(Bloomberg) — Ford Motor Co. has switched gears on a previously dour financial outlook, saying it now expects stronger second-quarter results thanks to growing demand for its models and a sharp rise in the prices consumer pay for them.
“Our pricing is just strengthening every day,” Chief Executive Officer Jim Farley said Thursday at Deutsche Bank’s automotive conference. “It’s pretty breathtaking actually.”
Ford projects that earnings before interest and taxes in the current quarter will be “significantly better” than last year, when the company lost $1.9 billion on that basis, it said in a statement.
Farley also credited cost cutting, especially in overseas operations that he said had been a “$2 billion to $3 billion drag on our business,” but now turn a small profit. And the automaker is seeing robust demand for its newest models, including a revived Bronco sport utility vehicle, its electric F-150 Lightning pickup and the Maverick compact truck.
Shares rose initially on the improved forecast, but ended the day down 1.7% to close at $14.77 in New York. The stock is up about 68% this year.
Ford had earlier forecast a $2.5 billion hit to earnings this year due to the global semiconductor shortage, which it said would cut second-quarter production in half. But the U.S. auto market has proven more buoyant than expected and vehicle prices have risen as inventories dwindle on dealer lots. The paucity of new vehicles has driven up prices of used cars, which is padding profits at the automaker’s lending arm, Ford Credit.
Farley sees inventory remaining scarce until “some time during 2022,” but said the company doesn’t want to give up the pricing power that the short supply created. So it will continue to rein in inventory even after the chip crisis is over.
“In 2019, we were up to 100-days supply with the F-Series. We’re not going to do that again,” Farley said. “Our normal has changed.”
Ford reported reservations for the new Bronco have swelled to 190,000, some 125,000 of which have already been converted to orders for the SUV that began production this week. Reservations of $100 for the electric F-150 Lightning pickup stand at 100,000, and 36,000 reservations have been placed for the Maverick small pickup.
Last month, Farley announced Ford was boosting investments in electric vehicles by 36% to $30 billion and sees four-in-10 of its global sales being battery-powered by 2030.
General Motors Co. one-upped Ford Wednesday, announcing it was boosting its spending on electrification by 30% to $35 billion by 2025. Farley seemed to respond by arguing for spending smartly to electrify your best sellers and giving them features that go beyond batteries and electric motors.
“It’s not just how much money you spend or how vertically integrated you are, it’s where you want to play,” Farley said. “Play to your strengths, choose your market wisely and execute the product beyond propulsion — that’s the lesson of F-150 Lightning so far.”
(Updates with CEO comments from the second paragraph)
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