What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-06 compared with 2024-02-07 · 121 added, 101 removed, 478 unchanged (32% of the section changed)

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Forward-looking statements are based on expectations, forecasts, and assumptions by our management and involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those stated, including, without limitation:

• Ford is highly dependent on its suppliers to deliver components in accordance with Ford’s production schedule and specifications, and a shortage of or inability to acquire key components or raw materials, such as lithium, cobalt, nickel, graphite, and manganese, can disrupt Ford’s production of vehicles;

• To facilitate access to the raw materials and other components necessary for the production of electric vehicles, Ford has entered into and may, in the future, enter into multi-year commitments to raw material and other suppliers that subject Ford to risks associated with lower future demand for such items as well as costs that fluctuate and are difficult to accurately forecast;

• Ford’s long-term competitiveness depends on the successful execution of Ford+;

• Ford’s vehicles could be affected by defects that result in recall campaigns, increased warranty costs, or delays in new model launches, and the time it takes to improve the quality of our vehicles and services could continue to have an adverse effect on our business;

• Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or business strategies;

• Ford may not realize the anticipated benefits of restructuring actions and such actions may cause Ford to incur significant charges, disrupt our operations, or harm our reputation;

• Operational information systems, security systems, vehicles, and services could be affected by cybersecurity incidents, ransomware attacks, and other disruptions and impact Ford and Ford Credit as well as their suppliers and dealers;

• Ford’s long-term success depends on delivering the Ford+ plan, including improving cost and competitiveness;

• Ford’s vehicles could be affected by defects that result in recall campaigns, increased warranty costs, or delays in new model launches, and the time it takes to improve the quality of our vehicles and services and reduce the costs associated therewith could continue to have an adverse effect on our business;

• Ford is highly dependent on its suppliers to deliver components in accordance with Ford’s production schedule and specifications, and a shortage of or inability to timely acquire key components or raw materials can disrupt Ford’s production of vehicles;

• Ford’s production, as well as Ford’s suppliers’ production, and/or the ability to deliver products to consumers could be disrupted by labor issues, public health issues, natural or man-made disasters, adverse effects of climate change, financial distress, production difficulties, capacity limitations, or other factors;

• Failure to develop and deploy secure digital services that appeal to customers could have a negative impact on Ford’s business;

• Ford may not realize the anticipated benefits of existing or pending strategic alliances, joint ventures, acquisitions, divestitures, or business strategies or the benefits may take longer than expected to materialize;

• Ford may not realize the anticipated benefits of restructuring actions and such actions may cause Ford to incur significant charges, disrupt our operations, or harm our reputation;

• Failure to develop and deploy secure digital services that appeal to customers and grow our subscription rates could have a negative impact on Ford’s business;

• Ford’s ability to maintain a competitive cost structure could be affected by labor or other constraints;

• Ford’s ability to attract, develop, grow, and reward talent is critical to its success and competitiveness;

• Ford’s new and existing products and digital, software, and physical services are subject to market acceptance and face significant competition from existing and new entrants in the automotive and digital and software services industries, and its reputation may be harmed if it is unable to achieve the initiatives it has announced;

• Ford’s results are dependent on sales of larger, more profitable vehicles, particularly in the United States;

• Ford’s ability to attract, develop, grow, support, and reward talent is critical to its success and competitiveness;

• With a global footprint and supply chain, Ford’s results and operations could be adversely affected by economic or geopolitical developments, including protectionist trade policies such as tariffs, or other events;

• Industry sales volume can be volatile and could decline if there is a financial crisis, recession, public health emergency, or significant geopolitical event;

• Ford may face increased price competition or a reduction in demand for its products resulting from industry excess capacity, currency fluctuations, competitive actions, or other factors, particularly for electric vehicles;

• Ford’s new and existing products and digital, software, and physical services are subject to market acceptance and face significant competition from existing and new entrants in the automotive and digital and software services industries, and Ford’s reputation may be harmed based on positions it takes or if it is unable to achieve the initiatives it has announced;

• Ford may face increased price competition for its products and services, including pricing pressure resulting from industry excess capacity, currency fluctuations, competitive actions, or economic or other factors, particularly for electric vehicles;

• Inflationary pressure and fluctuations in commodity and energy prices, foreign currency exchange rates, interest rates, and market value of Ford or Ford Credit’s investments, including marketable securities, can have a significant effect on results;

• Ford and Ford Credit’s access to debt, securitization, or derivative markets around the world at competitive rates or in sufficient amounts could be affected by credit rating downgrades, market volatility, market disruption, regulatory requirements, or other factors;

• Ford’s results are dependent on sales of larger, more profitable vehicles, particularly in the United States;

• Industry sales volume can be volatile and could decline if there is a financial crisis, recession, public health emergency, or significant geopolitical event;

• The impact of government incentives on Ford’s business could be significant, and Ford’s receipt of government incentives could be subject to reduction, termination, or clawback;

• Ford Credit could experience higher-than-expected credit losses, lower-than-anticipated residual values, or higher-than-expected return volumes for leased vehicles;

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• Ford may need to substantially modify its product plans and facilities to comply with safety, emissions, fuel economy, autonomous driving technology, environmental, and other regulations;

• Ford and Ford Credit could be affected by the continued development of more stringent privacy, data use, data protection, and artificial intelligence laws and regulations as well as consumers’ heightened expectations to safeguard their personal information;

• Ford and Ford Credit could be affected by the continued development of more stringent privacy, data use, data protection, data access, and artificial intelligence laws and regulations as well as consumers’ heightened expectations to safeguard their personal information;

• Ford Credit could be subject to new or increased credit regulations, consumer protection regulations, or other regulations.

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Adjusted EBIT margin (%) 6.6 % 5.9 % 5.5 %

(a) 2021 reflects a benefit from recognizing deferred tax assets and favorable changes in our valuation allowances offset by the tax consequences of unrealized gains on marketable securities;

2022 reflects the tax consequences of unrealized losses on marketable securities and favorable changes in our valuation allowances;

(a) 2022 reflects the tax consequences of unrealized losses on marketable securities and favorable changes in our valuation allowances;

2023 reflects benefits from U.S.

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research tax credits and legal entity restructuring within our leasing operations and China.

(b) 2021 reflects a benefit from recognizing deferred tax assets and favorable changes in our valuation allowances offset by the tax consequences of unrealized gains on marketable securities;

2022 reflects the tax consequences of unrealized losses on marketable securities and favorable changes in our valuation allowances;

(b) 2022 reflects the tax consequences of unrealized losses on marketable securities and favorable changes in our valuation allowances;

2023 reflects benefits from China legal entity restructuring.

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Eliminations, where presented, primarily represent eliminations of intersegment transactions and deferred tax netting.

Selected Cash Flow Information.

The following tables provide supplemental cash flow information (in millions):

For the Year Ended December 31, 2023

Cash flows from operating activities Company excluding Ford Credit Ford Credit Eliminations Consolidated

Net income/(loss) $ 2,996 $ 1,333 $ — $ 4,329

Depreciation and tooling amortization 5,336 2,354 — 7,690

Other amortization 28 (1,195) — (1,167)

Provision for/(Benefit from) credit and insurance losses 107 331 — 438

Pension and OPEB expense/(income) 3,052 — — 3,052

Equity method investment dividends received in excess of (earnings)/losses and impairments (29) (4) — (33)

Foreign currency adjustments (49) (185) — (234)

Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments 236 (31) — 205

Net (gain)/loss on changes in investments in affiliates (9) — — (9)

Stock compensation 446 14 — 460

Provision for/(Benefit from) deferred income taxes (1,032) (617) — (1,649)

Decrease/(Increase) in finance receivables (wholesale and other) — (4,827) — (4,827)

Decrease/(Increase) in intersegment receivables/payables 167 (167) — —

Decrease/(Increase) in accounts receivable and other assets (2,512) (108) — (2,620)

Decrease/(Increase) in inventory (1,219) — — (1,219)

Increase/(Decrease) in accounts payable and accrued and other liabilities

9,602 227 — 9,829

Other 539 134 — 673

Interest supplements and residual value support to Ford Credit

(3,921) 3,921 — —

Net cash provided by/(used in) operating activities $ 13,738 $ 1,180 $ — $ 14,918

Cash flows from investing activities

Capital spending $ (8,156) $ (80) $ — $ (8,236)

Acquisitions of finance receivables and operating leases — (54,505) — (54,505)

Collections of finance receivables and operating leases — 44,561 — 44,561

Purchases of marketable securities and other investments (6,551) (2,039) — (8,590)

Sales and maturities of marketable securities and other investments 9,895 2,805 — 12,700

Settlements of derivatives 7 (145) — (138)

Capital contributions to equity method investments (2,733) — — (2,733)

Other (687) — — (687)

Investing activity (to)/from other segments — (3) 3 —

Net cash provided by/(used in) investing activities $ (8,225) $ (9,406) $ 3 $ (17,628)

Cash flows from financing activities

Cash payments for dividends and dividend equivalents $ (4,995) $ — $ — $ (4,995)

Purchases of common stock (335) — — (335)

Net changes in short-term debt (115) (1,424) — (1,539)

Proceeds from issuance of long-term debt — 51,659 — 51,659

Payments on long-term debt (212) (41,753) — (41,965)

Other (102) (139) — (241)

Financing activity to/(from) other segments 3 — (3) —

Net cash provided by/(used in) financing activities $ (5,756) $ 8,343 $ (3) $ 2,584

Effect of exchange rate changes on cash, cash equivalents, and restricted cash $ (262) $ 158 $ — $ (104)

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Selected Income Statement Information.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Selected Cash Flow Information.

The following tables provide supplemental cash flow information (in millions):

For the Year Ended December 31, 2024

Cash flows from operating activities Company excluding Ford Credit Ford Credit Eliminations Consolidated

Net income/(loss) $ 4,638 $ 1,256 $ — $ 5,894

Depreciation and tooling amortization 5,038 2,529 — 7,567

Other amortization 39 (1,739) — (1,700)

Provision for credit and insurance losses 13 562 — 575

Pension and OPEB expense/(income) 149 — — 149

Equity method investment (earnings)/losses and impairments in excess of dividends received (277) (10) — (287)

Foreign currency adjustments 317 (90) — 227

Net realized and unrealized (gains)/losses on cash equivalents, marketable securities, and other investments 45 (3) — 42

Stock compensation 493 18 — 511

Provision for/(Benefit from) deferred income taxes 74 276 — 350

Decrease/(Increase) in finance receivables (wholesale and other) — (4,299) — (4,299)

Decrease/(Increase) in intersegment receivables/payables 529 (529) — —

Decrease/(Increase) in accounts receivable and other assets (2,230) (267) — (2,497)

Decrease/(Increase) in inventory 27 — — 27

Increase/(Decrease) in accounts payable and accrued and other liabilities

8,106 319 — 8,425

Other 211 228 — 439

Interest supplements and residual value support to Ford Credit

(5,349) 5,349 — —

Net cash provided by/(used in) operating activities $ 11,823 $ 3,600 $ — $ 15,423

Cash flows from investing activities

Capital spending $ (8,590) $ (94) $ — $ (8,684)

Acquisitions of finance receivables and operating leases — (59,720) — (59,720)

Collections of finance receivables and operating leases — 45,159 — 45,159

Purchases of marketable securities and other investments (12,026) (274) — (12,300)

Sales and maturities of marketable securities and other investments 11,990 356 — 12,346

Settlements of derivatives 175 (443) — (268)

Capital contributions to equity method investments (2,323) — — (2,323)

Returns of capital from equity method investments 1,465 — — 1,465

Other (45) — — (45)

Investing activity (to)/from other segments 500 4 (504) —

Net cash provided by/(used in) investing activities $ (8,854) $ (15,012) $ (504) $ (24,370)

Cash flows from financing activities

Cash payments for dividends and dividend equivalents $ (3,118) $ — $ — $ (3,118)

Purchases of common stock (426) — — (426)

Net changes in short-term debt 519 (795) — (276)

Proceeds from issuance of long-term debt 110 57,202 — 57,312

Payments on long-term debt (152) (45,528) — (45,680)

Other (192) (135) — (327)

Financing activity to/(from) other segments (4) (500) 504 —

Net cash provided by/(used in) financing activities $ (3,263) $ 10,244 $ 504 $ 7,485

Effect of exchange rate changes on cash, cash equivalents, and restricted cash $ (191) $ (267) $ — $ (458)

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Selected Other Information.

At December 31, 2023, total equity attributable to Ford was $42.8 billion, a decrease of $0.4 billion compared with December 31, 2022.

At December 31, 2024, total equity attributable to Ford was $44.8 billion, an increase of $2.1 billion compared with December 31, 2023.

The detail for the changes is shown below (in billions):

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Separately, we also periodically perform field service actions related to safety recalls, emission recalls, and other product campaigns.

Pursuant to these warranties and field service actions, we will repair, replace, or adjust parts on a vehicle that are defective in factory-supplied materials or workmanship.

Software updates are increasingly a component of vehicle service and may be performed during warranty coverage repairs, through field service actions, or through over-the-air updates.

We accrue the estimated cost of both base warranty coverages and field service actions at the time of sale.

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Nature of Estimates Required.

The estimation of our defined benefit pension and OPEB plan obligations and expenses requires that we make use of estimates of the present value of the projected future payments to all participants, taking into consideration the likelihood of potential future events, such as demographic experience and health care cost increases.

The estimation of our defined benefit pension and OPEB plan obligations and expenses requires that we utilize the calculated present value of the projected future payments to all participants, taking into consideration valuation assumptions specific to each plan.

Plan obligations and expenses are based on existing retirement plan provisions.

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plans and 4.51% for non-U.S.

plans, reflecting decreases of 34 and 44 basis points, respectively, compared with year-end 2022.

plans, reflecting increases of 48 and 53 basis points, respectively, compared with year-end 2023.

Higher discount rates lowered the valuations of U.S.

In 2024, the U.S.

actual return on assets was 7.41%, which was higher than the expected long-term rate of return of 6.25%.

actual return on assets was 5.56%, which was higher than the expected long-term rate of return of 4.13%.

The higher returns are explained primarily by gains on fixed income assets.

In total, lower discount rates compared to year-end 2022, partially offset by asset gains in excess of our assumptions resulted in a net remeasurement loss of $1.8 billion, which has been recognized within net periodic benefit cost and reported as a special item.

actual return on assets was 0.08%, which was lower than the expected long-term rate of return of 5.93%.

actual return on assets was 2.77%, which was lower than the expected long-term rate of return of 4.53%.

The lower returns are explained primarily by lower returns on fixed income assets given the increase in long-term interest rates.

In total, higher discount rates, partially offset by asset returns lower than our assumptions, resulted in a net remeasurement gain of $575 million.

This gain has been recognized within net periodic benefit cost and reported as a special item.

For 2025, the expected long-term rate of return on assets is 6.37% for U.S.

plans, down 32 basis points from 2023, reflecting lower capital market return expectations, and 4.53% for non-U.S.

plans, up 40 basis points compared with a year ago, reflecting return expectations in those markets and a higher return seeking mix for certain plans.

plans, up 44 basis points from 2024, and 5.23% for non-U.S.

plans, up 70 basis points compared with a year ago, reflecting higher expected capital market return assumptions, including increased long-term interest rates.

De-risking Strategy .

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Effect of Actual Results .

The weighted average discount rate used to determine the benefit obligation for worldwide OPEB plans at December 31, 2023 was 5.10%, compared with 5.48% at December 31, 2022, resulting in a worldwide net remeasurement loss of $286 million, which has been recognized within net periodic benefit cost and reported as a special item.

The weighted average discount rate used to determine the benefit obligation for worldwide OPEB plans at December 31, 2024 was 5.46%, compared with 5.10% at December 31, 2023, resulting in a worldwide net remeasurement gain of $112 million, which has been recognized within net periodic benefit cost and reported as a special item.

Sensitivity Analysis.

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Interest rate - service cost and interest cost +/- 25 N/A $5/$(5)

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Nature of Estimates Required.

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Changes in these estimates and judgments may result in a material increase or decrease to our tax provision, which would be recorded in the period in which the change occurs.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Assumptions and Approach Used.

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We presently believe that global valuation allowances of $3.9 billion are required and that we ultimately will recover the remaining $15.3 billion of deferred tax assets.

However, the ultimate realization of our deferred tax assets is subject to a number of variables, including our future profitability within relevant tax jurisdictions, and future tax planning and the related effects on our cash and liquidity position.

However, realization of our deferred tax assets is impacted by a number of variables, including future profitability within relevant tax jurisdictions, tax law changes, and tax planning and the related effects on our cash and liquidity position.

Accordingly, our valuation allowances may increase or decrease in future periods.

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Impairment of Long-Lived Assets

Asset groups are tested at the level of the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Asset groups are tested at the level of the smallest identifiable group of assets that generate cash flows that are largely independent of the cash flows from other assets or groups of assets.

Asset groupings for impairment analysis are reevaluated when events occur, such as changes in organizational structure and management reporting.

Following the organizational and segment structure change in the beginning of 2023, our asset groups are:

Our asset groups for 2024 were:

Ford Blue North America, Ford Blue Europe, Ford Blue Rest of World, Ford Model e, Ford Pro, Ford Credit, and Ford Next.

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We test our long-lived asset groups when changes in circumstances indicate their carrying value may not be recoverable.

Events that trigger a test for recoverability include material adverse changes in projected revenues or expenses, present cash flow losses combined with a history of cash flow losses and a forecast that demonstrates significant continuing losses, significant negative industry or economic trends (including a substantial shift in consumer preference), a current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, a significant adverse change in the manner in which an asset group is used or in its physical condition, or when there is a change in the asset grouping.

In addition, investing in new, emerging products (e.g., EVs) or services (e.g., connectivity) may require substantial upfront investment, which may result in initial forecasted negative cash flows in the near term.

Events that trigger a test for recoverability include:

• Material adverse changes in projected revenues or expenses, present negative cash flows combined with a history of negative cash flows and a forecast that demonstrates significant continuing losses

• Adverse change in legal factors or significant negative industry or regulatory trends (such as overcrowding of market offerings or changes in regulations, resulting in excess capacity relative to market demand)

• Current expectation that a long-lived asset group will be disposed of significantly before the end of its useful life

• Significant adverse change in the manner in which an asset group is used or in its physical condition

• Significant change in the asset grouping

In addition, investing in new or emerging products (e.g., EVs) or services (e.g., connectivity) may require substantial upfront capital, which may result in initial forecasted negative cash flows in the near term.

In these instances, near-term negative cash flows on their own may not be indicative of a triggering event for evaluation of impairment.

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If the undiscounted forecasted cash flows are less than the carrying value of the assets, the asset group’s fair value is measured relying primarily on a discounted cash flow method.

To the extent available, we will also consider third-party valuations of our long-lived assets that were prepared for other business purposes.

To the extent available, we will also consider third-party valuations of our long-lived assets that may have been prepared for other business purposes.

An impairment charge is recognized for the amount by which the carrying value of the asset group exceeds its estimated fair value.

When an impairment loss is recognized for assets to be held and used, the adjusted carrying amounts of those assets are depreciated over their remaining useful life.

Nature of Estimates Required - Held-for-Sale Operations.

We perform an impairment test on a disposal group to be discontinued, held for sale, or otherwise disposed of when we have committed to an action and the action is expected to be completed within one year.

We estimate fair value to approximate the expected proceeds to be received, less cost to sell, and compare it to the carrying value of the disposal group.

An impairment charge is recognized when the carrying value exceeds the estimated fair value.

We also assess fair value if circumstances arise that were considered unlikely and, as a result, we decide not to sell a disposal group previously classified as held for sale upon reclassification to held and used.

When there is a change to a plan of sale, and the assets are reclassified from held for sale to held and used, the long-lived assets are reported at the lower of (i) the carrying amount before a held-for-sale designation, adjusted for depreciation that would have been recognized if the assets had not been classified as held for sale, or (ii) the fair value at the date the assets no longer satisfy the criteria for classification as held for sale.

Assumptions and Approach Used - Held-and-Used Long-Lived Assets.

The fair value of an asset group is determined from the perspective of a market-participant considering, among other things, appropriate discount rates, valuation techniques, the most advantageous market, and assumptions about the highest and best use of the asset group.

The fair value of an asset group is determined from the perspective of a market participant.

Considerations include appropriate discount rates, valuation techniques, the most advantageous market, and assumptions about the highest and best use of the asset group.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

We measure the fair value of an asset group based on market prices (i.e., the amount for which the asset could be sold to a third party) when available.

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Weighted-average cost of capital is an estimate of the overall risk-adjusted pre-tax rate of return expected by equity and debt holders of a business enterprise.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

• Economic projections.

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This approach relies on the market value (i.e., market capitalization) of companies that are engaged in the same or a similar line of business as the asset group being evaluated.

In addition, to the extent available we also consider third-party valuations that were prepared for other business purposes.

During 2023, we identified triggering events related to our Ford Blue Europe asset group.

In each situation in which we experienced a triggering event during the year, we tested our long-lived assets for impairment using our internal economic and business projections, and determined that the carrying values of the long-lived assets were recoverable.

If, in future quarters, our economic or business projections were to change as a result of an update to our plans, a deterioration of the economic or business environment, a significant adverse change in the extent or manner in which a long-lived asset is being used, or an expectation that a long-lived asset group will be disposed of significantly before the end of its useful life, we would undertake additional testing, as appropriate, which could result in an impairment of long-lived assets.

In addition, to the extent available, we also consider third-party valuations that may have been prepared for other business purposes.

During 2024, no triggering events were identified.

Assumptions and Approach Used - Held-for-sale Operations.

In the first quarter of 2024, we entered into an agreement to sell 100% of our equity interest in Ford Sales and Service Korea Company (“FSSK”), and the assets and liabilities of the entity were classified as held for sale.

However, as of December 31, 2024, FSSK no longer met the held-for-sale criteria as that sale transaction did not close and is no longer probable of occurring.

Accordingly, FSSK’s assets and liabilities were reclassified and reported as held and used as of December 31, 2024.

In the third quarter of 2024, we entered into an agreement to sell 100% of our equity interest in Ford Motor Company A/S, our national sales company in Denmark.

The entity was classified as held for sale in the fourth quarter of 2024 once all held-for-sale criteria were met.

Accordingly, as of December 31, 2024, the assets and liabilities of Ford Motor Company A/S were reported as held for sale.

We determined that the assets of both FSSK and Ford Motor Company A/S, which were not material, were not impaired.

See Note 21 of the Notes to the Financial Statements for more information regarding held-for-sale operations.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Allowance for Credit Losses

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If Ford Credit does not believe the models reflect lifetime expected credit losses for the portfolio, an adjustment is made to reflect management judgment regarding qualitative factors, including economic uncertainty, observable changes in portfolio performance, and other relevant factors.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Assumptions Used.

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The effect of the indicated increase/decrease in the assumptions for Ford Credit’s U.S.

Ford and Lincoln retail financing is as follows (in millions):

Ford and Lincoln retail financing portfolio at December 31, 2024 is as follows (in millions):

Assumption Basis Point Change

Increase/(Decrease)

Increase/(Decrease) in Allowance for Credit Losses

Probability of default (lifetime) +/- 100 bps $250/$(250)

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Generally, lease customers have the option to buy the leased vehicle at the end of the lease or to return the vehicle to the dealer.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Nature of Estimates Required.

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At the time Ford Credit purchases a lease, it establishes an expected residual value for the vehicle.

Ford Credit estimates the expected residual value by evaluating recent auction values, return volumes for its leased vehicles, industrywide used vehicle prices, marketing incentive plans, and vehicle quality data.

Ford Credit estimates the expected residual value by evaluating recent auction values, return volumes for Ford Credit’s leased vehicles, industrywide used vehicle prices, marketing incentive plans, and vehicle quality data and benchmarks to third-party data depending on availability.

Similar factors are considered in the third-party data Ford Credit uses to revise its estimate of the expected residual value during the lease term.

Assumptions Used.

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See Note 12 of the Notes to the Financial Statements for more information regarding accumulated depreciation on vehicles subject to operating leases.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Sensitivity Analysis.

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The effect of the indicated increase/decrease in the assumptions for Ford Credit’s U.S.

Ford and Lincoln operating lease portfolio is as follows (in millions):

Ford and Lincoln brand operating lease portfolio at December 31, 2024 is as follows (in millions):

Assumption Basis Point

Increase/(Decrease)

Increase/(Decrease) in Projected Lifetime Depreciation

Future auction values +/- 100 bps $(50)/$50

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We monitor and manage these exposures as an integral part of our overall risk management program, which includes regular reports to a central management committee, the Global Risk Management Committee (“GRMC”).

The GRMC is chaired by our Chief Financial Officer, and the committee includes our Controller and Treasurer.

The GRMC is chaired by our Chief Financial Officer, and the committee includes our Chief Accounting Officer and Treasurer.

We are exposed to liquidity risk, including the possibility of having to curtail business or being unable to meet financial obligations as they come due because funding sources may be reduced or become unavailable.

Our plan is to maintain funding sources to ensure liquidity through a variety of economic or business cycles.

As discussed in greater detail in Item 7, our funding sources include sales of receivables in securitizations and other structured financings, unsecured debt issuances, equity and equity-linked issuances, and bank borrowings.

As discussed in greater detail in Item 7, our funding sources include unsecured debt issuances, sales of receivables in securitization transactions and other structured financings, equity and equity-linked issuances, and bank borrowings.

We are exposed to a variety of other risks, such as loss or damage to property, liability claims, and employee injury.

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Quantitative and Qualitative Disclosures About Market Risk (Continued)

The net fair value of foreign exchange forward contracts (including adjustments for credit risk) as of December 31, 2023, was a liability of $319 million, compared with an asset of $236 million as of December 31, 2022.

The net fair value of foreign exchange forward contracts (including adjustments for credit risk) as of December 31, 2024 was an asset of $410 million, compared with a liability of $319 million as of December 31, 2023.

The potential change in the fair value from a 10% change in the underlying exchange rates, in U.S.

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Commodity price risk is the possibility that our financial results could be worse than planned because of changes in the prices of commodities used in the production of motor vehicles, such as base metals (e.g., steel, copper, and aluminum), precious metals (e.g., palladium), energy (e.g., natural gas and electricity), and plastics/resins (e.g., polypropylene).

As we transition to a greater mix of electric vehicles, we expect to increase our reliance on lithium, cobalt, nickel, graphite, and manganese, among other materials, for batteries.

As we transition to a greater mix of electric vehicles, we expect to increase our reliance on battery raw materials (e.g., lithium, cobalt, and nickel).

Our practice is to use derivative instruments to hedge the price risk with respect to forecasted purchases of certain commodities consistent with our overall risk management strategy.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis