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Ford Motor (F +4%) is in a high gear today after the company avoided the doomsday chip-shortage scenario the company painted in April. Ford reported strong upside for Q2 EPS and revenue. Adjusted EBIT, which is a key metric with Ford, jumped to $1.08 bln vs consensus of $86 mln. Full year adjusted EBIT guidance was raised to $9-10 bln. Ford also said its US customer-sold order bank exiting the quarter was more than 7x larger than at the same point a year ago, with new models still to come.

• The major concern heading into the Q2 report was the industry-wide chip shortage. In April, Ford said that it expected to lose about 50% of planned volume in Q2, which then implied a loss in adjusted EBIT. Ford did much better than expected by leveraging strong demand to optimize revenue and profits.
• Importantly, Ford is now seeing signs of improvement in the flow of chips in Q3. However, it also cautions that the situation remains fluid, especially due to a delay in ramp-up of one of its key suppliers, Renesas. After effectively managing through 1H21, Ford is now spring-loaded for growth in 2H21 because of "red-hot" products, pent-up demand, and improvements in chip supply.
• Speaking of those "hot" cars, Ford says it stopped making "me-too" products in declining segments a few years ago. Instead, it "unleashed [its] product development team to create emotional and distinctive products that only can come from Ford." The early returns are impressive. The Mustang Mach-E, which Ford believes is the first credible mass-marketed competitor to Tesla (TSLA), is already the second best-selling electric SUV in the US. Reservations for the upcoming F-150 Lightning have now climbed well past 120,000 units, and 75% of the customers placing those reservations are new to Ford.
• Also, the response to the redesigned Bronco has been "remarkable." Ford started shipments to fulfill 125,000 orders for Bronco in June; 70% of those Bronco customers are new to Ford. Finally, the Maverick, Ford's upcoming hybrid pickup, looks to be another big winner.

The main takeaway is that the chip shortage impacted Q2 results, but it was not the doomsday scenario many investors, and Ford for the matter, had feared it would be. The other key takeaway is that Ford's earlier prediction that the chip shortage trough would be hit in Q2 seems to be playing out that way. Chips are flowing better in Q3, although the situation remains fluid.

From an investment perspective, we profiled Ford on March 19 as an economy re-opening play at $12.94. When the stock pulled back on Q1 earnings, we said in our Q1 analysis at $11.20 (+32%) that this pullback provided another bite at the Ford turnaround apple. We remain fans of the stock, as new CEO Jim Farley has been streamlining operations and reallocating capital to franchise strengths: pickup trucks, SUVs, commercial vehicles, and iconic passenger vehicles while phasing out unprofitable sedans. With the chip shortage showing early signs of easing and with some great vehicles being launched, Ford's prospects look quite good.

Finally, General Motors (GM) is set to report earnings next week (August 4 before the open). This report could set expectations for GM's report.