Ford F-150 Lightning EV: ‘There’s pricing power there,’ CFO says

Yahoo Finance
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Ford CFO John Lawler joins Yahoo Finance Live to discuss company earnings, inflationary headwinds, pricing pressure, expansion plans, and the outlook for EV production.

Video Transcript

- Ford handedly beat earnings estimates on both the top and bottom lines in its first quarter while reporting a $722 million loss in the EV unit. The company also reaffirmed its existing guidance for the year. We had a chance to catch up with CFO John Lawler. Take a listen.

JOHN LAWLER: We had a solid quarter. We had top line growth overall for the company at 20%. We posted a good adjusted EBITDA at 3.4 billion. We saw growth in Blue. We saw growth in our commercial business with Ford Pro. But we did talk about the fact that we do see the macroeconomic environment through the second half of this year is unclear. There's a lot of puts and takes.

And so we held guidance for the full year between 9 billion and 11 billion adjusted EBITDA. And we think that's prudent at this point, given where we and we see the industry unfolding and we see macroeconomic tailwinds and headwinds impacting us.

- Hey, John. Can you give us a little more sort of color on the puts and takes that you're seeing for the second half of the year because it does seem that there are some questions about you not raising the forecast after the first quarter that you had. So tell us what you're expecting in a little more detail the second half of the year to look like.

JOHN LAWLER: Right. So when we talk about the puts and takes, we have an incredibly strong product lineup at Ford Pro in our commercial business. So that's definitely going to be a tailwind for us as we run through the year. We also have great demand for our Blue products, our gas products. And we see that as a tailwind. But we also see headwinds in the fact that inflation continues. Credit is tightening. Affordability is on consumers' minds. And all of that will play into the second half of the year.

Additionally, we are starting to see the supply constraints that have plagued the industry for the last three to four years ease. And that's going to bring supply and demand back into balance. And so with that, we do see that there's probably going to be pricing pressure. And we said that when we started the year, primarily in our ICE business. And we're planning for that. So I think all in all, puts and takes, when we look at the pricing environment, we see us as being neutral. But there are some segments that will be positive and other segments that are going to feel the pressure from the top line.

- And, John, specifically on interest rates, I'm curious, especially as we're getting a decision from the Federal Reserve on rates today, in the past in tightening cycles, what have you seen in terms of activity from consumers, especially as we sort of get to the end of it, but then rates, they're still at the same level, and so financing is more expensive for consumers. What tends to happen?

JOHN LAWLER: Well, what tends to happen is you start to see-- to keep the balance between the supply and demand in pricing, you start to see prices come down because affordability is critical for the consumer. And if you don't have a competitive advantage, new product or unique distinct product, then what you see is pricing pressure on your top line in those segments. And so what we see is that primarily coming through the Blue business. We have strength in Pro. We have strength on some of our new products. But, overall, we said we expect the industry to see price contraction of about 5% as we go through the year, primarily in the second half of the year.

- John, are we in the middle of a EV price war right now, especially considering some of the new pricing structures that your competitors have rolled out. And you as well have taken some action there too.

JOHN LAWLER: You can't paint the segment [AUDIO OUT]. When you look at the F-150 in Lightning the electric F series, there's pricing power there. Demand remains very strong. Our order bank is full. And we've seen pricing power. Our electric transit van. Again, demand is very strong. Great order bank. We're seeing pricing power there. Now, in the two-row crossover segment where there's more competition, we're seeing some price pressure there. And that's on our Mustang Mach-E vehicle. So you can't paint the segment with a broad brush. You have to look at each of the segments. And you have to understand what's happening in those segments from a competitive standpoint and what's happening with the consumers.

- It sounds like some of your competitors are willing in the near term to sacrifice some of those margins in order to have a longer customer lifetime value. How do you view that from your perspective in keeping your customers within the Ford ecosystem and family of models?

JOHN LAWLER: So we're one of the first movers in the space. And with that, we're bringing new customers into Ford. So that's important. Loyalty is important when it comes to the EV business. Consumers, before they purchase an EV, they're not loyal. After they purchase an EV, they're showing to be very loyal to that brand. So that's important. But let me be clear. We are not going to sacrifice profitability just for share and volume. We are going to find a balanced approach. And we're going to make sure that that balanced approach serves as well over the long run. So we're going to be competitive. But we're also going to be thoughtful where we take price reduction and that balance between pricing and profitability.

- On EV specifically, you guys have set a target of 600,000 for your global EV production run rate for this year. Are you guys going to make that target?

JOHN LAWLER: Yes. So it's the run rate coming out of this year. 600,000 units. We've expanded capacity this quarter for our Mach-E business. We'll expand capacity on our F-150 Lightning business later this year. So yeah. We'll have the capacity in place. We'll be able to run at that level. And our intention is that we'll be able to fill that capacity. So that's all on plan.

- John, on the affordability metric that you had mentioned a moment ago, saying affordability is on consumers' minds right now-- I wonder what you're hearing from your delivery and wholesale partners. Rather, wholesales were down during the quarter. So what are you hearing from some of those dealer partners?

JOHN LAWLER: Yeah. So affordability is definitely on the mind of consumers. If you look at what their disposable income takes to purchase a vehicle, it's about 15%. Historically, before the pandemic, it was about 13%. So you're seeing some imbalance there. And so you're starting to see some pressure on the top line. Now, mind you, our dealer partners have had a very strong run when it comes to pricing power. And you're starting to see that ease a little bit. You're starting to see that ease a little bit, as I mentioned earlier, for the OEMs as well.

So I think it's all coming together and it's all playing out. It's been unprecedented over the last few years the shortfall of supply to what demand was. And now that's coming more into balance. And you're going to see that impact your pricing from a top line standpoint. And that's what they're seeing.

- And when we think about materials as well that go into, of course, bringing the EV production to the market, lithium has continued to come up in conversation. Is lithium one of the materials that keeps you up at night to the same extent that it does some of the other execs in the electric vehicle landscape?

JOHN LAWLER: Yeah. Well, vertical integration when it comes to EVs is critical because you need the minerals to produce the batteries to produce the vehicle. So it's lithium. It's nickel. It's cobalt. All of those are something that you need to secure. We have the minerals secured to support the 600,000 production run rate by the end of this year. And we're well on track to support a 2 million run rate by 2026. So yeah. It's something that we're focused on. It's something that is top of mind. And it's something that we're managing.