FORD MOTOR CO 10-Q

Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 17. EMPLOYEE SEPARATION ACTIONS AND EXIT AND DISPOSAL ACTIVITIES (Continued) Ford Credit Accumulated foreign currency translation losses included in Accumulated other comprehensive income/(loss) at September 30, 2022 of $ 223 million are associated with Ford Credit’s investments in Brazil and Argentina that have ceased operations. We expect to reclassify these losses to income upon substantially complete liquidation of Ford Credit’s investments, which may occur over multiple reporting periods. In the first nine months of 2022, we reclassified losses of $ 155 million to Other income/(loss), net , upon the liquidation of three investments in Brazil. Although the timing for the completion of the remaining actions is uncertain, we expect the majority of losses to be recognized in 2024 or later. NOTE 18. ACQUISITIONS AND DIVESTITURES Company Excluding Ford Credit Ford Romania S.R.L. (“Ford Romania”). On July 1, 2022, we completed the sale of Ford Romania, our wholly-owned Romanian manufacturing subsidiary, to Ford Otosan, a joint venture in which Ford has a 41 % ownership share. The transaction resulted in deconsolidation of our Ford Romania subsidiary in the third quarter of 2022. The fair value of consideration received, consisting of cash and a note receivable, approximated the carrying value of Ford Romania at the time of sale. The Ford Romania plant in Craiova, Romania will continue to manufacture Ford-branded vehicles for Ford and Ford Otosan. Ford’s portion of the output is expected to be significant; as a result, there were about $ 100 million of assets, such as embedded leases, and related liabilities that continue to be reported as part of our financial statements. Sanand, India (“Sanand”) Plants. In the third quarter of 2022, we entered into an agreement to sell our Sanand vehicle assembly and powertrain plants to Tata Passenger Electric Mobility Limited (“Tata”), a subsidiary of Tata Motors Limited. The sale transaction will include the land, buildings, and other fixed assets (excluding the powertrain machinery and equipment) for the plants. Accordingly, we have reported $ 89 million of fixed assets for this operation as held for sale for the period ended September 30, 2022. We recognized, in Cost of sales , pre-tax impairment charges of $ 32 million in the third quarter of 2022 to adjust the carrying value of the held-for-sale assets to fair value less costs to sell. We determined fair value using the market approach, estimated based on the negotiated value of the assets. After the sale to Tata, Ford will continue to operate the powertrain facility by leasing back the associated land and building. Skinny Labs Inc., dba Spin (“Spin”). On April 1, 2022, we completed the sale of Spin, our wholly-owned micro-mobility provider, to TIER Mobility SE, a German-based micro-mobility provider, which resulted in the deconsolidation of our Spin subsidiary in the second quarter of 2022. In exchange for our shares of Spin, we received preferred equity in TIER Mobility SE, which is reflected in our consolidated balance sheets in Other assets as of the second quarter of 2022. The fair value of the preferred equity approximated the carrying value of Spin at the time of the transaction. Electriphi, Inc. (“Electriphi”). On June 18, 2021, we acquired Electriphi, a California-based provider of charging management and fleet monitoring software for electric vehicles. Assets acquired primarily include goodwill, reported in Other assets , and software, reported in Net property . The acquisition did not have a material impact on our financial statements. Ford Lio Ho Motor Co., Ltd. (“FLH”). On April 1, 2021, we completed the sale of our controlling financial interest in FLH and its wholly owned subsidiary FLH Marketing & Service Limited, which resulted in deconsolidation of our Ford Taiwan subsidiary in the second quarter of 2021. FLH will continue to import, manufacture, and sell Ford-branded vehicles through at least 2025. We recognized a pre-tax gain of $ 161 million, which was reported in Other income/(loss), net in the second quarter of 2021. 26 Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 18. ACQUISITIONS AND DIVESTITURES (Continued) Getrag Ford Transmissions GmbH (“GFT”). Prior to March 2021, Ford and Magna International Inc. (“Magna”) equally owned and operated the GFT joint venture for the purpose of developing, manufacturing, and selling transmissions. We accounted for our investment in GFT as an equity method investment. During the first quarter of 2021 and prior to our acquisition, GFT recorded restructuring charges, of which our share was $ 40 million. These charges are included in Equity in net income/(loss) of affiliated companies . On March 1, 2021, we acquired Magna’s shares in the restructured GFT. The purchase price, which was subject to post-closing revisions, was $ 275 million. The restructured GFT includes the Halewood, UK and Cologne, Germany transmission plants, but excludes the Bordeaux, France transmission plant and China interests acquired by Magna. We concluded with Magna that these businesses would be better served under separate ownership. The Sanand, India transmission plant continues under joint Ford/Magna ownership. As a result of the transaction, we consolidated the restructured GFT, remeasured our prior investment in GFT at its $ 275 million fair value, and recognized in Other income/(loss), ne t a pre-tax gain of $ 178 million during 2021 and post-closing revisions resulting in a pre-tax gain of $ 2 million during the first quarter of 2022. We estimated the fair value of GFT in negotiations with Magna based on the income approach. The significant assumptions used in the valuation included GFT’s cash flows that reflect the approved business plan, discounted at a rate typically used for a company like GFT. 27 Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 19. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) The changes in the balances for each component of accumulated other comprehensive income/(loss) attributable to Ford Motor Company for the periods ended September 30 were as follows (in millions): Third Quarter First Nine Months 2021 2022 2021 2022 Foreign currency translation Beginning balance $ ( 5,249 ) $ ( 6,355 ) $ ( 5,526 ) $ ( 5,487 ) Gains/(Losses) on foreign currency translation ( 236 ) ( 996 ) 112 ( 2,063 ) Less: Tax/(Tax benefit) (a) 66 36 133 5 Net gains/(losses) on foreign currency translation ( 302 ) ( 1,032 ) ( 21 ) ( 2,068 ) (Gains)/Losses reclassified from AOCI to net income (b) — 80 ( 4 ) 248 Other comprehensive income/(loss), net of tax (c) ( 302 ) ( 952 ) ( 25 ) ( 1,820 ) Ending balance $ ( 5,551 ) $ ( 7,307 ) $ ( 5,551 ) $ ( 7,307 ) Marketable securities Beginning balance $ 81 $ ( 355 ) $ 156 $ ( 19 ) Gains/(Losses) on available for sale securities ( 26 ) ( 199 ) ( 112 ) ( 647 ) Less: Tax/(Tax benefit) ( 6 ) ( 47 ) ( 28 ) ( 153 ) Net gains/(losses) on available for sale securities ( 20 ) ( 152 ) ( 84 ) ( 494 ) (Gains)/Losses reclassified from AOCI to net income ( 3 ) 5 ( 18 ) 13 Less: Tax/(Tax benefit) — 1 ( 4 ) 3 Net (gains)/losses reclassified from AOCI to net income ( 3 ) 4 ( 14 ) 10 Other comprehensive income/(loss), net of tax ( 23 ) ( 148 ) ( 98 ) ( 484 ) Ending balance $ 58 $ ( 503 ) $ 58 $ ( 503 ) Derivative instruments Beginning balance $ ( 455 ) $ ( 143 ) $ ( 266 ) $ ( 193 ) Gains/(Losses) on derivative instruments 339 445 ( 52 ) 475 Less: Tax/(Tax benefit) 85 105 8 112 Net gains/(losses) on derivative instruments 254 340 ( 60 ) 363 (Gains)/Losses reclassified from AOCI to net income 111 35 271 73 Less: Tax/(Tax benefit) 22 8 57 19 Net (gains)/losses reclassified from AOCI to net income (d) 89 27 214 54 Other comprehensive income/(loss), net of tax 343 367 154 417 Ending balance $ ( 112 ) $ 224 $ ( 112 ) $ 224 Pension and other postretirement benefits Beginning balance $ ( 2,645 ) $ ( 2,620 ) $ ( 2,658 ) $ ( 2,640 ) Amortization and recognition of prior service costs/(credits) 4 5 24 17 Less: Tax/(Tax benefit) 4 1 8 4 Net prior service costs/(credits) reclassified from AOCI to net income — 4 16 13 Translation impact on non-U.S. plans 5 9 2 20 Other comprehensive income/(loss), net of tax 5 13 18 33 Ending balance $ ( 2,640 ) $ ( 2,607 ) $ ( 2,640 ) $ ( 2,607 ) Total AOCI ending balance at September 30 $ ( 8,245 ) $ ( 10,193 ) $ ( 8,245 ) $ ( 10,193 ) __________ (a) We do not recognize deferred taxes for a majority of the foreign currency translation gains and losses because we do not anticipate reversal in the foreseeable future. However, we have made elections to tax certain non-U.S. operations simultaneously in U.S. tax returns, and have recorded deferred taxes for temporary differences that will reverse, independent of repatriation plans, in U.S. tax returns. Taxes or tax benefits resulting from foreign currency translation of the temporary differences are recorded in Other comprehensive income/(loss), net of tax . (b) Reclassified to Other income/(loss), net. (c) Excludes a $ 3 million gain and a $ 1 million loss related to noncontrolling interests in the third quarter and first nine months of 2022, respectively. (d) Reclassified to Cost of sales . During the next twelve months, we expect to reclassify existing net gains on cash flow hedges of $ 225 million (see Note 16). 28 Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 20. VARIABLE INTEREST ENTITIES Certain of our affiliates are variable interest entities in which we are not the primary beneficiary. Our maximum exposure to any potential losses associated with these affiliates is limited to our investments and loans and was $ 2.8 billion and $ 510 million at December 31, 2021 and September 30, 2022, respectively. On July 13, 2022, Ford, SK On Co., Ltd., and SK Battery America, Inc. (a wholly owned subsidiary of SK On) completed the creation of BlueOval SK, LLC, a 50/ 50 joint venture that will build and operate electric vehicle battery plants in Tennessee and Kentucky to supply batteries to Ford and Ford affiliates. BlueOval SK is a variable interest entity of which we are not the primary beneficiary, and we use the equity method of accounting for our investment. As of September 30, 2022, Ford has contributed to BlueOval SK $ 312 million of its agreed capital contribution of up to $ 6.6 billion through 2026, subject to any adjustments agreed to by the parties. The decrease in maximum exposure from December 31, 2021 is primarily explained by Argo AI (see Note 10), partially offset by the investment in BlueOval SK. 29 Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 21. COMMITMENTS AND CONTINGENCIES Commitments and contingencies primarily consist of guarantees and indemnifications, litigation and claims, and warranty and field service actions. Guarantees and Indemnifications Financial Guarantees. Financial guarantees and indemnifications are recorded at fair value at their inception. Subsequent to initial recognition, the guarantee liability is adjusted at each reporting period to reflect the current estimate of expected payments resulting from possible default events over the remaining life of the guarantee. The maximum potential payments for financial guarantees were $ 357 million and $ 395 million at December 31, 2021 and September 30, 2022, respectively. The carrying value of recorded liabilities related to financial guarantees was $ 36 million and $ 15 million at December 31, 2021 and September 30, 2022, respectively. Our financial guarantees consist of debt and lease obligations of certain joint ventures, as well as certain financial obligations of outside third parties, including suppliers, to support our business and economic growth. Expiration dates vary through 2033, and guarantees will terminate on payment and/or cancellation of the underlying obligation. A payment by us would be triggered by failure of the joint venture or other third party to fulfill its obligation covered by the guarantee. In some circumstances, we are entitled to recover from a third party amounts paid by us under the guarantee. Non-Financial Guarantees. Non-financial guarantees and indemnifications are recorded at fair value at their inception. We regularly review our performance risk under these arrangements, and in the event it becomes probable we will be required to perform under a guarantee or indemnity, the amount of probable payment is recorded. The maximum potential payments for non-financial guarantees were $ 453 million and $ 273 million at December 31, 2021 and September 30, 2022, respectively. The carrying value of recorded liabilities related to non-financial guarantees was $ 38 million and $ 0 at December 31, 2021 and September 30, 2022, respectively. Included in the $ 273 million of maximum potential payments at September 30, 2022 are guarantees for the resale value of vehicles sold in certain arrangements to daily rental companies. The maximum potential payment of $ 267 million as of September 30, 2022 represents the total proceeds we guarantee the rental company will receive on resale. Reflecting our present estimate of proceeds the rental companies will receive on resale from third parties, we do not expect we will have to pay under the guarantee. In the ordinary course of business, we execute contracts involving indemnifications standard in the industry and indemnifications specific to a transaction, such as the sale of a business. These indemnifications might include and are not limited to claims relating to any of the following: environmental, tax, and shareholder matters; intellectual property rights; power generation contracts; governmental regulations and employment-related matters; dealer, supplier, and other commercial contractual relationships; and financial matters, such as securitizations. Performance under these indemnities generally would be triggered by a breach of contract claim brought by a counterparty, including a joint venture or alliance partner, or a third-party claim. While some of these indemnifications are limited in nature, many of them do not limit potential payment. Therefore, we are unable to estimate a maximum amount of future payments that could result from claims made under these unlimited indemnities. 30 Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 21. COMMITMENTS AND CONTINGENCIES (Continued) Litigation and Claims Various legal actions, proceedings, and claims (generally, “matters”) are pending or may be instituted or asserted against us. These include, but are not limited to, matters arising out of alleged defects in our products; product warranties; governmental regulations relating to safety, emissions, and fuel economy or other matters; government incentives; tax matters, including trade and customs; alleged illegal acts resulting in fines or penalties; financial services; employment-related matters; dealer, supplier, and other contractual relationships; intellectual property rights; environmental matters; shareholder or investor matters; and financial reporting matters. Certain of the pending legal actions are, or purport to be, class actions. Some of the matters involve or may involve claims for compensatory, punitive, or antitrust or other treble damages in very large amounts, or demands for field service actions, environmental remediation programs, sanctions, loss of government incentives, assessments, or other relief, which, if granted, would require very large expenditures. The extent of our financial exposure to these matters is difficult to estimate. Many matters do not specify a dollar amount for damages, and many others specify only a jurisdictional minimum. To the extent an amount is asserted, our historical experience suggests that in most instances the amount asserted is not a reliable indicator of the ultimate outcome. We accrue for matters when losses are deemed probable and reasonably estimable. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood that we will prevail, and the severity of any potential loss. We reevaluate and update our accruals as matters progress over time. For the majority of matters, which generally arise out of alleged defects in our products, we establish an accrual based on our extensive historical experience with similar matters. We do not believe there is a reasonably possible outcome materially in excess of our accrual for these matters. For the remaining matters, where our historical experience with similar matters is of more limited value (i.e., “non-pattern matters”), we evaluate the matters primarily based on the individual facts and circumstances. For non-pattern matters, we evaluate whether there is a reasonable possibility of a material loss in excess of any accrual that can be estimated. Our estimate of reasonably possible loss in excess of our accruals for all material matters currently reflects indirect tax, customs, and regulatory matters, for which we estimate the aggregate risk to be a range of up to a bout $ 2 billion. As noted, the litigation process is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. Our assessments are based on our knowledge and experience, but the ultimate outcome of any matter could require payment substantially in excess of the amount that we have accrued and/or disclosed. 31 Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 21. COMMITMENTS AND CONTINGENCIES (Continued) Warranty and Field Service Actions We accrue the estimated cost of both base warranty coverages and field service actions at the time of sale. We establish our estimate of base warranty obligations using a patterned estimation model, using historical information regarding the nature, frequency, and average cost of claims for each vehicle line by model year. We establish our estimates of field service action obligations using a patterned estimation model, using historical information regarding the nature, frequency, severity, and average cost of claims for each model year. In addition, from time to time, we issue extended warranties at our expense, the estimated cost of which is accrued at the time of issuance. Warranty and field service action obligations are reported in Other liabilities and deferred revenue . We reevaluate the adequacy of our accruals on a regular basis. We recognize the benefit from a recovery of the costs associated with our warranty and field service actions when specifics of the recovery have been agreed with our supplier and the amount of recovery is virtually certain. Recoveries are reported in Trade and other receivables, net and Other assets. The estimate of our future warranty and field service action costs, net of estimated supplier recoveries, for the periods ended September 30 was as follows (in millions): First Nine Months 2021 2022 Beginning balance $ 8,172 $ 8,451 Payments made during the period ( 3,109 ) ( 3,063 ) Changes in accrual related to warranties issued during the period 2,819 2,806 Changes in accrual related to pre-existing warranties 44 449 Foreign currency translation and other ( 77 ) ( 241 ) Ending balance $ 7,849 $ 8,402 Changes to our estimated costs are reported as changes in accrual related to pre-existing warranties in the table above. Our estimate of reasonably possible costs in excess of our accruals for material field service actions and customer satisfaction actions is a range of up to about $ 700 million in the aggregate. 32 Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 22. SEGMENT INFORMATION We report segment information consistent with the way our chief operating decision maker (“CODM”) evaluates the operating results and performance of the Company. Accordingly, we analyze the results of our business through the following segments: Automotive, Mobility, and Ford Credit. Effective with fourth quarter 2021 reporting, special items include gains and losses on investments in equity securities. Prior period amounts were adjusted retrospectively to reflect the change. Below is a description of our reportable segments and other activities. Automotive Segment The Automotive segment primarily includes the sale of Ford and Lincoln vehicles, service parts, and accessories worldwide, together with the associated costs to develop, manufacture, distribute, and service the vehicles, parts, and accessories. This segment includes revenues and costs related to our electrification vehicle programs and enterprise connectivity. The segment includes the following regional business units: North America, South America, Europe, China (including Taiwan), and the International Markets Group. Mobility Segment The Mobility segment primarily includes development costs for Ford’s autonomous vehicles and related businesses, Ford’s equity ownership in Argo AI (a developer of autonomous driving systems), and other mobility businesses and investments. For additional information about our investment in Argo AI, see Note 10. Ford Credit Segment The Ford Credit segment is comprised of the Ford Credit business on a consolidated basis, which is primarily vehicle-related financing and leasing activities. Corporate Other Corporate Other primarily includes corporate governance expenses, interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment) and gains and losses from our cash, cash equivalents, and marketable securities (excluding gains and losses on investments in equity securities), and foreign exchange derivatives gains and losses associated with intercompany lending. Corporate governance expenses are primarily administrative, delivering benefit on behalf of the global enterprise, that are not allocated to operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. Corporate Other assets include: cash, cash equivalents, and marketable securities; tax related assets; other investments; and other assets managed centrally. Interest on Debt Interest on Debt is presented as a separate reconciling item and consists of interest expense on Company debt excluding Ford Credit. The underlying liability is reported in the Automotive segment and in Corporate Other. Special Items Special Items are presented as a separate reconciling item. They consist of (i) pension and OPEB remeasurement gains and losses, (ii) gains and losses on investments in equity securities, (iii) significant personnel expenses, dealer-related costs, and facility-related charges stemming from our efforts to match production capacity and cost structure to market demand and changing model mix, and (iv) other items that we do not necessarily consider to be indicative of earnings from ongoing operating activities. Our management ordinarily excludes these items from its review of the results of the operating segments for purposes of measuring segment profitability and allocating resources. We also report these special items separately to help investors track amounts related to these activities and to allow investors analyzing our results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results. 33 Item 1. Financial Statements (Continued) FORD MOTOR COMPANY AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS NOTE 22. SEGMENT INFORMATION (Continued) Key financial information for the periods ended or at September 30 was as follows (in millions): Automotive Mobility Ford Credit Corporate Other Interest on Debt Special Items Adjustments Total Third Quarter 2021 Revenues $ 33,211 $ 38 $ 2,434 $ — $ — $ — $ — $ 35,683 Income/(Loss) before income taxes 2,456 ( 271 ) 1,077 ( 269 ) ( 439 ) ( 669 ) (a) — 1,885 Equity in net income/(loss) of affiliated companies 185 ( 68 ) 9 — — 4 — 130 Total assets 68,291 3,471 135,385 46,695 — — ( 1,165 ) (b) 252,677 Third Quarter 2022 Revenues $ 37,194 $ 11 $ 2,187 $ — $ — $ — $ — $ 39,392 Income/(Loss) before income taxes 1,698 ( 244 ) 599 ( 250 ) ( 321 ) ( 2,607 ) (c) — ( 1,125 ) Equity in net income/(loss) of affiliated companies 185 ( 87 ) 8 — — ( 2,732 ) (e) — ( 2,626 ) Total assets 71,983 415 127,088 48,432 — — ( 999 ) (b) 246,919 Automotive Mobility Ford Credit Corporate Other Interest on Debt Special Items Adjustments Total First Nine Months 2021 Revenues $ 90,893 $ 70 $ 7,700 $ — $ — $ — $ — $ 98,663 Income/(loss) before income taxes 5,756 ( 688 ) 3,662 ( 772 ) ( 1,365 ) ( 31 ) (d) — 6,562 Equity in net income/(loss) of affiliated companies 434 ( 191 ) 23 1 — ( 7 ) — 260 First Nine Months 2022 Revenues $ 107,214 $ 120 $ 6,724 $ — $ — $ — $ — $ 114,058 Income/(loss) before income taxes 6,911 ( 707 ) 2,466 ( 819 ) ( 941 ) ( 11,092 ) (c) — ( 4,182 ) Equity in net income/(loss) of affiliated companies 481 ( 245 ) 18 1 — ( 2,856 ) (e) — ( 2,601 ) __________ (a) Primarily reflects Global Redesign actions, mark-to-market adjustments for our global pension and OPEB plans, and gains/(losses) on investments in equity securities. (b) Includes eliminations of intersegment transactions occurring in the ordinary course of business and deferred tax netting. (c) Primarily reflects gains/(losses) on our Rivian investment and the impairment of our Argo AI equity method investment. (d) Primarily reflects gains on our Rivian investment, Global Redesign actions, and mark-to-market adjustments for our global pension and OPEB plans. (e) Primarily reflects the impairment of our Argo AI equity method investment. 34 ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. KEY TRENDS AND ECONOMIC FACTORS AFFECTING FORD AND THE AUTOMOTIVE INDUSTRY COVID-19 and Supplier Disruptions. The impact of COVID-19, including changes in consumer behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy. Outbreaks in certain regions continue to cause intermittent COVID-19-related disruptions in our supply chain and local manufacturing operations. We also continue to face supplier disruptions due to labor shortages and other production issues, in addition to the continuing semiconductor shortage. Our inconsistent production schedule has been disruptive to our suppliers’ operations, which, in turn, has led to a limited availability of certain parts and delivery delays. Further, actions taken by Russia in Ukraine have impacted and could further impact our suppliers, particularly our lower tier suppliers, as well as our operations in Europe. For additional information on the impact of supplier disruptions, see the Outlook section on page 59 . Commodity and Energy Prices. Prices for commodities remain volatile but spot prices have recently diverged somewhat, as anticipated weakening in global industrial activity mitigates price increases for base metals such as steel and aluminum, while precious metals (e.g., palladium), and raw materials that are used in batteries for electric vehicles (e.g., lithium, cobalt, and nickel for batteries) remain at historically elevated price levels. The net impact on us and our suppliers has been higher material costs overall. To help ensure supply of raw materials for critical components (e.g., batteries), we, like others in the industry, have entered into multi-year sourcing agreements and may enter into additional agreements. Similar dynamics are impacting energy markets, with Europe particularly exposed to the risk of both higher prices and constraints on supply of natural gas due to the ongoing conflict in Ukraine. Such shortages may impact facilities operated by us or our suppliers, which could have an impact on us in Europe and other regions. For additional information on commodity costs, see the Outlook section on page 59 . Inflation and Interest Rates. We continue to see near-term impacts on our business due to inflation, including ongoing global price pressures in the wake of Russia’s invasion of Ukraine, driving up energy prices, freight premiums, and other operating costs. Inflation in the United States peaked at a year-over-year rate of 9.1% in June, before moderating to a still-elevated 8.2% in September as gasoline prices eased. In Europe, energy price pressures and inflation have remained on an upward path, with September U.K. inflation rebounding to 10.1% and Euro Area inflation at 9.9%, both on a year-over-year basis. Interest rates have increased quickly and substantially as central banks in developed countries raise interest rates in an effort to subdue inflation, while government deficits and debt remain at high levels in many global markets. The eventual implications of higher government deficits and debt, tighter monetary policy, and potentially higher long-term interest rates may drive a higher cost of capital for the business. 35 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) RESULTS OF OPERATIONS In the third quarter of 2022, the net loss attributable to Ford Motor Company was $827 million, and Company adjusted EBIT was $1,803 million. Net income/(loss) includes certain items (“special items”) that are excluded from Company adjusted EBIT. These items are discussed in more detail in Note 22 of the Notes to the Financial Statements. We report special items separately to allow investors analyzing our results to identify certain items that they may wish to exclude when considering the trend of ongoing operating results. Our pre-tax and tax special items were as follows (in millions): Third Quarter First Nine Months 2021 2022 2021 2022 Global Redesign Europe $ (88) $ (12) $ (347) $ (61) India (369) (175) (369) (250) South America (211) (9) (666) (26) China (including Taiwan) (5) (17) 152 (37) North America (29) (180) (39) (210) Other — 2 7 20 Subtotal Global Redesign $ (702) $ (391) $ (1,262) $ (564) Other Items Gain/(loss) on Rivian investment (a) $ — $ 646 $ 902 $ (7,250) Debt extinguishment premium — (135) — (135) Argo impairment (see Note 10) — (2,708) — (2,708) Ford Credit – Brazil restructuring (see Note 17) — — — (155) Russia suspension of operations/asset write-off — 2 — (130) Patent matters related to prior calendar years — — — (121) Other — (14) 21 (6) Subtotal Other Items $ — $ (2,209) $ 923 $ (10,505) Pension and OPEB Gain/(Loss) Pension and OPEB remeasurement $ 40 $ (7) $ 364 $ (23) Pension settlements and curtailments (7) — (56) — Subtotal Pension and OPEB Gain/(Loss) $ 33 $ (7) $ 308 $ (23) Total EBIT Special Items $ (669) $ (2,607) $ (31) $ (11,092) Cash effect of Global Redesign (incl. separations) $ (293) $ (185) $ (1,608) $ (35) Provision for/(Benefit from) tax special items (b) $ (460) $ (544) $ (318) $ (2,273) __________ (a) As of September 30, 2022, we held 24.8 million Rivian common shares valued at $32.91 per share. (b) Includes related tax effect on special items and tax special items. We recorded $2.6 billion of pre-tax special item charges in the third quarter of 2022, driven by an impairment on our Argo investment. For additional information on the impairment on our Argo investment, see Note 10 of the Notes to the Financial Statements. In Note 22 of the Notes to the Financial Statements, special items are reflected as a separate reconciling item, as opposed to being allocated among the Automotive, Mobility, and Ford Credit segments. This reflects the fact that management excludes these items from its review of operating segment results for purposes of measuring segment profitability and allocating resources. 36 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) COMPANY KEY METRICS The table below shows our third quarter and first nine months 2022 key metrics for the Company, compared to a year ago. Third Quarter First Nine Months 2021 2022 H / (L) 2021 2022 H / (L) GAAP Financial Measures Cash Flows from Operating Activities ($B) $ 7.0 $ 3.8 $ (3.2) $ 12.3 $ 5.7 $ (6.6) Revenue ($M) 35,683 39,392 10 % 98,663 114,058 16 % Net Income/(Loss) ($M) 1,832 (827) $ (2,659) 5,655 (3,270) $ (8,925) Net Income/(Loss) Margin (%) 5.1 % (2.1) % (7.2) ppts 5.7 % (2.9) % (8.6) ppts EPS (Diluted) $ 0.45 $ (0.21) $ (0.66) $ 1.40 $ (0.81) $ (2.21) Non-GAAP Financial Measures (a) Company Adj. Free Cash Flow ($B) $ 7.8 $ 3.6 $ (4.2) $ 2.3 $ 6.6 $ 4.4 Company Adj. EBIT ($M) 2,993 1,803 (1,190) 7,958 7,851 (107) Company Adj. EBIT Margin (%) 8.4 % 4.6 % (3.8) ppts 8.1 % 6.9 % (1.2) ppts Adjusted EPS (Diluted) $ 0.51 $ 0.30 $ (0.21) $ 1.33 $ 1.37 $ 0.04 Adjusted ROIC (Trailing Four Quarters) 9.7 % 10.7 % 1.0 ppts __________ (a) See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. In the third quarter of 2022, our diluted earnings per share of Common and Class B Stock was a loss of $0.21 and our diluted adjusted earnings per share was $0.30. Net income/(loss) margin was negative 2.1% in the third quarter of 2022, down 7.2 percentage points from a year ago. Company adjusted EBIT margin was 4.6% in the third quarter of 2022, down 3.8 percentage points from a year ago. The year-over-year decrease of $2.7 billion in net income/(loss) in the third quarter of 2022 was driven by an impairment on our Argo investment, which is included in special items, and lower Automotive EBIT and Ford Credit EBT. The year-over-year decrease of $1.2 billion in Company adjusted EBIT was driven by lower Automotive EBIT and lower Ford Credit EBT. The table below shows our third quarter and first nine months 2022 net income/(loss) attributable to Ford and Company adjusted EBIT by segment. Third Quarter First Nine Months 2021 2022 H / (L) 2021 2022 H / (L) Automotive $ 2,456 $ 1,698 $ (758) $ 5,756 $ 6,911 $ 1,155 Mobility (271) (244) 27 (688) (707) (19) Ford Credit 1,077 599 (478) 3,662 2,466 (1,196) Corporate Other (269) (250) 19 (772) (819) (47) Company Adjusted EBIT (a) 2,993 1,803 (1,190) 7,958 7,851 (107) Interest on Debt (439) (321) (118) (1,365) (941) (424) Special Items (669) (2,607) 1,938 (31) (11,092) 11,061 Taxes / Noncontrolling Interests (53) 298 (351) (907) 912 (1,819) Net Income/(Loss) $ 1,832 $ (827) $ (2,659) $ 5,655 $ (3,270) $ (8,925) __________ (a) See Non-GAAP Financial Measure Reconciliations section for reconciliation to GAAP. 37 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Automotive Segment The table below shows our third quarter and first nine months 2022 Automotive segment EBIT by business unit (in millions). Third Quarter First Nine Months 2021 2022 H / (L) 2021 2022 H / (L) North America $ 2,420 $ 1,309 $ (1,111) $ 5,555 $ 6,169 $ 614 South America 2 149 147 (157) 303 460 Europe (52) 204 256 5 421 416 China (including Taiwan) (39) (193) (154) (177) (367) (190) International Markets Group 125 229 104 530 385 (145) Automotive Segment $ 2,456 $ 1,698 $ (758) $ 5,756 $ 6,911 $ 1,155 The tables below and on the following pages provide third quarter and first nine months 2022 key metrics and the change in third quarter 2022 EBIT compared with third quarter 2021 by causal factor for our Automotive segment and its regional business units: North America, South America, Europe, China (including Taiwan), and the International Markets Group. For a description of these causal factors, see Definitions and Information Regarding Automotive Causal Factors. Third Quarter First Nine Months Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Market Share (%) 4.9 % 4.9 % — ppts 5.1 % 5.0 % (0.1) ppts Wholesale Units (000) 1,012 1,086 74 2,838 3,084 246 Revenue ($M) $ 33,211 $ 37,194 $ 3,983 $ 90,893 $ 107,214 $ 16,321 EBIT ($M) 2,456 1,698 (758) 5,756 6,911 1,155 EBIT Margin (%) 7.4 % 4.6 % (2.8) ppts 6.3 % 6.4 % 0.1 ppts Change in EBIT by Causal Factor (in millions) Third Quarter 2021 EBIT $ 2,456 Volume / Mix (277) Net Pricing 3,398 Cost (3,542) Exchange (127) Other (210) Third Quarter 2022 EBIT $ 1,698 In the third quarter of 2022, wholesales increased 7% from a year ago, driven by reduced supply constraints (including semiconductors) on production and electric vehicle scaling. Third quarter 2022 revenue increased 12%, driven by higher net pricing and wholesales, offset partially by weaker currencies. Our third quarter 2022 Automotive segment EBIT was $1.7 billion, a decrease of $758 million from a year ago, and our third quarter 2022 Automotive EBIT margin was 4.6%. The lower EBIT was driven by inflationary increases on commodity, material, and freight costs, unfavorable mix, and weaker currencies, offset partially by higher net pricing and higher wholesales. Our results include inflation-related supplier payments of $1.3 billion, primarily in North America, which were about $1 billion higher than originally expected, as indicated in our Current Report on Form 8-K dated September 19, 2022. 38 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) North America Third Quarter First Nine Months Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Market Share (%) 11.2 % 12.8 % 1.7 ppts 11.3 % 12.6 % 1.3 ppts Wholesale Units (000) 546 568 22 1,407 1,700 293 Revenue ($M) $ 24,032 $ 26,340 $ 2,308 $ 61,992 $ 77,714 $ 15,722 EBIT ($M) 2,420 1,309 (1,111) 5,555 6,169 614 EBIT Margin (%) 10.1 % 5.0 % (5.1) ppts 9.0 % 7.9 % (1.1) ppts Change in EBIT by Causal Factor (in millions) Third Quarter 2021 EBIT $ 2,420 Volume / Mix (672) Net Pricing 2,061 Cost (2,341) Exchange 96 Other (255) Third Quarter 2022 EBIT $ 1,309 In North America, third quarter 2022 wholesales increased 4% from a year ago. Third quarter 2022 revenue increased 10%, driven by higher net pricing and wholesales, offset partially by unfavorable mix. North America’s third quarter 2022 EBIT was $1.3 billion, a decrease of $1.1 billion from a year ago, with an EBIT margin of 5.0%. The lower EBIT was driven by inflationary increases on commodity, material, and freight costs and unfavorable mix, offset partially by higher net pricing. Our results include inflation-related supplier payments of $1.2 billion, which were about $1 billion higher than originally expected, as indicated in our Current Report on Form 8-K dated September 19, 2022. South America Third Quarter First Nine Months Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Market Share (%) 2.4 % 2.0 % (0.5) ppts 2.8 % 2.1 % (0.7) ppts Wholesale Units (000) 20 23 3 55 57 1 Revenue ($M) $ 627 $ 883 $ 256 $ 1,605 $ 2,160 $ 555 EBIT ($M) 2 149 147 (157) 303 460 EBIT Margin (%) 0.3 % 16.9 % 16.6 ppts (9.8) % 14.0 % 23.8 ppts Change in EBIT by Causal Factor (in millions) Third Quarter 2021 EBIT $ 2 Volume / Mix (16) Net Pricing 302 Cost (156) Exchange (14) Other 31 Third Quarter 2022 EBIT $ 149 In South America, third quarter 2022 wholesales increased 17% from a year ago. Third quarter 2022 revenue increased 41%, driven by higher net pricing, offset partially by weaker currencies. South America’s third quarter 2022 EBIT was $149 million, an improvement of $147 million from a year ago, with an EBIT margin of 16.9%. The EBIT improvement was driven by higher net pricing, offset partially by inflationary increases on commodity, material, and freight costs. The strong results in South America reflect our restructuring efforts and pricing and were further aided by currencies, including a balance sheet revaluation, the effect of which is not expected to be sustained. 39 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Europe Third Quarter First Nine Months Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Market Share (%) 6.2 % 6.6 % 0.4 ppts 6.5 % 6.5 % — ppts Wholesale Units (000) (a) 218 273 55 678 749 71 Revenue ($M) $ 6,066 $ 6,757 $ 691 $ 18,726 $ 19,428 $ 702 EBIT ($M) (52) 204 256 5 421 416 EBIT Margin (%) (0.9) % 3.0 % 3.9 ppts 0.0 % 2.2 % 2.2 ppts __________ (a) Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Turkey (about 12,000 units in Q3 2021 and 18,000 units in Q3 2022). Revenue does not include these sales. Change in EBIT by Causal Factor (in millions) Third Quarter 2021 EBIT $ (52) Volume / Mix 306 Net Pricing 793 Cost (781) Exchange (139) Other 77 Third Quarter 2022 EBIT $ 204 In Europe, third quarter 2022 wholesales increased 25% from a year ago, primarily reflecting reduced supply constraints (including semiconductors) on production. Third quarter 2022 revenue increased 11%, driven by higher wholesales and net pricing, offset partially by weaker currencies. Europe’s third quarter 2022 EBIT was $204 million, an improvement of $256 million from a year ago, with an EBIT margin of 3.0%. The higher EBIT was driven by higher net pricing and wholesales, offset partially by inflationary increases on commodity, material, and freight costs and weaker currencies. 40 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) China (Including Taiwan) Third Quarter First Nine Months Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Market Share (%) 2.5 % 2.0 % (0.5) ppts 2.3 % 2.2 % (0.2) ppts Wholesale Units (000) (a) 162 137 (26) 463 378 (84) Revenue ($M) $ 592 $ 432 $ (160) $ 1,966 $ 1,431 $ (535) EBIT ($M) (39) (193) (154) (177) (367) (190) EBIT Margin (%) (6.6) % (44.7) % (38.1) ppts (9.0) % (25.6) % (16.6) ppts China Unconsolidated Affiliates Wholesale Units (000) (b) 160 134 (27) 449 370 (79) Ford Equity Income/(Loss) ($M) $ 77 $ 58 $ (19) $ 144 $ 175 $ 31 __________ (a) Includes vehicles produced and sold by our unconsolidated affiliates. Revenue does not include these sales. (b) Includes Ford and Lincoln brand and JMC brand vehicles produced and sold in China and Ford brand vehicles produced in Taiwan by Lio Ho Group. Change in EBIT by Causal Factor (in millions) Third Quarter 2021 EBIT $ (39) Volume / Mix (63) Net Pricing 8 Cost (25) Exchange (33) Other (Including Joint Ventures) (41) Third Quarter 2022 EBIT $ (193) In China, third quarter 2022 wholesales decreased 16% from a year ago, driven by lower commercial vehicle and compact segment sales. Third quarter 2022 revenue at our consolidated operations decreased 27%, primarily driven by lower component sales to our joint ventures in China. China’s third quarter 2022 EBIT loss was $193 million, a $154 million higher loss than a year ago, with an EBIT margin of negative 44.7%. The EBIT decrease was driven by lower volume, weaker currencies, higher marketing expenses on new products, and lower profits at our joint ventures. 41 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) International Markets Group Third Quarter First Nine Months Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Market Share (%) 1.8 % 1.4 % (0.4) ppts 1.8 % 1.2 % (0.5) ppts Wholesale Units (000) (a) 66 86 20 235 201 (34) Revenue ($M) $ 1,894 $ 2,782 $ 888 $ 6,604 $ 6,481 $ (123) EBIT ($M) 125 229 104 530 385 (145) EBIT Margin (%) 6.6 % 8.2 % 1.6 ppts 8.0 % 5.9 % (2.1) ppts __________ (a) Includes Ford brand vehicles produced and sold by our unconsolidated affiliate in Russia (about 5,000 units in Q3 2021 and 0 units in Q3 2022). Revenue does not include these sales. Change in EBIT by Causal Factor (in millions) Third Quarter 2021 EBIT $ 125 Volume / Mix 167 Net Pricing 233 Cost (239) Exchange (38) Other (19) Third Quarter 2022 EBIT $ 229 In our International Markets Group, third quarter 2022 wholesales increased 30% from a year ago, primarily reflecting the positive impact of the next generation Ranger and Everest launches. Third quarter 2022 revenue increased 47%, driven by higher wholesales and net pricing and favorable mix, offset partially by weaker currencies. Our International Markets Group’s third quarter 2022 EBIT was $229 million, an increase of $104 million from a year ago, with an EBIT margin of 8.2%. The EBIT increase was driven by higher net pricing and wholesales, offset partially by higher material cost for our new products, inflationary increases on commodity, material, and freight costs, and weaker currencies. 42 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Definitions and Information Regarding Automotive Causal Factors In general, we measure year-over-year change in Automotive segment EBIT using the causal factors listed below, with net pricing and cost variances calculated at present-period volume and mix and exchange: • Market Factors (exclude the impact of unconsolidated affiliate wholesale units): ◦ Volume and Mix – primarily measures EBIT variance from changes in wholesale unit volumes (at prior-year average contribution margin per unit) driven by changes in industry volume, market share, and dealer stocks, as well as the EBIT variance resulting from changes in product mix, including mix among vehicle lines and mix of trim levels and options within a vehicle line ◦ Net Pricing – primarily measures EBIT variance driven by changes in wholesale unit prices to dealers and marketing incentive programs such as rebate programs, low-rate financing offers, special lease offers, and stock adjustments on dealer inventory • Cost: ◦ Contribution Costs – primarily measures EBIT variance driven by per-unit changes in cost categories that typically vary with volume, such as material costs (including commodity and component costs), warranty expense, and freight and duty costs ◦ Structural Costs – primarily measures EBIT variance driven by absolute change in cost categories that typically do not have a directly proportionate relationship to production volume. Structural costs include the following cost categories: ▪ Manufacturing, Including Volume-Related – consists primarily of costs for hourly and salaried manufacturing personnel, plant overhead (such as utilities and taxes), and new product launch expense. These costs could be affected by volume for operating pattern actions such as overtime, line-speed, and shift schedules ▪ Engineering and Connectivity – consists primarily of costs for vehicle and software engineering personnel, prototype materials, testing, and outside engineering and software services ▪ Spending-Related – consists primarily of depreciation and amortization of our manufacturing and engineering assets, but also includes asset retirements and operating leases ▪ Advertising and Sales Promotions – includes costs for advertising, marketing programs, brand promotions, customer mailings and promotional events, and auto shows ▪ Administrative, Information Technology, and Selling – includes primarily costs for salaried personnel and purchased services related to our staff activities, information technology, and selling functions ▪ Pension and OPEB – consists primarily of past service pension costs and other postretirement employee benefit costs • Exchange – primarily measures EBIT variance driven by one or more of the following: (i) transactions denominated in currencies other than the functional currencies of the relevant entities, (ii) effects of converting functional currency income to U.S. dollars, (iii) effects of remeasuring monetary assets and liabilities of the relevant entities in currencies other than their functional currency, or (iv) results of our foreign currency hedging • Other – includes a variety of items, such as parts and services earnings, royalties, government incentives, and compensation-related changes In addition, definitions and calculations used in this report include: • Wholesales and Revenue – wholesale unit volumes include all Ford and Lincoln badged units (whether produced by Ford or by an unconsolidated affiliate) that are sold to dealerships, units manufactured by Ford that are sold to other manufacturers, units distributed by Ford for other manufacturers, local brand units produced by our China joint venture, Jiangling Motors Corporation, Ltd. (“JMC”), that are sold to dealerships, and Ford badged vehicles produced in Taiwan by Lio Ho Group. Vehicles sold to daily rental car companies that are subject to a guaranteed repurchase option (i.e., rental repurchase), as well as other sales of finished vehicles for which the recognition of revenue is deferred (e.g., consignments), also are included in wholesale unit volumes. Revenue from certain vehicles in wholesale unit volumes (specifically, Ford badged vehicles produced and distributed by our unconsolidated affiliates, as well as JMC brand vehicles) are not included in our revenue • Industry Volume and Market Share – based, in part, on estimated vehicle registrations; includes medium and heavy duty trucks • SAAR – seasonally adjusted annual rate 43 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Mobility Segment The Mobility segment primarily includes development costs for Ford’s autonomous vehicles and related businesses, Ford’s equity ownership in Argo AI (a developer of autonomous driving systems), and other mobility businesses and investments. In our Mobility segment, our third quarter 2022 EBIT loss was $244 million, a $27 million improvement from a year ago. The loss reflects our strategic investments in our autonomous vehicle capabilities and support of our mobility initiatives. Although Argo AI has made progress on developing highly automated driving technology (L4), to achieve commercially viable scale, Argo AI’s technology requires significant additional capital investment and time. In the third quarter of 2022, we made the strategic decision to shift our capital spending from L4 technology being developed by Argo AI to advanced L2/L3 systems, which we believe will ultimately be essential to achieve profitable commercialization of L4 autonomy at scale in the future. Additionally, because of the significant additional capital and time required to achieve commercialization of L4, as well as other macroeconomic factors, Argo AI has been unable to attract new investors. After performing external outreach in the third quarter to assess market interest in acquiring either Argo AI or its technology components and conducting internal reviews to evaluate opportunities to leverage Argo AI’s technology, Ford determined that Argo AI no longer has value as a going concern. As a result, we reassessed the carrying value of our investment in Argo AI as of September 30, 2022, and in October, Ford and VW initiated the process of exiting the joint development of L4 technology through Argo AI. Accordingly, in the third quarter of 2022, we recorded as a special item a $2.7 billion pre-tax impairment on our Argo AI investment, and on October 26, 2022, we announced that Argo AI plans to wind down operations. 44 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Ford Credit Segment Ford Credit files periodic reports with the SEC that contain additional information regarding Ford Credit. The reports are available through Ford Credit’s website located at www.fordcredit.com/investor-center and can also be found on the SEC’s website located at www.sec.gov . The foregoing information regarding Ford Credit’s website and its content is for convenience only and not deemed to be incorporated by reference into this Report nor filed with the SEC. The tables below provide third quarter and year-to-date 2022 key metrics and the change in third quarter 2022 EBT compared with third quarter 2021 by causal factor for the Ford Credit segment. For a description of these causal factors, see Definitions and Information Regarding Ford Credit Causal Factors. Third Quarter First Nine Months Key Metrics 2021 2022 H / (L) 2021 2022 H / (L) Total Net Receivables ($B) $ 117 $ 116 (1) % $ 117 $ 116 (1) % Loss-to-Receivables (bps) (a) — 18 18 5 10 5 Auction Values (b) $ 30,350 $ 30,305 — % $ 26,715 $ 30,635 15 % EBT ($M) 1,077 599 $ (478) 3,662 2,466 $ (1,196) ROE (%) 29 % 15 % (14) ppts 32 % 21 % (11) ppts Other Balance Sheet Metrics Debt ($B) $ 119 $ 108 (9) % Net Liquidity ($B) 33 21 (36) % Financial Statement Leverage (to 1) 9.6 9.4 (0.2) __________ (a) U.S. retail financing only. (b) U.S. 36-month off-lease third quarter auction values at Q3 2022 mix and first nine months amounts at first nine months 2022 mix. Change in EBT by Causal Factor (in millions) Third Quarter 2021 EBT $ 1,077 Volume / Mix (46) Financing Margin (136) Credit Loss (96) Lease Residual (211) Exchange (15) Other 26 Third Quarter 2022 EBT $ 599 Ford Credit’s total net receivables of $116 billion were $1 billion (1%) lower than a year ago, reflecting the impact of currency exchange rates, lower consumer financing, and fewer operating leases, offset partially by increased non-consumer financing. The loss-to-receivables (“LTR”) ratio remained at a low level in the third quarter of 2022, at 18 basis points, though higher than a year ago as losses begin to normalize from historic lows. U.S. auction values in the third quarter of 2022 were about flat compared to a year ago. Ford Credit’s third quarter 2022 EBT of $599 million was $478 million lower than a year ago, primarily reflecting lower lease residual gains driven by lower lease return volume, unfavorable changes in net financing margin, and lower credit loss reserve releases, offset partially by positive market valuation adjustments to derivatives, which is included in Other. 45 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Definitions and Information Regarding Ford Credit Causal Factors In general, we measure year-over-year changes in Ford Credit’s EBT using the causal factors listed below: • Volume and Mix: ◦ Volume primarily measures changes in net financing margin driven by changes in average net receivables excluding the allowance for credit losses at prior period financing margin yield (defined below in financing margin) at prior period exchange rates. Volume changes are primarily driven by the volume of new and used vehicles sold and leased, the extent to which Ford Credit purchases retail financing and operating lease contracts, the extent to which Ford Credit provides wholesale financing, the sales price of the vehicles financed, the level of dealer inventories, Ford-sponsored special financing programs available exclusively through Ford Credit, and the availability of cost-effective funding ◦ Mix primarily measures changes in net financing margin driven by period-over-period changes in the composition of Ford Credit’s average net receivables excluding the allowance for credit losses by product within each region • Financing Margin: ◦ Financing margin variance is the period-to-period change in financing margin yield multiplied by the present period average net receivables excluding the allowance for credit losses at prior period exchange rates. This calculation is performed at the product and country level and then aggregated. Financing margin yield equals revenue, less interest expense and scheduled depreciation for the period, divided by average net receivables excluding the allowance for credit losses for the same period ◦ Financing margin changes are driven by changes in revenue and interest expense. Changes in revenue are primarily driven by the level of market interest rates, cost assumptions in pricing, mix of business, and competitive environment. Changes in interest expense are primarily driven by the level of market interest rates, borrowing spreads, and asset-liability management • Credit Loss: ◦ Credit loss is the change in the provision for credit losses at prior period exchange rates. For analysis purposes, management splits the provision for credit losses into net charge-offs and the change in the allowance for credit losses ◦ Net charge-off changes are primarily driven by the number of repossessions, severity per repossession, and recoveries. Changes in the allowance for credit losses are primarily driven by changes in historical trends in credit losses and recoveries, changes in the composition and size of Ford Credit’s present portfolio, changes in trends in historical used vehicle values, and changes in forward looking macroeconomic conditions. For additional information, refer to the “Critical Accounting Estimates - Allowance for Credit Losses” section of Item 7 of Part II of our 2021 Form 10-K Report • Lease Residual: ◦ Lease residual measures changes to residual performance at prior period exchange rates. For analysis purposes, management splits residual performance primarily into residual gains and losses, and the change in accumulated supplemental depreciation ◦ Residual gain and loss changes are primarily driven by the number of vehicles returned to Ford Credit and sold, and the difference between the auction value and the depreciated value (which includes both base and accumulated supplemental depreciation) of the vehicles sold. Changes in accumulated supplemental depreciation are primarily driven by changes in Ford Credit’s estimate of the expected auction value at the end of the lease term and changes in Ford Credit’s estimate of the number of vehicles that will be returned to it and sold. Accumulated depreciation reflects early termination losses on operating leases due to customer default events. For additional information, refer to the “Critical Accounting Estimates - Accumulated Depreciation on Vehicles Subject to Operating Leases” section of Item 7 of Part II of our 2021 Form 10-K Report • Exchange: ◦ Reflects changes in EBT driven by the effects of converting functional currency income to U.S. dollars • Other: ◦ Primarily includes operating expenses, other revenue, insurance expenses, and other income/(loss) at prior period exchange rates ◦ Changes in operating expenses are primarily driven by salaried personnel costs, facilities costs, and costs associated with the origination and servicing of customer contracts ◦ In general, other income/(loss) changes are primarily driven by changes in earnings related to market valuation adjustments to derivatives (primarily related to movements in interest rates) and other miscellaneous items 46 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) In addition, the following definitions and calculations apply to Ford Credit when used in this report: • Cash (as shown in the Funding Structure and Liquidity tables) – Cash, cash equivalents, and marketable securities, excluding amounts related to insurance activities • Debt (as shown in the Key Metrics and Leverage tables) – Debt on Ford Credit’s balance sheets. Includes debt issued in securitizations and payable only out of collections on the underlying securitized assets and related enhancements. Ford Credit holds the right to receive the excess cash flows not needed to pay the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions • Earnings Before Taxes (“EBT” ) – Reflects Ford Credit’s income before income taxes • Loss-to-Receivables (“LTR”) Ratio – LTR ratio is calculated using net charge-offs divided by average finance receivables, excluding unearned interest supplements and the allowance for credit losses • Return on Equity (“ROE” ) (as shown in the Key Metrics table) – Reflects return on equity calculated by annualizing net income for the period and dividing by monthly average equity for the period • Securitization and Restricted Cash (as shown in the Liquidity table) – Securitization cash is held for the benefit of the securitization investors (for example, a reserve fund). Restricted cash primarily includes cash held to meet certain local governmental and regulatory reserve requirements and cash held under the terms of certain contractual agreements • Securitizations (as shown in the Public Term Funding Plan table) – Public securitization transactions, Rule 144A offerings sponsored by Ford Credit, and widely distributed offerings by Ford Credit Canada • Term Asset-Backed Securities (as shown in the Funding Structure table) – Obligations issued in securitization transactions that are payable only out of collections on the underlying securitized assets and related enhancements • Total Net Receivables (as shown in the Key Metrics table) – Includes finance receivables (retail financing and wholesale) sold for legal purposes and net investment in operating leases included in securitization transactions that do not satisfy the requirements for accounting sale treatment. These receivables and operating leases are reported on Ford Credit’s balance sheets and are available only for payment of the debt issued by, and other obligations of, the securitization entities that are parties to those securitization transactions; they are not available to pay the other obligations of Ford Credit or the claims of Ford Credit’s other creditors 47 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Corporate Other Corporate Other primarily includes corporate governance expenses, interest income (excluding interest earned on our extended service contract portfolio that is included in our Automotive segment) and gains and losses from our cash, cash equivalents, and marketable securities (excluding gains and losses on investments in equity securities), and foreign exchange derivatives gains and losses associated with intercompany lending. Corporate governance expenses are primarily administrative, delivering benefit on behalf of the global enterprise, that are not allocated to operating segments. These include expenses related to setting and directing global policy, providing oversight and stewardship, and promoting the Company’s interests. In the third quarter of 2022, Corporate Other had a $250 million loss, compared with a $269 million loss a year ago. The improvement was driven by higher Automotive interest income due to increases in interest rates (primarily Fed Funds). Interest on Debt Interest on Debt, which consists of interest expense on Company debt excluding Ford Credit, was $321 million in the third quarter of 2022, $118 million lower than a year ago, primarily explained by U.S. debt restructuring actions undertaken during the fourth quarter of 2021 and third quarter of 2022. Taxes Our Provision for/(Benefit from) income taxes for the third quarter and first nine months of 2022 was a benefit of $195 million and $771 million, respectively. This resulted in effective tax rates of 17.3% and 18.4%, respectively. Our third quarter and first nine months of 2022 adjusted effective tax rates, which exclude special items, were 23.5% and 21.7%, respectively. We regularly review our organizational structure and income tax elections for affiliates in non-U.S. and U.S. tax jurisdictions, which may result in changes in affiliates that are included in or excluded from our U.S. tax return. Any future changes to our structure, as well as any changes in income tax laws in the countries that we operate, could cause increases or decreases to our deferred tax balances and related valuation allowances. 48 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) LIQUIDITY AND CAPITAL RESOURCES At September 30, 2022, total balance sheet cash, cash equivalents, marketable securities, and restricted cash, including Ford Credit and entities held for sale, was $40.3 billion. We consider our key balance sheet metrics to be: (i) Company cash, which includes cash equivalents, marketable securities, and restricted cash, including cash held for sale, excluding Ford Credit’s cash, cash equivalents, marketable securities, and restricted cash; and (ii) Company liquidity, which includes Company cash, less restricted cash, and total available committed credit lines, excluding Ford Credit’s total available committed credit lines. Company excluding Ford Credit December 31, 2021 September 30, 2022 Balance Sheets ($B) Company Cash $ 36.5 $ 32.0 Liquidity 52.4 49.2 Debt (20.4) (20.3) Cash Net of Debt 16.1 11.8 Pension Funded Status ($B) (a) Funded Plans $ 5.8 $ 7.2 Unfunded Plans (6.1) (6.0) Total Global Pension $ (0.3) $ 1.2 Total Funded Status OPEB $ (6.0) $ (5.8) __________ (a) Balances at September 30, 2022 reflect net funded status at December 31, 2021, updated for service and interest cost; expected return on assets; curtailments, settlements, and associated interim remeasurement (where applicable); separation expense; actual benefit payments; and cash contributions. The discount rate and rate of expected return assumptions are unchanged from year-end 2021. Liquidity . One of our key priorities is to maintain a strong balance sheet, while at the same time having resources available to invest in and grow our business. At September 30, 2022, we had Company cash of $32.0 billion and liquidity of $49.2 billion, including approximately $800 million of Rivian marketable securities. In the third quarter, we sold approximately 52 million of our Rivian shares resulting in proceeds of about $1.8 billion. As marketable securities increase or decrease in value, Company cash and liquidity will likewise increase or decrease. At September 30, 2022, about 91% of Company cash was held by consolidated entities domiciled in the United States. To be prepared for an economic downturn, we target an ongoing Company cash balance at or above $20 billion plus significant additional liquidity above our Company cash target. We expect to have periods when we will be above or below this amount due to: (i) future cash flow expectations, such as for investments in future opportunities, capital investments, debt maturities, pension contributions, or restructuring requirements, (ii) short-term timing differences, and (iii) changes in the global economic environment. Our Company cash investments (excluding the Rivian marketable securities) primarily include U.S. Department of Treasury obligations, federal agency securities, bank time deposits with investment-grade institutions, investment-grade corporate securities, investment-grade commercial paper, and debt obligations of a select group of non-U.S. governments, non-U.S. governmental agencies, and supranational institutions. The average maturity of these investments is approximately one year and adjusted based on market conditions and liquidity needs. We monitor our Company cash levels and average maturity on a daily basis. 49 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued) Material Cash Requirements. Our material cash requirements include: • Capital expenditures (for additional information, see the “Changes in Company Cash” section below) and other payments for engineering, software, product development, and implementation of our plans for battery electric vehicles • Purchase of raw materials and components to support the manufacturing and sale of vehicles (including electric vehicles), parts, and accessories (for additional information, see the Aggregate Contractual Obligations table and the accompanying description of our “Purchase obligations” in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 of our 2021 Form 10-K Report) • Marketing incentive payments to dealers • Payments for warranty and field service actions (for additional information, see Note 21 of the Notes to the Financial Statements herein) • Debt repayments (for additional information, see the Aggregate Contractual Obligations table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 and Note 19 of the Notes the Financial Statements in our 2021 Form 10-K Report) • Discretionary and mandatory payments to our global pension plans (for additional information, see the Aggregate Contractual Obligations table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 of our 2021 Form 10-K Report, the “Changes in Company Cash” section below, and Note 14 of the Notes to the Financial Statements herein) • Employee wages, benefits, and incentives • Operating lease payments (for additional information, see the Aggregate Contractual Obligations table in the “Liquidity and Capital Resources - Company Excluding Ford Credit” section in Item 7 and Note 18 of the Notes to the Financial Statements in our 2021 Form 10-K Report) • Cash effects related to the global redesign of our business (for additional information, see the “Changes in Company Cash” section below) • Strategic acquisitions and investments to grow our business, including electrification Subject to approval by our Board of Directors, shareholder distributions in the form of dividend payments and/or a share repurchase program may require the expenditure of a material amount of cash. Moreover, we may be subject to additional material cash requirements that are contingent upon the occurrence of certain events, e.g., legal contingencies, uncertain tax positions, and other matters. We plan to utilize our liquidity (as described above) and our cash flows from business operations to fund our material cash requirements. 50