Ford motor company’s latest $1.75 billion green bond issue is intended to accelerate its electric vehicle production plans, and coincides with the signing of the Inflation Reduction Act into law, which provides $7,500 credit for EVs made in the USA.
The green bond market continues to be a capital source for Ford, as the current issue follows a prior $2.5 billion 2021 green bond, and the alignment of its $15 billion in credit lines with ESG metrics.
Demand for the bond led to it being oversubscribed by nearly three times, and being priced below initial estimates, according to Informa Global Markets, which may spur further such issuance by Ford.
The company plans to invest $50 billion to make EVs between 2022 and 2026, and is also planning to split its company into two – Ford Model E, an EV maker, and Ford Blue, making conventional internal combustion engine cars.
$1.75 billion green bond for clean transportation projects
Ford (NYSE:F) intends to use the net proceeds of its latest $1.75 billion green bond for clean transportation projects, according to its filing with the SEC. Specifically, the funds will be allocated to the design, development, and manufacture of its battery electric vehicle (BEV) portfolio of projects, largely in North America.
The company expects to fully allocate the net proceeds by the end of 2023, having already allocated 75% of its 2021 bond, with completion expected by year-end. Detailed project selection criteria and reporting guidelines are provided in Ford’s Sustainable Financing Framework.
Hiring an external consultant to confirm the bonds are aligned with International Capital Market Association (ICMA) Green Bond Principles, the ICMA Social Bond Principles, the ICMA Sustainability Bond Guidelines and the Loan Market Association Green Loan Principles, will further add to Ford’s green bond credentials.
Sustainable Fitch’s survey on issuer and framework ratings revealed higher scores for frameworks that provided details on project selection criteria and the delineation and management of projects.
Environmental and legislation-led momentum driving EV demand
Ford’s green bond issuance capitalises on an increasing appetite for green financing among investors, as well as a possible boost to EV sales from a $7,500 credit for US-made EVs, in the newly enacted Inflation Reduction Law Act. This will also support the Biden administration’s target of 50% of new vehicle sales in the U.S. to be zero-emission vehicles.
For the first half of 2022, US EV sales increased 62% to account for 6% of new car sales, albeit from a low base of 3% for the corresponding period in 2021. This compares to China’s 56% of new car sales coming from EV’s in 1H 2022, backed by government subsidies and incentives to manufacturers and consumers.
Ford’s electric future may necessitate more green financing
Ford is planning a total investment of $50 billion for EV and battery production between 2022 and 2026, with a target run rate for total EV production of over 2 million vehicles at the end of the period. Clearly, it intends to tap the rapidly growing green financing market for funding, especially after seeing the demand and favourable pricing for its latest issue.
The company was among the first US auto makers to issue green bonds, a $2.5 billion unsecured bond in 2021, and also has tied ESG metrics to its $15.5 billion in revolving credit lines which could pave the way to converting them to green and sustainable lines of credit on renewal.
Splitting its company into two in the future could further enhance credit worthiness of the Ford Model E unit, while the traditional car making arm (Ford Blue) serves as a cash cow to provide cash flows. However, inclusion of working capital from a “brown company” could lower its sustainability framework’s scores, which may provide further impetus to hasten the reorganisation.
