DETROIT—Creative solutions amid the semiconductor shortage that continues to disrupt production around the globe helped auto makers stay solidly in the black even through what they think was the worst of the crisis.
Tesla Inc. engineers spent weeks swapping in substitute chips and rewriting firmware to ensure record deliveries from April through June, helping the electric auto maker post its largest-ever quarterly profit, of $1.1 billion.
Ford Motor Co., which attributed a $561 million second-quarter profit to better-than-expected demand and strong pricing for its newest products, said it has started engaging more directly with chip fabrication plants and providing suppliers with longer-term forecasts. Ford also is now dual-sourcing more parts and stockpiling certain components to prevent further financial damage.
Difficulties remain—Tesla again delayed its long-awaited semitruck because of supply issues, while Ford CFO John Lawler admitted the chip crisis could "bleed into the first part of next year"—but the latest financial results suggested the toughest stretch may have passed.
"It does seem like it's getting better, but it's hard to predict," Tesla CEO Elon Musk said on an earnings call.
Ford did make a prediction, raising its full-year forecast for adjusted earnings by $3.5 billion and saying it expects 30 percent more volume in the second half than in the first as it works to fulfill a surging customer order bank on its newest offerings.
"We are now spring-loaded for growth in the second half and beyond because of those red-hot products, pent-up demand and an improving chip supply," Ford CEO Jim Farley told investors.
Volkswagen last week reported record first-half earnings and upped its profit-margin target for the year.
Stellantis and General Motors, both of which have lost significant production to the chip shortage, plan to report earnings this week. Over the past two months, GM completed and shipped 30,000 midsize pickups that had been awaiting chips, and it found a way to increase production of heavy-duty pickups by 1,000 a month starting in mid-July.
Finishing vehicles
In contrast to its rosier outlook for the remainder of the year, Ford was hit hard by the chip shortage in the second quarter.
The auto maker earned $194 million in North America, the region's smallest profit since the second quarter of 2020, due mostly to significant downtime at many assembly plants.
Lawler said the shortage cut Ford's planned production in the quarter by half and that the number of unfinished vehicles awaiting chips had roughly tripled, to between 60,000 and 70,000. The company thinks it can get a majority of those vehicles into customers' hands by the end of September.
With many dealership lots running dry, Ford's North American market share fell by almost a third from the same period a year earlier, according to Edmunds data.
Ford executives say that's a short-term loss they expect to recoup as chips become more readily available and new products continue flowing into showrooms.
Ford said it now has more than 120,000 reservations for the F-150 Lightning electric pickup, which hits showrooms in the middle of next year, and that 2 out of every 5 reservation holders are switching from a gasoline-powered pickup. The company also has about 80,000 reservations for the Maverick, a hybrid compact pickup that goes on sale this year.
Order bank
The crisis is prompting Ford to rethink how it gets many vehicles from the assembly line to a customer's driveway.
Farley said Ford plans to move to an order bank system for all of its products and maintain a 50- to 60-day supply of vehicles, much lower than before the chip crisis and pandemic.
Ford's order bank currently sits at about 70,000, Farley said. An order bank helps the company keep incentive costs down and reduces complexity by giving it a better idea of what exactly customers want.
"In our view, this is a bigger narrative change on the go-to-market strategy than meets the eye," Morgan Stanley analyst Adam Jonas said in a note to investors last week. "Hats off to Ford for innovating AGAIN on such important issues when we really didn't expect it. CEO Jim Farley seems to be up to some seriously cool strategic growth drivers behind the scenes here."
At the same time, Jonas questioned what the strategy shift means for retailers, asking whether it would "essentially turn dealers into customer delivery centers."
Farley said dealers shouldn't be worried about the move because there's opportunity to make more money on service.
"That's the most important thing for us; wiring a closed loop between the vehicle, the condition of the vehicle, the service capacity of the dealers and the customer," he said on Ford's second-quarter earnings call. "Our chance to win ... is that in-person service."
Less than a third of Tesla's net income in the second quarter came from selling regulatory credits to competitors, one of the few times it has made money selling the vehicles it produces unaided by other means.
The auto maker delivered 201,304 vehicles in the quarter, up 121 percent from the same period a year earlier.
But Tesla dampened investors' enthusiasm over the record results by pushing back plans for some high-profile products that are seen as vital to the company's growth. There is also rising uncertainty about how soon new plants in Texas and Germany can begin production. "Tesla, apparently worn down by the second-half deliveries due to the chip shortage, delayed 4680 batteries and Cybertruck, as well as Tesla semi, and offered no clarity around the timetable for fully ramping Berlin in the face of environmental permitting issues," Brian Johnson, an analyst with Barclays, wrote in an investor note."
