What Are Ford Motors’ Key Sources Of Revenue?

The fourth largest automotive manufacturer, Ford Motors (NYSE: F), operates across four continents – North America, Europe, Asia-Pacific, and South America – under the brand names, Ford and Lincoln. Of these, the company generates over 60% of its revenue from its North American operations, and we expect this trend to continue in the near term. In this note, we will discuss major revenue divisions of Ford.

We currently have a price estimate of $10 per share for the company, which is around 5.5% higher than the market price. View our interactive dashboard Ford Revenue By Division and modify the key drivers to visualize the impact on its valuation.

North-America (NA) (~60%) – NA is a key market and a major revenue source for Ford. As the consumer preferences change toward SUV’s, pickup trucks, and crossovers, the company is experiencing lower sales volume of sedans, negatively affecting the revenues. However, with the rising demand for SUVs and trucks, the average selling price is likely to improve rather than decline. The company generates its maximum revenues from F-series pick-up trucks and commands nearly 18% market share in the NA segment. However, volatile oil prices and political pressures for more fuel-efficient cars have taken a toll on the market for larger vehicles. According to our estimates, the company will retain its share of around 13.5% in this market and the average selling price will increase by 1% every year. Consequently, we expect North America to continue to be a key contributor of Ford’s revenue in the coming years.

Europe (~19%) – Majority of the automakers in Europe have been struggling to break-even due to excess capacity in the market. As a result, they end up offering huge discounts, which negatively affect their revenues. Accordingly, we expect Ford to experience a slow down in its revenue from this region in the near term. Based on our estimates, the company could witness a 2.3% decline in revenues from this region.

Asia – Pacific (~10%) – In this region, the demand for smaller cars is higher compared to sedans and SUVs, which creates a drag on the average selling price. Further, declining sales in China are a major concern for the company. However, the lower pricing will be offset by higher pricing of the luxury brand, Lincoln, which will drive the revenue

of the region upward.

Financing (7%) – We expect Ford’s financing division to face some setbacks due to an environment of increasing interest rates, which could negatively affect the revenues for the company. However, increased wages in the US might offset the impact of higher interest rates. Since luxury vehicles are predominantly driven by lease sales and Ford’s SUV sales and Lincoln sales are expected to rise, we expect a higher number of vehicles to be sold by the company’s leasing program.

South-American (~4%) – Ford has witnessed strong growth in the region, particularly Brazil. The improving economic condition and a favorable business environment backed by government incentives is likely

to drive the company’s revenue growth in the region. Going forward, we expect a 6.7% rise in revenues from this division.