Ford’s Second Quarter Production To Reduce By 50% Due To Chip Shortage

The global shortage of semiconductors for the auto industry could take till 2022 to get completely resolved expects Ford Motor Co, but the company also said that it expects to see an easing of the shortage by this summer.

This was commented on by the auto maker as it reported strong first-quarter profits but also warning at the same time that production can be cut down by half in eth second quarter because of the chip shortage.

For 20201, it expects to see lost production of about $2.5 billion and about 1.1 million units because of the ongoing chip shortage, Ford said.

Estimates of profits for the second largest auto maker of the United States for the first quarter was comfortably beaten by Ford as it reported earnings of 81 cents a share, compared with the consensus 21 cents, according to Refinitiv IBES data.

The company lost 50 cents a share in the first quarter of last year.

“There are more whitewater moments ahead for us that we have to navigate. The semiconductor shortage and the impact to production will get worse before it gets better. In fact, we believe our second quarter will be the trough for this year,” Ford Chief Executive Jim Farley told analysts.

A factory fire suffered by Japanese chipmaker Renesas was the major driver of the outlook of Ford, said the company’s Chief Financial Officer John Lawler. He said that while Renesas is expected to restore its flow of chips in July, it may not be until next year that the global shortage of automotive semiconductors could be completely resolved.

The net income of the quarter of $3.3 billion was also Ford’s best since 2011 while its adjusted pre-tax profit reached a record $4.8 billion, which included $900 million non-cash benefits on its investment in the electric vehicle start-up Rivian, the company said. In the first quarter of 2020, the company had reported a loss of $2.0 billion.

The shortage of chip will cut down its full-year earnings before interest and taxes to between $5.5 billion and $6.5 billion, the company said.

The company was on course to earn $8 billion to $9 billion in adjusted EBIT, Ford CFO Lawler had said in February.

During the quarter, the revenues of the quarter rise to $36.2 billion compared to $34.3 billion for the same quarter a year ago.

According to research firm Edmunds.com, an increase in the average transaction price per vehicle sold to almost $48,000 compared to just over $44,000 in the same quarter a year ago helped Ford to offset some of the effect of lost production during the first qyarter of the year.

Chip-induced shortages of popular models, such as the best-selling F-150 pickup, also enabled dealers of the company to command higher prices.

In the future, Ford could take up a strategy of sticking with leaner inventories of F-150 and other models “because it’s a better way to run our business”, Lawler said.

(Adapted from Nasdaq.com)



Categories: Economy & Finance, Strategy, Sustainability, Uncategorized

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