A pandemic couldn’t stop the onslaught of electric vehicles coming—in some cases the crisis accelerated it. But that’s not the only headline-grabbing “disruption” in the auto industry. No, the real disruptor these days is the ongoing semiconductor chip shortage—and the prognosis is not good, which can mean customers will be waiting even longer for hot new products.
The computer chip shortage and its impact on production will get worse before it gets better, Ford CEO Jim Farley told investors on a call to discuss the company’s first-quarter earnings.
A few months ago, Ford executives thought the shortage (which is forcing automakers around the world to temporarily stop making vehicles) would be on the rebound within months and lost production would be made up in the second half of the year. Partially finished vehicles on lots awaiting chips to install missing components would be completed and delivered to waiting customers during a time of tight inventories. Everything would work out.
Things Will Get Worse Before They Get Better
Nope. “There are more whitewater moments ahead for us that we have to navigate,” Farley says. The second quarter will be even worse than the first and Ford could lose 700,000 units of production or half what normally would be built. That is on top of the 22,000 partially finished vehicles that can’t be delivered to waiting customers. Even the second half of the year will likely see a 10-percent reduction in output. The shortage could cost $2.5 billion, the loss of 1.1 million vehicles—up from early projections of as little as 200,000—and the fear is it will stretch into 2022.
The timing is bad: Farley says Ford’s lineup has never been hotter. “It feels like we’ll be chasing demand for quite some time,” the CEO says, and then gave a litany of vehicles he says are sold out, including the 2021 Ford Mustang Mach-E, the 2021 Ford Bronco Sport, the 2021 Ford Bronco, the updated Ford F-150, and the Ford Super Duty pickup trucks. We won’t take him completely literally, but we get the point: inventory is tight.
Japanese Chip Supplier Rebounding After Fire
There is some hope on the horizon for those anxious to get a Mach-E or on a waiting list for a Bronco (which has been delayed). The global shortage was exacerbated by a fire in March at Renesas Electronics, a supplier in Japan, which makes two-thirds of the chips that go into Ford vehicles via about nine key suppliers. A single vehicle could have hundreds of semiconductors which are used in everything from power steering, brakes and driver assistance systems to infotainment setups. But Renesas is expected to be back to full production by July.
And Ford executives have realized they cannot take supply of critical items such as chips, silicon and battery cells for granted. More vital components and systems need to be brought in-house instead of relying on the supply chain. This week Ford said it was establishing a battery cell research and development center as a step to manufacturing its own batteries for electric vehicles.
Ford’s Over-The-Air Updates
On a more positive note, Ford did its first major over-the-air update for Mach-E and F-150 customers, and later this year some customers will get an OTA update to activate BlueCruise, Ford’s Level 2 hands-free driving-assist system, that is coming for Mach-E and F-150 models with the Co-Pilot360 Active 2.0 Prep package.
And the executive team has no intention of hitting the brake pedal when it comes to electric vehicles. Ford plans to invest $29 billion toward electric and autonomous vehicles through 2025 with $22 billion of that earmarked for EVs. General Motors is spending $29 billion to launch 30 new EVs globally by the end of 2025.
Excellent First Quarter Earnings for Ford
The distressing chip situation was not enough to dampen Ford’s best first quarter since 2011. The automaker earned $3.3 billion in the first three months of the year on revenue of $36.2 billion. Double-digit profit margins, a second strong quarter in Europe, and Lincoln’s profits in China all contributed. Average transaction prices are $1,900 above the industry average, says chief financial officer John Lawler.
But the chip shortage could lower total earnings for 2021 by $2.5 billion.
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