According to Ford's most recent earnings report, despite semiconductor shortages reaching their peak in the second quarter 2021, Ford claims it achieved better-than-expected operating performance by leveraging strong demand from new vehicles like its Bronco SUV.Ford expected to lose approximately 50% of Q2 production in April. This resulted in a loss of profit for the period. According to the report, Ford was able generate $1.1 billion in adjusted earnings before interest, taxes, and other costs.According to Ford's statement, Farley stated that the Mustang Mach-E is profitable and the demand for other Ford vehicles is up 7x over last year. Farley also said that the business is spring loaded for a rebound once semiconductor supplies stabilize and better match demand.The company stated that it had increased its full-year target for adjusted free cash flow between $4 billion to $5 billion. This was due to favorable second-half working capital, as vehicle production rises and semiconductor availability improves.Ford's optimism is apparent on the outside, but Farley was more realistic and cautious when Farley was asked about it during the call.He said that we see the chip problem continuing through the year and could see it bleed into next year. We have had talks with FAB suppliers. We have been told by the FAB suppliers that they are increasing automotive supply, reallocating capital and so on. This is one of those situations where we have to feel the relief before we can truly feel at ease that we are out of the woods.Farley stated that the industry is beginning to see signs of improvement in chip flow in the third quarter. However, the situation remains fluid.He is correct. According to the Semiconductor Industries Association, Semiconductor sales increased 4.1% in May compared to April. Sales also increased 1.9% over March 2021. A World Semiconductor Trade Statistics report, released in June, forecasts that global annual sales will rise 19.7% in 2021 to 8.8% in 2022. The Taiwan Semiconductor Manufacturing Company stated earlier this month that it expects there to be a significant decrease in shortages of semiconductors starting this quarter because of its increased production efforts. According to the company, it has already increased the production of microcontroller units by 30% YOY during the first half year and plans to increase that to more than 30% before the pandemic 2018.Although it sounds promising, not everyone is on the exact same page. Global chip manufacturer Flex from Singapore, recently warned of a global shortage. This was exacerbated by increased demand for cars (especially electric), as well as pandemic-induced purchase of gaming consoles, tablets, and laptops.Farley stated that Ford is working closely with suppliers and semiconductor fabricators to help them plan for future productions.The reason that there is a shortage of semiconductors is because automakers have cut back on their orders after the pandemic resulted in a fall in sales last spring. When Q3 2020 arrived, and passenger vehicle demand rebounded, chipmakers had already been spoken for and were able to fill orders from IT and consumer electronics customers.Ford's defense is that it is difficult to predict the outcome of a pandemic or how many chips would be needed. Let's hope that this does not lead to hoarding like the Great Toilet Paper Crisis of 2020.
