Ford Motor Company (F) Earnings

Management highlights

- Overall Strategy Execution • The Ford Plus transformation strategy is delivering results, focusing on three core pillars: profitable core automotive operations, high-margin recurring software and physical services, and high-return adjacency businesses built on Ford's existing competitive advantages • Ford ranked #1 among all mainstream brands in J.D. Power's 2026 Initial Quality Study, marking the start of a virtuous cycle expected to lower warranty/recall costs, improve customer loyalty, and increase pricing/residual values • A ratified three-year labor agreement was reached with Unifor for Canadian operations, supporting the ongoing Oakville manufacturing expansion and underscoring the importance of USMCA for leveling the playing field for North American automakers - Core Automotive Product Highlights • F-Series remains the top-selling truck in the US, on track for its 50th consecutive year of segment leadership, with off-road enthusiast vehicles (Bronco, Tremor, Raptor) accounting for 25% of Q2 US sales, delivering higher margins and attracting younger, more affluent new customers • Ford holds leading hybrid market share: F-150 hybrid is the top full-size hybrid truck, and Maverick hybrid is America's best-selling hybrid pickup, with plans to expand hybrid options across the full lineup • Oakville's Super Duty capacity expansion is on track to launch in Q4 2026, adding up to 100,000 units of annual capacity to meet pent-up demand • The new affordable UEV EV platform development is on schedule, with prototypes already testing on public roads; customer deliveries will begin in 2027, starting at ~$30,000, with Apple embedded maps and class-leading advanced driver assistance features • Ford announced a strategic partnership with Geely to bring speed and capital efficiency to its European operations - Software and Physical Services • Ford now has over 14 million connected vehicles globally, with total paid subscriptions growing ~50% year-over-year to ~1.6 million, including over 900,000 paid Ford Pro Intelligence subscriptions; high customer conversion from free trials confirms product value • The mobile service business has over 5,000 service vehicles on the road, delivering 1.5 million remote services in Q2 (1.1 million in the US), with much higher net promoter scores than in-center service that drives customer loyalty - Adjacency Business: Ford Energy • Ford Energy, a new stationary energy storage business launched in 2026, is on track to reach 20 GWh of annual production capacity by late 2027, positioning it as a leading North American energy storage manufacturer • The business leverages Ford's US manufacturing scale, battery technology, brand recognition, and service expertise to compete, with a recently announced partnership with EDF Power Solutions North America, and ongoing discussions with a broad base of potential customers

Guidance

- Full-year 2026 adjusted EBIT guidance is raised and narrowed to $10 billion to $11 billion, an increase of $1 billion at the midpoint, driven by stronger than expected pricing and product mix - Adjusted free cash flow guidance is increased to $6 billion to $7 billion, including the expected receipt of ~$500 million of the $1.3 billion IEFA reimbursement booked in Q1 2026 - Capital expenditure guidance remains unchanged at $9.5 billion to $10.5 billion, with capital allocated to high-return growth projects - Segment-level 2026 guidance: Ford Blue EBIT raised to $5 billion to $5.5 billion; Ford Pro EBIT narrowed to $7 billion to $7.5 billion; Model E full-year loss improved to ~$4 billion, including ~$1 billion in incremental investment for UEV and Ford Energy mostly weighted to H2 2026; Ford Credit full-year EBT is now expected to exceed $2.5 billion - Full-year guidance assumes US industry sales of 16 million to 16.5 million units, commodity headwinds of just over $2 billion, and full-year US industry pricing of +50 basis points (a 0.5 percentage point upward revision from prior guidance) - Ford remains on track to deliver $1 billion in combined material and warranty cost reductions in 2026, enabling increased investment in UEV and Ford Energy - 2027 EBIT guidance is not yet provided, but expected drivers of improvement include the elimination of $1.5 billion in temporary Novellus supply costs, continued material/warranty cost reductions, and growing software/services revenue, partially offset by new product launch costs and the non-repeat of the 2026 $1.3 billion IEFA tariff benefit

Segment performance

1. Ford Blue: Generated $1.1 billion in EBIT (up 72% year-over-year) on $26.1 billion in revenue (up 1% year-over-year). This segment contributes ~54% of total automotive revenue, with results driven by favorable product mix, higher net pricing, and US regulatory changes that offset an 8% wholesale volume decline. Strength came from record Bronco family sales, 22% retail growth for three-row Explorer and Expedition, and disciplined go-to-market execution for F-Series. 2. Ford Pro: Delivered $1.7 billion in EBIT (down 26% year-over-year) on $17.8 billion in revenue (down 5% year-over-year), contributing ~37% of total automotive revenue. Results were impacted by temporary Novellus aluminum supply disruption, but the segment retained market leadership in North America and Europe, with 2027 model year customer contracting running one month ahead of 2025 pace. 3. Ford Model E: Reported an EBIT loss of $919 million (a 31% year-over-year EBIT improvement) on $4 billion in revenue. This marks the third consecutive quarter of year-over-year EBIT improvement, driven by structural cost reductions, right-sized Gen 1 EV volumes, and lower US incentives. The segment contributes ~8% of total automotive revenue. 4. Ford Credit: Earned $757 million in earnings before tax (EBT), up $112 million year-over-year, supported by strong financing margins, a high-quality portfolio, and disciplined risk management.

Risks & headwinds

- Full-year guidance does not include potential impacts from a significant escalation of conflict in the Middle East or a material downturn in the US economy, either of which could substantially impact industry demand - The Novellus aluminum supply disruption has resulted in $800 million in temporary costs year-to-date, with a full-year expected cost impact of ~$1.5 billion, weighted to the first half of 2026 - Unfavorable commodity pricing is expected to create a larger headwind in the second half of 2026, with ~$1.5 billion of the full-year $2 billion+ commodity impact occurring in H2 - Negotiations to revise USMCA rules are still in early stages, and changes to content requirements could create supply chain adjustment costs for the industry, though Ford is positioned favorably due to its high domestic production share

Analyst Q&A

• Q: The analyst asks if Ford is engaging with hyperscalers for direct offtake of Ford Energy storage capacity, what inning the business is in for contracting 2028 capacity, and what factors will drive a decision to add more capacity beyond 20 GWh. /

  A: Ford reports strong broad-based demand for its 20GWh 20-foot containerized LFP energy storage products, with interest not limited to utility providers. The company is currently in the third inning of selling out 2028 20 GWh capacity, in line with internal forecasts, and prototype cells are already being produced in Michigan with the first capacity coming online in 2027. Decisions to expand capacity will depend on customer order flow, customer tax credit eligibility, and the company's strategic capital allocation priorities. (387 characters)

• Q: The analyst asks what drivers are behind the recent growth in higher-margin off-road and premium trim mix, and if this mix benefit can continue through the second half of 2026. /

  A: Ford has grown off-road trim share by over 4 percentage points year-over-year in Q2 2026, with strong growth across popular nameplates: Tremor now makes up 15% of Expedition sales, Raptor sales are up 9% year-to-date, and the Bronco family posted record first-half sales. The company expects this favorable high-margin mix trend to continue for the remainder of 2026, aligned with its product strategy of prioritizing iconic, high-margin nameplates. (342 characters)

• Q: The analyst asks what the J.D. Power quality win means for future warranty and recall cost reductions beyond 2026. /

  A: The #1 initial quality ranking already supports ongoing year-over-year warranty cost improvement that contributes to Ford's 2026 $1 billion cost reduction target. The number of total recalls is down 40% year-over-year, and newer model years are already showing substantial improvements in recall volume and frequency. Management expects this to create an ongoing virtuous cycle: higher initial quality leads to better long-term durability, lower recall and warranty costs, which drives margin expansion toward the 2029 8% target. (369 characters)

• Q: The analyst asks if Blue Cruise software subscriptions are on track to add ~0.5 percentage points to Ford's overall automotive margin within the next two years, and if Apple Maps integration will expand beyond the UEV platform. /

  A: Blue Cruise continues to deliver strong growth, with paid subscriptions up 20% in Q2 2026 and accounting for 50% of Ford's retail integrated services revenue, with over 840 million miles driven on the platform to date. Management confirmed Apple Maps integration could expand to other Ford vehicles, and stated that high-margin integrated software and services are on track to add up to 0.5 percentage points to Ford's overall margin within the next few years. (351 characters)