Ford’s Q2 Profit Drops Amid Quality Issues and EV Struggles, Shares Fall

173

Ford Motor Co. (F.N) reported a decline in second-quarter adjusted profit on Wednesday, citing ongoing quality issues and financial losses from its electric vehicle (EV) business. The disappointing earnings led to an 11% drop in after-hours trading.

The Detroit-based automaker posted an adjusted profit of 47 cents per share, well below analysts’ expectations of 68 cents, according to LSEG data. Executives highlighted efforts to address structural inefficiencies and revamp both its gas-engine and EV operations, but Wall Street remained skeptical.

Morgan Stanley analyst Adam Jonas voiced the market’s concerns directly to Ford CEO Jim Farley during the company’s conference call. “You said that Ford’s a different company from what it was three years ago, but the stock market really doesn’t seem to agree with you at all on that,” Jonas remarked.

Since taking the helm in October 2020, Farley has prioritized resolving Ford’s quality problems, hiring a new executive director of quality and revamping production practices. Despite these efforts, Ford continues to lead the industry in recalls.

Ford Finance Chief John Lawler reported an $800 million increase in warranty expenses in the second quarter compared to the previous quarter. He attributed most of these costs to older vehicles launched in 2021 or earlier. Lawler emphasized that these expenses were a one-time increase and that warranty costs are expected to align with projections in the latter half of the year.

Despite these challenges, Ford maintained its annual earnings guidance of $10 billion to $12 billion before interest and taxes.

**’Growing Pains’**

“We can’t read this quarter as that the year is coming off tracks. It’s not,” said Lawler. “We’re very confident in where we’re at this year. The plan’s working. In this transformation, it’s not going to be a straight line up. We’re going to have bumps as we’re reshaping things.”

Legacy automakers, including Ford, have scaled back their EV ambitions amid fluctuating demand, a shift towards hybrids, and stiff competition from Tesla (TSLA.O) and Chinese EV manufacturers.

Earlier this month, Ford adjusted plans for a Canadian assembly plant initially set to produce a three-row EV, opting instead to build its flagship F-150 pickups due to soaring demand for the gas-powered trucks. Farley acknowledged the challenges and opportunities in the EV market. “Overall, the EV journey has been humbling, but it has forced us to get even more fit as a company, including applying it to our (traditional gas-engine) business, and that will pay off in the long run,” he said. “The remaking of Ford is not without growing pains.”

Farley outlined Ford’s strategy to expand its global hybrid portfolio by 40% this year and develop a platform for affordable, smaller electric vehicles, spearheaded by its California-based “skunk works” team.

Ford’s electric-vehicle and software division recorded a $1.1 billion operating loss in the second quarter, adding to a $1.3 billion loss in the first quarter. Executives forecast a pretax loss of up to $5.5 billion for the year in this division.

**’Losing Patience’**

Some investors are growing impatient with Ford’s promises to reduce structural costs. “Investors may be losing patience with the story despite management’s insistence that it is laying the foundation for profitable, long-term growth,” said CFRA Research analyst Garrett Nelson.

On a positive note, Ford’s commercial vehicle business, which Farley has termed its “secret weapon,” continued to bolster overall profits. This segment posted an operating profit of $2.6 billion for the quarter, with operating margins of 15%.

In contrast, crosstown rival General Motors (GM.N) reported second-quarter profit and revenue on Tuesday that exceeded Wall Street’s expectations, driven by strong pricing and demand for gas-powered trucks. GM raised its annual forecast for the second time this year, though its stock slipped about 6% on concerns about the auto industry’s long-term resilience.