Ford Motor (F) CORRESPCorrespondence with SEC

With the importance of our transition to electric vehicles to our business and the size of our investments, we included electric vehicle-related expenditures in the “Material Cash Requirements” discussion in the Liquidity and Capital Resources section of our 2021 Form 10-K and subsequent quarterly reports on Form 10-Q and quantified our expected expenditures in this area in the Liquidity and Capital Resources section of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.

For additional information about climate-related expenditures, please see our response to comment 4 below, including our consideration of whether disclosure of such expenditures was warranted. To the extent we incur or expect to incur additional climate-related expenditures, we will evaluate whether such expenditures are material to our business and evaluate potential disclosures at that time.

As noted on page 3 of our 2021 Form 10-K, “Our share is influenced by how our products are perceived by customers in comparison to those offered by other manufacturers based on many factors, including price, quality, styling, reliability, safety, fuel efficiency, functionality, and reputation.” Further, our risk factors in Item 1A of our 2021 Form 10-K address potential reputational harm resulting from our products that produce greenhouse gas emissions:

Although the internal combustion engine vehicles we develop, produce, and sell emit greenhouse gas emissions, as do our manufacturing processes, we do not believe those factors have had a material impact on our reputation or business generally, nor do we anticipate a material impact in the future. We believe that is the case because, as described above, we are working to address our impact on climate change and believe our reputation has benefited from those initiatives. To date, we have not experienced a significant loss of customers or business partners, e.g., suppliers, lenders, investors, based on the public perception of our business. Nevertheless, we face reputational risk if we are unable to achieve our initiatives on a timely basis, which may impact other parties’, including customers and investors, willingness to engage with Ford. Accordingly, we believe we have adequately described the reputational risks to our business in our current disclosures, including our risk factors; however, we will evaluate how we might enhance disclosures relative to reputational risks in our Annual Report on Form 10-K for the year ending December 31, 2022.

In the Management Discussion and Analysis (“MD&A”) section of our 2021 Form 10-K, we “focus specifically on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. This includes descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that are reasonably likely based on management's assessment to have a material impact on future operations.” Regulation S-K Item 303(a).

In assessing the materiality of physical effects that may have resulted from climate change, we have considered the impact on our suppliers and our manufacturing, as well as our customers. Weather and natural disasters can impact our suppliers and at times create supply chain inefficiencies causing additional cost as well as impact our own manufacturing. With respect to our customers, in the event a weather-related event disrupts our production and/or the ability to transport vehicles for an extended

period of time, it may impact our ability to deliver our vehicles to our dealers, and, in turn, the ability of those dealers to deliver vehicles to retail customers. We believe weather did not have a material impact on sales during the 2019 through 2021 periods. Moreover, weather-related damage to our property did not exceed $100 million in any year during the 2019 through 2021 periods, and, accordingly, we concluded no disclosure was warranted as the impact was not material.

As noted in our prior response and as described above, we have not experienced a material impact from weather-related events; however, we continue to include appropriate risk factor disclosure given the possibility of these occurrences. In preparing our risk factors in our 2021 Form 10-K, we considered the physical effects of climate change and concluded their potential impact on our ability to produce and sell vehicles should be addressed in our “discussion of the material factors that make an investment in [Ford] speculative or risky” pursuant to Regulation S-K Item 105(a). As described in more detail on page 20 of our 2021 Form 10-K in our risk factor titled “Ford’s production, as well as Ford’s suppliers’ production, could be disrupted by labor issues, natural or man-made disasters, financial distress, production difficulties, capacity limitations, or other factors,” a disruption to our production, regardless of the reason, could have a substantial adverse effect on our financial condition or results of operations. Our list of potential causes of such a disruption includes “a natural disaster (including climate-related physical risk),” which could impact our production directly, i.e., at one of our production facilities, or indirectly, i.e., at one of the production facilities in our supply chain. Our conclusion, however, was that Ford faces a material risk from a production disruption, and the cause of such a disruption, whether it is the physical effects of climate change, labor strikes, stay-at-home orders in response to a public health issue, a shortage of components, or other reason, itself is less significant. Accordingly, in light of our evaluation, we believe our existing disclosures on the potential for the physical effects of climate change to affect our operations and results are appropriate.

With respect to insurance costs, the insurance industry adjusts its pricing to account for trends in weather-related catastrophes. In general, costs are shared across the insurance market by insurance purchasers via a risk-pooling concept. Based upon our historical experience and current knowledge, we have no reason to believe the impact of weather-related events on property, operations, or availability or cost of insurance will materially change in future periods.

As discussed above and in our prior response dated August 26, 2022, Ford is planning to invest over $50 billion in electric vehicles and battery production by 2026. Within this planned investment are costs to be incurred during the course of our product development and manufacturing activities. Such activities will not only enable us to comply with various regulatory requirements aimed at reducing greenhouse gas emissions from new motor vehicles and engines, but also allow us to satisfy increasing consumer demand for electric vehicles with features and technology that make our vehicles attractive to customers. Similarly, as we develop internal combustion engine vehicles, our product development and manufacturing processes will continue to take into consideration the environmental performance of such vehicles, including advanced engines and transmissions, better aerodynamics, lower weight, and other efforts to increase fuel economy, among other aspects our customers consider when purchasing a vehicle. Accordingly, within these expenditures, it is not practical to separate compliance costs that are specifically related to climate change from other costs of operating our business to make products that are competitive in our industry.

Our Sustainability, Environment and Safety Engineering (“SE&SE”) team is tasked with overseeing the Company’s compliance with safety and environmental regulations, including those that are related to climate change. These compliance activities include, among others, inspecting and maintaining our facilities and equipment, preparing and submitting permit applications and reports, vehicle testing for compliance with regulations (emissions-related and otherwise), meeting with federal, state, and local authorities, and retaining and coordinating with consultants and contractors to do the same. These administrative costs are included in our structural costs. Depending on the nature of the particular item, such costs may be included in our “Cost of Sales” or “Selling, administrative, and other expenses” line items on our income statement. These costs, which include more than climate change-related compliance costs, are well below 1% of either line item. In 2019, 2020, and 2021, our “Cost of sales” was $134.7 billion, $112.8 billion, and $114.7 billion, respectively, and our “Selling, administrative, and other expenses” was $11.2 billion, $10.2 billion, and $11.9 billion, respectively.

Further, many of the projects our SE&SE team oversees, in conjunction with other skill teams within the Company, involve expenditures that benefit the Company in multiple ways such that we are unable to classify those expenses as compliance costs related to climate change. For example, we recently announced a new clean energy agreement with DTE Energy pursuant to which we will soon be able to attribute all of our electricity supply in Michigan to clean energy, a major step toward Ford’s goal to reach carbon neutrality, while also creating jobs and tax revenue in Michigan. This purchase amounts to $70 million annually for 25 years and is cost neutral to Ford. In addition, at many of our assembly plants, we have converted to (or, at the time of construction, incorporated) a three-wet paint process. This process uses less energy and water and reduces carbon dioxide and particulate emissions compared with conventional paint processes, which not only provides environmental benefits and assists with our compliance efforts, but also reduces our operating costs. Further, this process results in more durable paint, i.e., resistance to chipping and scratching, pollutants, and sun exposure, thereby improving the quality of our vehicles. A recent cost for such a conversion is $150 million. Accordingly, even if the entire cost of such a project was both considered a climate change-related compliance cost and expensed in a single period (though, depending on the specific nature of the project, it would likely be depreciated over several periods) such amount is immaterial in light of our total “Costs of sales.”

Similar, smaller scale projects at our facilities that may be more directly-linked to climate change-related initiatives, such as air emission abatement consolidation, paint booth air recirculation and air cascade projects, LED lighting installation, and air control equipment inspections, are generally below $10 million and often hundreds of thousands of dollars.

In preparing our 2021 Form 10-K, we considered the disclosure requirement included in Item 101(c)(2)(i) of Regulation S-K in drafting our disclosures in the “Governmental Standards” section of Item 1 (as well as our risk factor descriptions in Item 1A) and include therein a discussion of the “material effects that compliance with government regulations, including environmental regulations, may have upon [our] capital expenditures, earnings and competitive position.” Several excerpts from our 2021 Form 10-K addressing the impact of compliance with environmental regulations are included below:

Moreover, as described above, we concluded that other than our investments in electric vehicles, which are only, in part, climate change-related compliance costs, our capital expenditures for environmental control facilities and other climate-related compliance costs (although we believe we have limited costs that are “specifically related to climate change” alone) during the relevant periods were not and were not estimated to be material and, therefore, did not warrant disclosure.

We will continue to monitor credit and offset purchases and sales globally. If we have any such transactions in the future that are material, we will disclose them in future filings. For the 2022 through 2024 periods, we currently expect credit purchases will total less than $10 million per year.