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How Does Ford Motors Make Money?

Ford Motors (NYSE: F) has been around since 1919, but it is facing perhaps its toughest period yet. While it was struggling before the pandemic hit, demand for cars has fallen, forcing the company to look to the future by investing in electric vehicles and autonomous driving as well as streamlining its current manufacturing business.

This article was originally published on MyWallSt — Investing Is for Everyone. We Show You How to Succeed.

 

Business model

Ford is one of the oldest car manufacturers that is still in operation today. The company made about 92% of its total revenue in 2019 from automotive sales. In Q2 2020, U.S. total sales fell by 33.3% year-on-year. Of the 433,869 vehicles it sold in the U.S. during the quarter, 54.8% were trucks, 34.9% were SUVs, with the remaining 10.3% being cars.

In a distant second place for Ford when it comes to revenue generation is its Ford Credit division, accounting for about 7.8% of total revenue in 2019. This side of the business mainly relates to the financing of Lincoln and Ford vehicles around the U.S., as well as helping to financially support dealerships. 

Finally, a very small slice of revenue ($43 million) comes from Ford’s mobility segment. This part of the business model sees Ford designing, growing and investing in emerging mobility services across the world such as autonomous vehicles and self-driving software. 

 

How does it make money?

The vast majority of revenue generated by Ford comes from selling its cars. The number of vehicles being sold each year has been falling, with Ford selling 9.6 million vehicles globally in 2017, dropping to 8.38 million in 2018 and 7.71 million in 2019. While the COVID-19 pandemic can be blamed for some of the decline so far in 2020, it is a worrying trend. 

There are five main geographical regions where Ford sells its cars, with North America still being its main market. It had a domestic market share of 14% in 2019, but its international efforts have been lagging. 

There was $12.26 billion generated by the Ford Credit subsidiary in 2019. Of this figure, $5.9 billion came from operating leases, almost $4 billion from retail financing and $2.3 billion through dealership financing.

Ford Mobility is the research and development segment of the company, looking at self-driving cars and the relevant software needed. It plans to have invested $4 billion on autonomous vehicles by 2023.

 

What’s next?

Ford has been trying to significantly slash its debt in recent times. It still has some way to go in this regard, but it is heading in the right direction. As part of its cost-cutting measures, it has been laying off people. Most recently, there were 1,400 people laid-off in North America, not relating to the pandemic. 

There has been a push to focus on its more profitable vehicles in its SUV and trucks range, as well as its Mustang sports car. The Ford Bronco SUV is also making a comeback, which could become a major competitor in the off-road market. 

With current CEO Jim Hackett set to retire on October 1 and replaced by current COO Jim Farley, there is a belief that this move will further boost the company’s restructuring efforts. The company has been a latecomer to the electric vehicle space. Traditional rivals like General Motors (NYSE: GM) are far ahead of Ford in this regard. However, Ford has been investing heavily in this side of things, with the company launching its first all-electric vehicle, the 2021 Ford Mustang Mach-E. Another area that the company is investing in is autonomous vehicles, which is a future-looking initiative.

 

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Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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