have the right plan called Ford Plus. We're putting in place the right organization. As you know, on March second, we announced our plan to form two distinct but interdependent business units called Ford Model e and Ford Blue. Together with Ford Pro, these three automotive businesses allow us to clearly define and assign priorities, make the most of our existing strengths, but also build new strategic muscles, and most importantly, capabilities. Ford Model e is responsible for delivering clean sheet breakthrough EV designs, software advanced electric architectures, partial autonomy, and Ford Blue's mission is to deliver a more vibrant and profitable ICE business, a business that's gonna serve in the short term as our profit and cash engine for the entire enterprise. What have we learned since March second, and what are we working on at Ford?

[Jim Farley, President and CEO at Ford Motor Company]

In terms of Model e, first, it's very clear to us that battery capacity is the key unlock to our EV aspirations and propel our growth in the future. We're in good shape in the near term. In the medium and long term, securing raw materials, processing precursor and refinement, and setting up battery production here in the U.S. and around the world is a big work statement for us. Expect a lot of news from Ford in the future related to the vertical integration of our EV business. Second, we're getting after our talent gap in key areas, EV engineering, software, and autonomous driving technology. We have a very good start already, and we will continually be very aggressive on recruiting talent.

[Jim Farley, President and CEO at Ford Motor Company]

Third, we're now deep into discussions with our dealer partners around the globe, but especially in North America, on brand-new standards that are required to launch a completely different customer experience that is leaner and better for our customers that we believe will not only be competitive, but superior to a solely direct model. We're drafting standards as we speak and plan to roll these out this year. Finally, we're crafting our EV future product pipeline and are focused on a small number of highly compelling, high-volume models in key segments where we already lead. I want to make this very clear. Some companies seem to be pursuing a strategy of trying to match Model Y's volume with eight or nine top hats. That's not a winning plan in our view.

[Jim Farley, President and CEO at Ford Motor Company]

We will focus on key volume nameplates, constrain capital because we have it, but really to leverage scale and efficiency to reach and eventually exceed our 8% EBIT target for EVs. I want to be clear here that as we move forward, our EV designs will be progressive, and they're gonna be aimed at bringing new customers to Ford and Lincoln. They will not be electric versions of our existing lineup. Now, in terms of Ford Blue, we will accelerate our restructuring and address our uncompetitive cost structure. We're gonna attack complexity in areas such as powertrain. We can't wait. This work starts now. We will continue to invest in our ICE business, but in targeted ways to build our most popular and profitable vehicle lines, F-Series, Bronco, Super Duty, and a few others. Another focus is quality. We've made good progress on initial quality and launches.

[Jim Farley, President and CEO at Ford Motor Company]

However, we continue to be hampered by recalls and customer satisfaction actions. This has to change. We must do more to aggressively address our engineering process and improve our robustness. Now our Ford Pro business is on track. We see healthy growth in part sales, mechanic repairs, growth in subscriptions for both charging and telematics, and CV financing. Most importantly, we're making our customers' lives and businesses better. They're using data, they're improving their uptime and their bottom line. Supply chain constraints continue to impact our business, including some of our key profit pillars. That said, we're making progress on launching and scaling new products, as you can see with Lightning. That said, our major focus now is accelerating a more fundamental change in our supply chain management to improve visibility through our entire value chain and secure supply, especially in places like semis and batteries.

[Jim Farley, President and CEO at Ford Motor Company]

We're absolutely committed to unlocking value by improving our growth profile, our profitability, and ability to generate sustainable cash flows from our automotive-related businesses. Our new targets include producing more than two million EVs in four short years by the end of 2026. That's about 70-plus% CAGR. We expect that by 2030, EVs will account for about 50% of our global sales. We have also reset our profit ambition. We are now targeting 10% company-adjusted EBIT margins by 2026. Now in terms of the Q1, I would describe our performance as mixed. The appeal of our new products is really clear, and customers' demand is extremely strong beyond the supply constraint of our industry. However, we are still grappling with persistent supply chain issues that prevent us from posting even stronger quarter.

[Jim Farley, President and CEO at Ford Motor Company]

We're working to break constraints whenever they exist to take full advantage of this incredibly hot product lineup, both new EVs like the F-150 Lightning, but our iconic ICE vehicles as well. We remain committed to delivering our targets quarter after quarter, year after year, earning your confidence along the way. Now I'd like to turn it to John to take you through the quarter and our outlook this year.

[John Lawler, CFO at Ford Motor Company]

Thank you, Jim. In face of ongoing industry-wide supply chain disruption and unremitting pandemic hurdles, we continued to execute against our Ford+ plan, including strengthening our product portfolio, investing in electrification, and other new and exciting opportunities fundamental to growth and value creation. In the Q1, we generated $2.3 billion in adjusted EBIT, resulting in a margin of 6.7%. The year-over-year decline in total company profits was driven by higher commodity prices and lower volume and mix, partially offset by higher net pricing as we take top-line pricing while remaining disciplined with our incentive spend. Importantly, our operations outside of North America were profitable. Global wholesales were down 9%, consistent with our guidance in reflecting the continued supply chain issues.

[John Lawler, CFO at Ford Motor Company]

However, our run rate of vehicle production in North America improved significantly during the month of March, and we ended the quarter with an extremely healthy order bank. In fact, in the U.S. alone, our order bank is primed to deliver about $17 billion in revenue. Ford Credit delivered another strong quarter. EBT was $900 million, reflecting strong lease residuals and credit loss performance. Free cash flow was -$600 million, more than explained by unfavorable timing differences and working capital deterioration due to the higher inventory levels, which included about 53,000 vehicles on wheels completed but awaiting installation of components affected by the semiconductor supply shortage. We ended the quarter with strong cash and liquidity, nearly $29 billion and $45 billion respectively. This includes our stake in Rivian, which was valued at $5.1 billion at the end of the quarter.

[John Lawler, CFO at Ford Motor Company]

Our strong balance sheet provides a solid foundation to continue investing in our Ford+ priorities. Now let me briefly touch on business unit performance for the quarter. North America delivered $1.6 billion of EBIT with a margin of 7.1%. Now this is down year-over-year as net pricing improvements were more than offset by higher commodity costs, higher warranty expense, unfavorable mix, and lower volume. The volume and mix impact primarily reflects supply constraints unique to full-size pickups and large utilities. South America continues to benefit from our global redesign efforts, delivering its third consecutive profitable quarter and its highest quarterly EBIT margin in over 10 years. The region continues to focus on scaling its business for growth, especially pickup trucks and commercial vehicles. In Europe, our operations delivered an EBIT margin of 3% despite a 9% decline in volumes.

[John Lawler, CFO at Ford Motor Company]

The underlying trajectory of our business continues to improve. However, the adverse impact of the near-term supply chain disruption is dampening our overall results. Importantly, we continue to be the number one commercial vehicle brand in Europe. The Transit has an extremely healthy order bank, and we've recently launched the all-electric E-Transit in Turkey. FORDLiive continues to grow, helping our commercial customers improve vehicle uptime and ultimately their bottom line. Finally, Mustang Mach-E is now being sold online in most major markets. Europe is building momentum towards a fully electric future, expecting to reach 600,000 vehicles by the end of 2026. In China, we posted a modest loss in the quarter. However, our cost performance improved on both a year-over-year and sequential basis. Lincoln continues to be a bright spot and profit pillar for the region.

[John Lawler, CFO at Ford Motor Company]

Market share improved 20 basis points year-over-year, and the all-new Zephyr is off to a fast start. In the Q1, China also continued to make progress towards our electrification strategy. We opened 10 more customer experience centers, now 35 in total, and made other investments to modernize our direct-to-consumer network. Our international markets group performed well in the Q1, continuing to be solidly profitable despite supply constraints and suspension of our joint venture operations in Russia. The upcoming launch of the next-generation Ranger remains on track, and in March, we unveiled the next-generation Ranger Raptor and Everest. Finally, in mobility, we continue to make steady progress towards scaled commercialization of moving people and moving goods. In the Q1, we divested our investments in both TransLoc and Spin, further rationalizing our portfolio with a focus on autonomous development.

[John Lawler, CFO at Ford Motor Company]

Now I'll share with you our current thinking about the remainder of 2022. For the full year, our guidance is unchanged. We expect to earn between $11.5 billion and $12.5 billion in adjusted EBIT, which is up 15%-25% from 2021, with adjusted free cash flow of $5.5 billion-$6.5 billion. This reflects year-over-year growth in wholesales of 10%-15% and assumes that semiconductor availability will improve in the H2, including the constraints that adversely impacted our full-size pickups and large utilities in North America in Q1. We also assume in our guidance that disruptions in the supply chain and local vehicle manufacturing operations resulting from the renewed COVID-related health concerns and lockdowns in China do not further deteriorate our supply chains.

[John Lawler, CFO at Ford Motor Company]

Now, relative to adjusted EBIT. On a year-over-year basis, our range assumes significantly higher profits in North America and collective profitability outside of North America. We also expect Ford Credit EBT to be strong but lower than 2021, and Mobility and Corporate other EBIT to be roughly flat. Other assumptions factored into our guidance include, first, we have a very strong order bank, as Jim mentioned, for our new iconic products, such as Bronco Sport, Maverick, along with a robust EV lineup of Mustang Mach-E, E-Transit, F-150 Lightning, now in production as well. Second, pent-up demand beyond our order bank, a continued strong pricing environment, including the benefit of pricing actions taken in the Q1 and improved mix. The interplay, though, between volume and pricing will remain dynamic.

[John Lawler, CFO at Ford Motor Company]

Third, we expect commodity headwinds of about $4 billion, which we expect to offset by improvements in net pricing and mix. Fourth, we anticipate other inflationary pressures to continue impacting a broad range of costs. We are aggressively looking at all opportunities to offset this reality, including aggressively ramping up our efforts on additional cost reductions. Fifth, at Ford Credit, we expect auction values to remain strong as supply constraints persist. However, as I mentioned, we anticipate strong but lower EBT, reflecting primarily the nonrecurrence of reserve release, fewer returned off-lease vehicles, and more normalized credit losses. Our results in the quarter, our balance of year outlook, and commitment to our medium-term targets demonstrate the power of our Ford+ plan as we continue to invest aggressively to drive growth and value creation. This includes devoting resources to customer-facing technology, connectivity, our always-on relationships with customers, and electrification.

[John Lawler, CFO at Ford Motor Company]

We are confident the long-term payback from these investments will be substantial. That wraps up our prepared remarks. We'll use the balance of the time to hear your questions and address what's on your mind. Thank you. Operator, please open the line for questions.

[Operator]

We'll now begin the question and answer session. To ask a question, you may press Star-Then-One on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Star-Then-Two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Rod Lache of Wolfe Research. Please go ahead.

[Rod Lache, Managing Director and Senior Analyst at Wolfe Research]

Hi, everybody. Thanks for taking my question. First, I wanted to ask you about inflation. Price versus cost is obviously a pretty big drag here, and I assume that you would expect inflation to stick around for a while. I was hoping you might talk a little bit about how that's influencing your decision-making, your internal messaging. What is, in your view, going to be the interplay between price and volume as volume and inventory starts to normalize? Is there still pricing power after everything you've achieved over the past couple years? Does this affect your margin targets?

[Jim Farley, President and CEO at Ford Motor Company]

Hi, Rod. Thank you for your question. Obviously we're seeing on the commodity side, you know, steel, aluminum, copper, lithium, nickel. On the logistics side, a lot of premium freight. We're seeing pressures on inflation from suppliers, so it's really across the board. I'll let John answer the pricing question, but I would say we really have quite a bit of pricing we've recently put in the market. It stuck. In addition, we feel like we have a lot of cost upside as well in the company. I know that's not your question, but that's an opportunity. John?

[John Lawler, CFO at Ford Motor Company]

Yeah. Hi, Rod. From a pricing standpoint, so far we have seen pricing just about offset the inflationary pressures that we've seen. We've been aggressive with top line. We've been balanced with the incentives. We do expect the commodity inflation, as Jim said, to continue through the year, so the pricing that we've taken reflects that. I would say that we've been aggressive so far, starting last year, from a pricing standpoint. I would also say that the dynamic between the volumes and the pricing is gonna you know, remain in flux. You know, as we go through the rest of this year and volumes improve, we have assumed that in the H2 you would see increased pressure on your incentives, and that's assumed in our guidance.

[John Lawler, CFO at Ford Motor Company]

I would also say, Rod, that right now many of the dealers are transacting near or above MSRP across the industry. That has to be a compression that's gonna happen first on the pricing front. We're watching that very closely. We've also taken actions where we can improve our pricing by work we've done with our dealers. One of the things we did in the quarter is we adjusted our floor plan adjustment to the dealers. You know, in the past we had paid them 1.5% of MSRP to cover the floor plan, the carrying costs, and we've adjusted that to about 75 days of the actual cost, so actual cost up to 75 days. That's been a benefit that's flowing through our pricing as well. We see it as dynamic.

[John Lawler, CFO at Ford Motor Company]

We do agree that as volumes increase, it will be dynamic relative to incentives. We're not Pollyanna-ish about that. We've reflected what we think is appropriate in the H2 relative to incentives to adjust for the volume that we see coming in. But we'll also be aggressive on pricing if commodities keep going up, we'll be aggressive as we can. So I think it's gonna be a dynamic play as we go through the rest of the year. I would say, though, that when we step back and we look at the pricing relative to, you know, 2020 model year, what we've taken since 2020 model year, we'd have to increase incentives considerably to offset that pricing. On a run rate basis, they'd have to move from, I think we're in single digits today, low single digits.

[John Lawler, CFO at Ford Motor Company]

They'd have to move up into like 15%-16% to offset that pricing. You know, that's back in a time when we had extremely high inventories, and we had a very push-through process, and we're not gonna go back to that. We're gonna be very disciplined with our inventory.

[Jim Farley, President and CEO at Ford Motor Company]

Percent of revenue.

[John Lawler, CFO at Ford Motor Company]

Yeah, as a percent of revenue. You know, we're working costs, we're working all the angles.

[Rod Lache, Managing Director and Senior Analyst at Wolfe Research]

Thanks for that. Any color on the outlook for Europe for the rest of this year, just given all of the macro pressures there? It looks you've been posting pretty solid results there recently.

[John Lawler, CFO at Ford Motor Company]

Yeah, we expect those results to continue. We were in Europe hampered by the supply chain reductions, but you know, it was nice to see that even though we were hit by that, Europe did post a better than expected quarter for us. We're continuing to do well in commercial vehicles. We launched the E-Transit, which has been very well received. Mustang Mach-E has been very well received as well. We do expect the business in Europe to continue to improve in the H2 as the rate and flow of supply improves for them as well.

[Rod Lache, Managing Director and Senior Analyst at Wolfe Research]

Thank you.

[Operator]

The next question comes from John Murphy of Bank of America Merrill Lynch. Please go ahead.

[John Murphy, Managing Director and Lead U.S. Auto Analyst at Bank of America Merrill Lynch]

Good evening, everybody. I just wanted to ask a question sort of on the growth side, Jim. I mean, the F-150 Lightning orders sound like they're mostly incremental buyers, folks that haven't been Ford or F-150 buyers before. I'm just curious if you think that is just sort of a surge here at the launch of the truck, or is this sort of 15%-20% your sort of incremental orders relative to the base F-150, something you think will stick around? I mean, 'cause obviously that's very powerful potentially to your earnings. Do you expect the profitability of this truck over time to have a variable margin that would be similar to the F-150? To sort of be even a little bit more verbose, do you expect the same kind of thing with the F-250, F-350 Lightning, which will launch in two or three years?

[Jim Farley, President and CEO at Ford Motor Company]

Well, I didn't know we announced that, but thank you very much for your question. I'd like to maybe ask Doug to come in here and talk about the levers we have on the profit side. So far, it's very clear to us that the Lightning customers are incremental. As you said, it's early days. At the end of the day, the facility that we were in is about 80,000 units. We'll almost double that by the end of next year. I would say at this point, the customer profile is dramatically younger. It's in states like California and New York that we normally don't sell full-size trucks. We do have lots of orders in Texas. It's higher education that we see.

[Jim Farley, President and CEO at Ford Motor Company]

What they're interested in is different about the truck. I think it's very clearly so far incremental. Now, when we get into volume production, 150,000 units, that may change. We'll see that with the order as we open the order bank again for the next model year this summer. Doug, do you wanna highlight the opportunities you see, maybe on F-150 Lightning, but more generically on our next product?

[Doug Field, Chief EV, Digital, and Design Officer at Ford Motor Company]

Sure. To start with, I'm really excited about what we're building off of in Ford's strength. These are cost bases that I'm drooling over in terms of the future products. When we talk about EVs specifically, the first thing we have to do is really control the battery materials and the chemistry. They are the single largest bill of materials opportunity, of course. The next is really obsessing over how we use those materials and chemistries. Energy efficiency is a religion, and the team's really stepping up to this. Every single watt of consumption is now being tracked and optimized. On the new programs, changes in aerodynamics and drive unit optimization, we're seeing dozens of miles of improvement in range. That's hundreds and even some cases, thousands of dollars of battery that we can take out.

[Doug Field, Chief EV, Digital, and Design Officer at Ford Motor Company]

Finally, I think really going after a true ground up approach to how we build EVs. They're different than internal combustion vehicles, and you could take advantage of that and really change. In our next series, EV factory, we're gonna have on the main line half the stations that we use today to build a Lightning. I'm very optimistic with this journey that we have, some really good ground to make up on margin.

[Jim Farley, President and CEO at Ford Motor Company]

John, so far.

[John Murphy, Managing Director and Lead U.S. Auto Analyst at Bank of America Merrill Lynch]

Actually, one follow-up.

[Jim Farley, President and CEO at Ford Motor Company]

Oh, go ahead.

[John Murphy, Managing Director and Lead U.S. Auto Analyst at Bank of America Merrill Lynch]

Yep.

[Jim Farley, President and CEO at Ford Motor Company]

Go ahead, John.

[John Murphy, Managing Director and Lead U.S. Auto Analyst at Bank of America Merrill Lynch]

No, no, keep going, Jim. Sorry. I'm just, I had a follow-up on that one.

[Jim Farley, President and CEO at Ford Motor Company]

I just wanna say on the Super Duty, obviously that's a quarter of profitability as a company globally. You know, when we look at the customer usage, we just don't feel at this point that electric solution is gonna be ideal for most of those customers. Our vehicles, plural, will be really focused on light duty and the lower end of Super Duty for sure. Not F-250s, F-350s, F-450s. That's a whole different ball of wax. They require a lot of payload, you know, heavy batteries. That doesn't make sense.

[John Murphy, Managing Director and Lead U.S. Auto Analyst at Bank of America Merrill Lynch]

Got it. I'm sorry, a follow-up on the 53,000 units that are in inventory on wheels. Is that what we're seeing in this 21% increase in inventory on the balance sheet from the Q4 to the Q1? You know, presumably, the cost has not been accounted for at all here, and we'll see those vehicles, you know, flush out into the system in the second or Q3 when the chips become available. I'm just trying to understand, John, the lag or the economics, and what the profitability boost may be from these vehicles flowing out. You know, can you just kind of explain sort of, you know, how you're accounting for this and what the benefit might be in the second and third or Q4 when they actually are finished?

[John Lawler, CFO at Ford Motor Company]

Yeah. John, that's exactly right. That's what's hitting us from a cash standpoint in the inventory increases is for the most part, the vehicles on wheels, the 53,000 units. We have the costs for those in our results, but we have no revenue for them. As they build out, and we complete them in this quarter and into the Q3, we'll start to get the results for that for bottom line. They were primarily our more profitable vehicles, and it was primarily F-Series and Explorer. There's definitely an opportunity there that will start to roll through the bottom line once we start shipping those out. The reason why.

[John Murphy, Managing Director and Lead U.S. Auto Analyst at Bank of America Merrill Lynch]

So the cost.

[John Lawler, CFO at Ford Motor Company]

One of the reasons why we built those, John, because the modifications we need to make, we're very confident we can do that without compromising quality. Our production is fully subscribed, so we would have lost these units if we hadn't built them and set them aside until the chips are available.

[John Murphy, Managing Director and Lead U.S. Auto Analyst at Bank of America Merrill Lynch]

I'm sorry, John, the costs are recognized in the Q1 results, but obviously the revenue is not. I'm just trying to understand this because it sounds like it might have a big impact in sort of people's understanding of the cadence of earnings through the course of the year.

[John Lawler, CFO at Ford Motor Company]

No, the profits aren't recognized in the quarter, right? The costs we've backed out, like for labor, et cetera, that's been all backed out. That's in inventory.

[John Murphy, Managing Director and Lead U.S. Auto Analyst at Bank of America Merrill Lynch]

Okay, got it. Okay, thank you very much.

[Operator]

The next question comes from Colin Langan of Wells Fargo. Please go ahead.

[Colin Langan, Director and Senior Equity Analyst at Wells Fargo]

Oh, great. Thanks for taking my questions. Yeah, as you mentioned, EV battery costs have really dramatically increased. Has that changed your EV strategy at all? Do you think you're gonna need to maybe raise the pricing of the Lightning and the Mach-E? You know, what can you do about it? Or maybe switch to different chemistries, roll out more hybrids? How can you address it if raw materials stay at these very high levels for that, those battery materials?

[Jim Farley, President and CEO at Ford Motor Company]

Thank you for your question. Well, you know, first of all, the demand for EVs right now is extremely robust at Ford. So we have the opportunity, we believe, for pricing. We're not gonna get into those details now. But you know, Doug said something very important, Colin. I wanna emphasize which is battery chemistry. We believe very strongly at Ford that chemistry will be a really key part of our protection against commodity price increases and frankly, the benefits to the customer. Doug, do you wanna add anything?

[Doug Field, Chief EV, Digital, and Design Officer at Ford Motor Company]

No. Ford, a number of years ago started Ion Park, which is a team of experts really focusing on chemistry. Lithium iron phosphate, of course, we know from the industry is something that takes you away from the dependence on nickel. That will be a part of our future. We're also looking at chemistries that give us an opportunity to be less dependent on the specific materials that everyone seems to be fighting over in the market.

[Jim Farley, President and CEO at Ford Motor Company]

In the short term.

[Colin Langan, Director and Senior Equity Analyst at Wells Fargo]

Can you?

[Jim Farley, President and CEO at Ford Motor Company]

You know,

[Colin Langan, Director and Senior Equity Analyst at Wells Fargo]

Switch to LFP?

[Jim Farley, President and CEO at Ford Motor Company]

Yeah, sorry. Go ahead with your question. Sorry, Colin.

[Colin Langan, Director and Senior Equity Analyst at Wells Fargo]

Yeah, I was just gonna say, you mentioned you're able to do LFP or you're, that's in the plan. I mean, how quickly can you switch? 'Cause nickel's, like now, I mean, we're just kinda wondering how flexible and how quick you could adapt for that, you know, two million target by 2026.

[Jim Farley, President and CEO at Ford Motor Company]

Yeah, we've been working on LFP for quite some time. Let's just leave it at that. What I mean by that is engineering LFP solutions in our first generation of products, something that, we see as a big opportunity and to move quickly.

[Colin Langan, Director and Senior Equity Analyst at Wells Fargo]

Got it. Just second question, you mentioned in your comments about, you know, warranty costs, and that was gonna be a big driver of margins. It does look like it was up year-over-year. Is that just sort of a temporary blip in the quarter, or is there a structural issue that we're gonna see some higher elevated warranty through the rest of the year?

[Jim Farley, President and CEO at Ford Motor Company]

Bill?

[Bill Ford, Executive Chair at Ford Motor Company]

Yeah. Colin, thanks for the question. When we had our Capital Markets Day event, we signaled that we were targeting $1-$2 billion of warranty opportunity by the mid-decade. In 2021, we delivered $1.4 billion of that, so roughly 70% of that total opportunity. When you look at Q1 of this year, we had a deterioration. Some of that was just a non-repeat of items that we recognized in 2021 that didn't flow through. This is still a huge opportunity for us. It's the number one priority for us as for my team, as a skill team is really focusing on improving quality, warranty, as well as recall performance, not only because of the drag on the business, but more importantly because of the impact on our customers.

[Bill Ford, Executive Chair at Ford Motor Company]

This is something that we're really focused on and, as Jim and others highlighted earlier, it's a huge opportunity for us to eliminate waste within the company and offset some of those commodity and headwind costs that we discussed earlier.

[Colin Langan, Director and Senior Equity Analyst at Wells Fargo]

Got it. Thanks for taking my question.

[Operator]

The next question comes from Adam Jonas of Morgan Stanley. Please go ahead.

[Adam Jonas, Managing Director and Lead Analyst at Morgan Stanley]

Hey, everybody. Is Lisa Drake on the call?

[Jim Farley, President and CEO at Ford Motor Company]

No.

[Adam Jonas, Managing Director and Lead Analyst at Morgan Stanley]

Okay.

[Jim Farley, President and CEO at Ford Motor Company]

Doug's here to help.

[Adam Jonas, Managing Director and Lead Analyst at Morgan Stanley]

Well.

[Jim Farley, President and CEO at Ford Motor Company]

Okay. I'll pass that on to her.

[Adam Jonas, Managing Director and Lead Analyst at Morgan Stanley]

We got great people on the call. We're good. First, I noted the Lilac Solutions partnership. That's a really good call, hearing a lot of really great things. That's great job there. If you could imagine that the entire metal and mining industry were listening to this call right now, and they really should be, what would your message be right now, Jim?

[Jim Farley, President and CEO at Ford Motor Company]

The message would be, you know, we need to work together and find good deals. That's what the message would be. That we know what we're looking for. We're focused on lithium and nickel, those two. We wanna do smart deals that work for them and for us. Number two, we wanna move some of the processing to North America. We're willing to invest capital to move the processing precursor work from overseas to North America, for a variety of reasons. Doug, would you edit that list?

[Doug Field, Chief EV, Digital, and Design Officer at Ford Motor Company]

No, I think that's the right list.

[Adam Jonas, Managing Director and Lead Analyst at Morgan Stanley]

The right list. Just my follow-up for credit side. You guys have a massive, extraordinarily well-managed portfolio in a market that, at least historically, you know, can react to oil shocks and economic pressures, of course, over time, and we're seeing some pretty crazy changes in the market. Just for the record, any sign of pressure in the portfolio in terms of delinquency, loan losses, basically the strength of the consumer that you so very credibly and powerfully can comment on, as an economic indicator for this audience? Thanks.

[Marion Harris, President and CEO at Ford Motor Credit Company]

Hey, Adam, it's Marion Harris here. The short answer is no. We're seeing strength in delinquencies. They're up marginally versus last year, but still well below anything we've seen. A lot of that's on the back of strong used car values, which we expect remain strong for some period of time. You know, even getting into the gas price piece of this, one of the things we've been looking at is whether or not there's a change in auction values by segment. We're not seeing any differences in prices or price movements for large SUVs versus smaller sedans. The trends continue, and we still feel very good about the credit business.

[Adam Jonas, Managing Director and Lead Analyst at Morgan Stanley]

Thanks, Marion.

[Operator]

The next question comes from Dan Levy of Credit Suisse. Please go ahead.

[Dan Levy, Director and Senior Equity Research Analyst at Credit Suisse]

Hi. Good evening. Thank you for taking the question. First question is just on the guidance. We know you're maintaining the guide, $11.5-$12.5 billion, but you've also said you're guiding to now $2-$2.5 billion of higher raw mat. You know, Europe is a choppier environment. China is a choppier environment. Then there's also other inflationary pressures that aren't in that raw mat guide. You know, I just wanna understand, you know, what is the full set of offsets to that. You've talked about price, but maybe you could just talk, you know, how that compares to maybe other cost offsets that will allow you to maintain your guide despite those incremental headwinds.

[John Lawler, CFO at Ford Motor Company]

Yeah. Dan, thanks. Price is the main offset there for the full year. Pricing offsetting the inflationary pressures that we're seeing. We are being very aggressive in ramping up additional cost efforts because we know that this is not going to. We don't believe that the pressure on cost due to inflationary pressures is gonna ease anytime soon. We need to find more efficiencies, we need to improve productivity. Jim and the team, and we are working very hard on that. It's a priority for us. The other thing that we have is in the H2 of the year, we do have volumes improving based on the better availability of semis as we see that through the system.

[John Lawler, CFO at Ford Motor Company]

That's another big driver for us in the year, and they will see that in the H2 over the H1 as that comes online. Hau, do you wanna talk a little bit about how you're seeing that and what we've been doing to manage that?

[Hau Thai-Tang, Chief Industrial Platform Officer at Ford Motor Company]

Yeah. Thanks, John. So as John mentioned in his remarks, in March, we had the highest production run rate that we've seen, frankly, in the last couple of quarters. That's the result of a lot of hard work with all of our suppliers at every level of the value chain to break constraints, ensure that we're getting our fair allocation, as well as expediting freight to pull ahead some of the available supply. In parallel, the design actions that we've taken over the past year to design our way out of some of these constraints are coming online. If you guys reflect on last year, many of our wafer and chip suppliers started implementing capacity actions, and those are also coming on in the back end of the year. That's what's giving us the increased confidence around the guidance that John highlighted.

[John Lawler, CFO at Ford Motor Company]

The other thing I would add is that the demand, as Jim said earlier, is very strong for our new products. That's encouraging for us. We just can't build enough of them. We see that demand continuing.

[Dan Levy, Director and Senior Equity Research Analyst at Credit Suisse]

The mix assumption within this?

[John Lawler, CFO at Ford Motor Company]

The mix assumption is that we'll revert back to a normal run rate mix that we would expect to see. We were disproportionately hit in the Q1 by a commodity, a module, and Hau can talk more about that. He's better to talk about it than I can. The team has worked through that, so we believe we have that resolved, and we should see a more normal run rate of our mix as we move forward. Hau, do you wanna comment on that specific commodity 'cause I think it is really material.

[Hau Thai-Tang, Chief Industrial Platform Officer at Ford Motor Company]

Yeah. We had a wiper module that was deployed on our most profitable vehicle lines, as John mentioned, our large pickup trucks and utilities in North America. We had limited ability to do any mix management and flex with other, lower profit vehicle lines. That issue has been resolved. We've designed our way out of it. Again, we have a line of sight to not only support the back half of the year of production, but also address some of the vehicle on wheels with that commodity.

[Dan Levy, Director and Senior Equity Research Analyst at Credit Suisse]

Great. My second question is, you know, just as we think about the costs that are coming online, I think you've discussed in the past that really, in your reorg, that Blue is gonna be what funds Model E. In a good market, it's very easy to see how incremental profits from the core combustion business are funding your EV growth. Now that we have more costs that are coming into the system, maybe you can give us a sense how you're looking at your growth investments. EV, I assume, you know, you're gonna invest in that regardless of what the underlying market environment is.

[Dan Levy, Director and Senior Equity Research Analyst at Credit Suisse]

Maybe you can give us a sense of, you know, are there other growth investments that are maybe more discretionary that you can, you know, if you need to pull back on or delay, you know, how you think about other growth investments?

[Jim Farley, President and CEO at Ford Motor Company]

No, our opportunity is really around our cost and our Ford Blue business. That's how we look at it. In terms of investing, we need to invest in a fully networked, advanced electric architecture. We need to invest in level two and level three autonomy. We need to invest in a new portfolio and changing our industrial system over to these electric digital products. We need to invest in our OS software that supports all of that. We believe very strongly we need to invest in level four autonomy. At this point in time, I don't personally see any discretionary.

[Jim Farley, President and CEO at Ford Motor Company]

Our Ford+ plan is so specific about where to invest, that at this point in time, you know, our real work that we need to do is to get after these inefficiencies and improve the productivity of our base business. That's really where we're focused. Of course, it's implied that as a management team, we need to make these investments as efficiently as we can for all this new technology and growth. I hope that makes sense to you.

[Dan Levy, Director and Senior Equity Research Analyst at Credit Suisse]

That's helpful. Thank you.

[Operator]

The next question comes from Mark Delaney of Goldman Sachs. Please go ahead.

[Mark Delaney, VP and Senior Equity Research Analyst at Goldman Sachs]

Yes, good afternoon, and thank you very much for taking the questions. The first is on the new structure. It's been about two months now since Ford announced the split into the different segments, including Ford Blue and Ford Model e. I'm hoping to better understand how employee reception has been. For Doug Field, perhaps specifically, maybe you can talk about what it's meant for your ability to get the right engineering talent, and are there any anecdotes or data points you can share?

[Jim Farley, President and CEO at Ford Motor Company]

I think reception has been terrific. You know, we worked hard on this, and we were prepared. We knew kind of what we needed to communicate to the employees and why this is necessary and why it makes sense. I think the reception has been good. The proof in the pudding is gonna be how this executes. That's why I wanted to give an update, actually, in my comments, on what we've done since March second. A lot has changed. Doug, over to you.

[Doug Field, Chief EV, Digital, and Design Officer at Ford Motor Company]

Thanks. Yeah, we did think a lot about this, and I had a great partner in how to figure out how we were going to take best advantage of Ford's deep capabilities that I haven't had access to in any of my prior roles. The organization is set up where Ford Model e can't and doesn't build cars by themselves. We rely on an industrial platform that does great and Ford Model e contributes software back to Ford Blue ICE product. There's an interdependency there that really helps the teamwork, I think. As far as attracting talent, I've been really delighted and surprised by the kind of talent that we can attract from tech. I think there's a certain amount of fatigue in the tech world, and a lot of mature products out there.

[Doug Field, Chief EV, Digital, and Design Officer at Ford Motor Company]

The opportunity to work on high technology, but do it in a brand that is, so iconic in the United States and in something that is so, such a rich product like a vehicle, is really attracting, some great people. Finally, I think, from a talent perspective, Ford Model e is also helping us, really dig into the internal team and find great people who, can step up, take on different kinds of roles, be put in positions of authority and really help drive us forward. There are great people here.

[Mark Delaney, VP and Senior Equity Research Analyst at Goldman Sachs]

That's really helpful. My second question was on the volume outlook for 10%-15% wholesale growth, which the company's maintained, you know, even though we've had, unfortunately, the war and also the new COVID restrictions pop up in China. I'm hoping to better understand how Ford is still managing to that 10%-15% growth. You know, to what extent is the company taking incremental actions to find different suppliers that, you know, perhaps you hadn't been expecting to have to do? You know, is it more that you're doing those sorts of things to still do 10%-15% growth? Or is it perhaps more about Ford suppliers not being overly impacted by these recent events? Thank you.

[Jim Farley, President and CEO at Ford Motor Company]

Thank you. It really comes down to the commodities, semiconductor-related commodities that have been hamstringing us. We obviously are spending a lot of money on premium freight and other things to work around, you know, COVID escalations in China. Really, this, the H2 of the year's production increase relates to those. Hau, I don't know if you wanna add anything specifically.

[Hau Thai-Tang, Chief Industrial Platform Officer at Ford Motor Company]

Yeah, Mark. The two hotspots that you highlighted, Ukraine, Russia, I think we've done a really good job of managing that and minimizing any large significant production risk, mostly because of our global sourcing patterns, and we were able to get parts from other areas of the world. In terms of China, we're scanning the Shanghai area. We have about 50 Tier One suppliers there. Our focus is on our profit pillar vehicles and as Jim mentioned, really leveraging expedited freight. We've secured fast maritime shipment as well as airlift capacity to protect our suppliers. They're just starting to have a whitelist process to allow suppliers to resume production, so we're working with our teams on the ground in China to help those suppliers get partially operational.

[Hau Thai-Tang, Chief Industrial Platform Officer at Ford Motor Company]

Those actions we think will really help us. As Jim mentioned, what's gonna be gating us is semiconductors. A lot of these constraints are nested within that, so it comes down to the work that we're doing on the semiconductor supply.

[Operator]

Next question comes from Ryan Brinkman of JPMorgan. Please go ahead.

[Ryan Brinkman, Managing Director and Head of U.S. Equity Research for Autos and Auto Parts at JPMorgan]

Hi. Hi, thanks for taking my question. As we near the, I think, 180-day lockup expiry on your investment in Rivian, how are you thinking about the options available to you in terms of this investment going forward? Are you maybe more inclined to retain some or all of the stake given the recent decline in Rivian shares? If you were to monetize it, you know, how are you thinking about the use of any potential proceeds? Could you maybe use them to accelerate your own electrification efforts, or are you maybe already devoting all the resources necessary there and so would perhaps look to prioritize other opportunities, I don't know, maybe shareholder-friendly actions? How are you thinking about these options?

[Jim Farley, President and CEO at Ford Motor Company]

Yeah. Unfortunately, at this point, we're not gonna comment on Rivian.

[Ryan Brinkman, Managing Director and Head of U.S. Equity Research for Autos and Auto Parts at JPMorgan]

Okay, great. Let me try one on Argo then. I recall you saying on an earlier call that you're supportive of Argo AI's potential tapping of public equity. Is there any update you can provide there in terms of, you know, where Argo may be with that process? Or just what is the latest you're thinking about in terms of their overall strategy and trajectory? What has been maybe the early result of some of your trials of robotaxis on the Lyft network or in various cities beyond Miami?

[Jim Farley, President and CEO at Ford Motor Company]

Thank you. Well, first of all, Argo and Bryan continue to make great progress technically on the SDS for Level IV autonomy. We're very happy with the technical progress. Number two, we really see, maybe different than others, Level II, Level III, and Level IV as two distinct products. Yes, Argo could help us with our semi-autonomous capability, but we feel like that would be a big distraction for them, which we do not want them distracted at all. Number three, you know, it's taking time, and this is expensive stuff. From our standpoint, getting access to the capital markets is very critical to give us the flexibility to continue to fund this for many years to come. One thing I would say is we're very focused on partners that would be aligned strategically with Argo.

[Jim Farley, President and CEO at Ford Motor Company]

Use cases that would be very material in the deployment of Argo's technology. We're getting more and more interested as a company, maybe a bit of a strategic shift on goods movement. It's aligned with our commercial vehicle business, and our customers feel they're getting more and more interested in middle mile specifically. I think that's a material update for Argo and hopefully that helps you.

[Ryan Brinkman, Managing Director and Head of U.S. Equity Research for Autos and Auto Parts at JPMorgan]

Yes, very helpful. Thank you.

[Operator]

The next question comes from Joseph Spak of RBC Capital Markets. Please go ahead.

[Joseph Spak, Managing Director and Equity Research Analyst at RBC Capital Markets]

Thanks so much. A couple of questions on cash. I noticed CapEx is now $7 billion, I think it was $7-$8 billion before. Free cash flow is the same. EBIT's still the same. Is the delta to maintain the free cash flow, working capital? While we're on cash, looks like redesign cash is now $1 billion lower this year versus prior, and I think even the total amount you expect to spend on that is lower now. Can you just talk about what's going on there?

[John Lawler, CFO at Ford Motor Company]

Sure. On the redesign, there's efficiencies that we're seeing as we work through the redesign across each of the markets that we've restructured. You're starting to see that show up. There's also some timing differences in there as well, where the work we're doing is, let's say, taking a bit longer to get to a solution or a final position with some of the counterparties we're working with. We also, you know, announced the fact that we will be selling our Craiova facility to Ford Otosan, and that's gonna allow to bring cash into that restructuring that we have there as well for global redesign. That's the short of it from that standpoint. The other point I think the question was around, remind me what it was.

[Joseph Spak, Managing Director and Equity Research Analyst at RBC Capital Markets]

The lower CapEx versus prior.

[John Lawler, CFO at Ford Motor Company]

Yeah. Right. The lower CapEx.

[Joseph Spak, Managing Director and Equity Research Analyst at RBC Capital Markets]

The lower CapEx versus prior at, like.

[John Lawler, CFO at Ford Motor Company]

The lower CapEx that reflects no change in our intended investment in electrification or our fully networked architecture, etc. It's just timing differences in this year relative to what we saw at the beginning of the year. You can still expect us to continually invest. We have the capital to do that. We're balance sheet strong. It doesn't reflect anything on where we see the business heading. It's just timing differences for the most part.

[Joseph Spak, Managing Director and Equity Research Analyst at RBC Capital Markets]

Yeah. The free cash flow remaining the same is a little bit more of a working capital drag than?

[John Lawler, CFO at Ford Motor Company]

Yeah, it's more of a working capital. Yeah, absolutely.

[Joseph Spak, Managing Director and Equity Research Analyst at RBC Capital Markets]

You know, I think you sort of made it quite clear that the primary driver here of covering some of the higher costs is more advantageous pricing. Can you just parse some of the Ford Credit commentary a little bit? 'Cause I think before you said it was, you know, gonna be about $1.5 billion lower, and now there's some language that says strong but lower. Is some of that also coming from some of that makeup, if you will, also coming from Ford Credit?

[Marion Harris, President and CEO at Ford Motor Credit Company]

Yeah, Joe, it's Marion. Let me. I'll just cover the guidance piece on Ford Credit. You know, we said that the profits will be strong but lower, and that's reflecting the fact that we had larger reserve releases in 2021 than we would expect in 2022. In addition to that, we had a lot more supplemental depreciation releases in 2021 than we would in 2022 related to the lease portfolio.

[Joseph Spak, Managing Director and Equity Research Analyst at RBC Capital Markets]

Okay. Did your expectation change versus what you communicated three months ago there?

[Marion Harris, President and CEO at Ford Motor Credit Company]

No.

[Joseph Spak, Managing Director and Equity Research Analyst at RBC Capital Markets]

For this year?

[Marion Harris, President and CEO at Ford Motor Credit Company]

No.

[John Lawler, CFO at Ford Motor Company]

No.

[Joseph Spak, Managing Director and Equity Research Analyst at RBC Capital Markets]

Okay. Thank you.

[Operator]

The next question comes from Emmanuel Rosner of Deutsche Bank. Please go ahead.

[Emmanuel Rosner, Managing Director and Lead Analyst for U.S. Autos and Auto Technology at Deutsche Bank]

Thank you very much. John, last quarter you provided a very helpful walk towards the 2022 adjusted EBIT with some of the largest puts and takes, I was hoping you could maybe update some of the buckets here. Obviously, commodities was expected to be $1.5 billion-$2 billion drag. Now it's $4 billion. What is now the market factors, you know, versus the $6 billion from last time? Ford Credit was gonna be $1.5 billion drag. I seem to understand from the last question that this hasn't changed. Any other changes besides market factors, and can you just quantify them?

[John Lawler, CFO at Ford Motor Company]

Yeah. I think what you see there is exactly that. There's no change to Ford Credit. We are seeing higher inflationary pressures. We are seeing higher top-line pricing that's coming through, but we're also working on cost offsets as well. I think it largely remains what we had talked about last time. We're just seeing higher inflationary pressures and higher pricing flow through.

[Emmanuel Rosner, Managing Director and Lead Analyst for U.S. Autos and Auto Technology at Deutsche Bank]

Okay. Versus the $5.5 billion-$6.5 billion in, you know, volume mix price benefit from last time, you know, we could basically add $2 billion-$2.5 billion to that, which is the pricing offset, the cost offset?

[John Lawler, CFO at Ford Motor Company]

No, I don't think that it's as high as $2.5 billion, Emmanuel. It's you know, there's growth in there, but it's not as high as that. You know, I think that when you look at the walk relative to what we had provided last time, most of the inflationary pressures that we're seeing are being offset by a combination of additional cost reductions, pricing and mix that's flowing through. It's not as large as that, as what you had just indicated.

[Emmanuel Rosner, Managing Director and Lead Analyst for U.S. Autos and Auto Technology at Deutsche Bank]

Okay. On the cost piece of it, are you dialing back or sort of like prioritizing some of the modernization investments? Or is that largely left as is for this year?

[John Lawler, CFO at Ford Motor Company]

No. I mean, absolutely not. I try to make that. I'll say it twice. You know, we are really excited about our growth opportunity in EVs. We have electrical architectures to invest in, software OS. We have partial autonomy to invest in, full autonomy to invest in. That's all part of our Ford+ plan. It's essential to our move to Always On. We obviously have lots of investments in building out our service portfolio for Ford Pro. We're not holding back on any of that. The cost drivers that we see are things like, obviously, manufacturing as we simplify our ICE lineup, and as Doug said, really completely redesign our manufacturing process for EV. We have opportunity in sales and marketing and sales. Opportunity in engineering as we simplify our lineup and, of course, warranty and other areas. I think we know exactly what we need to do.

[Emmanuel Rosner, Managing Director and Lead Analyst for U.S. Autos and Auto Technology at Deutsche Bank]

Understood. Thank you.

[Operator]

Our last question comes from Itay Michaeli of Citi. Please go ahead.

[Itay Michaeli, Director at Citi]

Great. Thanks. Good evening, everybody. Just two quick ones from me and thanks for squeezing me in. First, you did talk about the cadence of earnings before, but just hoping we could revisit it in terms of kind of how to think about the adjusted EBIT for the rest of the year, and whether there is any bias at this point towards the low end or high end of your full year guidance range. A second more housekeeping question is whether you can provide what you anticipate the Ford Motor Credit dividends to be back up to the parent.

[John Lawler, CFO at Ford Motor Company]

Yeah. I mean, we're not gonna parse out the guidance. It's $11.5-$12.5. It's a dynamic environment. You know, we're working to offset all the headwinds and maintain the guidance. As far as parsing out where we sit within the guidance, it's $11.5-$12.5.

[Jim Farley, President and CEO at Ford Motor Company]

Yeah. On the dividends, the dividends are a function of overall profits and balance sheet size and leverage. In this case, you heard the guidance on profits and then for the balance sheet, we don't expect much growth this year just given where we are on vehicle constraints. You know, the majority of profits. We don't have a specific number. Just make it really clear on the overall company's automotive performance, financial performance. The H2 is very critical for us. It's just a very critical time for the company. We have the opportunity to build in volumes we haven't for a while and we have a lot of great fresh products, a lot of costs coming into the business, but H2 is really critical for the company.

[Itay Michaeli, Director at Citi]

That's all very helpful. Thank you.

[Operator]

This concludes the Ford Motor Company Q1 2022 earnings conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Bill Ford, Executive Chair
• Doug Field, Chief EV, Digital, and Design Officer
• Hau Thai-Tang, Chief Industrial Platform Officer
• Jim Farley, President and CEO
• John Lawler, CFO
• Lynn Antipas Tyson, Executive Director of Investor Relations
• Marion Harris, President and CEO

Analysts

• Adam Jonas, Managing Director and Lead Analyst at Morgan Stanley
• Colin Langan, Director and Senior Equity Analyst at Wells Fargo
• Dan Levy, Director and Senior Equity Research Analyst at Credit Suisse
• Emmanuel Rosner, Managing Director and Lead Analyst for U.S. Autos and Auto Technology at Deutsche Bank
• Itay Michaeli, Director at Citi
• John Murphy, Managing Director and Lead U.S. Auto Analyst at Bank of America Merrill Lynch
• Joseph Spak, Managing Director and Equity Research Analyst at RBC Capital Markets
• Mark Delaney, VP and Senior Equity Research Analyst at Goldman Sachs
• Rod Lache, Managing Director and Senior Analyst at Wolfe Research
• Ryan Brinkman, Managing Director and Head of U.S. Equity Research for Autos and Auto Parts at JPMorgan