Ford Motor Faces Challenges in Second Quarter
* Ford Motor reported a dip in second-quarter adjusted profit, with shares falling 12% in after-hours trading.
* The automaker’s quality issues and its struggling electric vehicle (EV) business are weighing on its bottom line.
* CEO Jim Farley has prioritized fixing quality problems and has made changes to production practices to avoid errors.
* However, Ford has still had the highest number of recalls in the industry.
Quality Problems Impact Profit
Ford Motor reported a dip in second-quarter adjusted profit, which fell short of analysts’ expectations. The automaker earned an adjusted profit of 47 cents per share, missing the 68 cents per share that analysts had predicted. This decline in profit can be attributed to costly quality issues that Ford has been grappling with. These quality problems have been a priority for CEO Jim Farley since he took over in October 2020.
Addressing Quality Problems
In an effort to address these quality problems, Ford has made changes to its production practices to avoid errors. The company has hired a new executive director of quality and implemented measures to improve the quality of its vehicles. Despite these efforts, Ford has still experienced a high number of recalls, surpassing other automakers in the industry.
Older Vehicles Impacted Warranty Expenses
Ford’s chief financial officer, John Lawler, explained that most of the warranty expenses incurred in the second quarter were related to older vehicles launched before 2021. These expenses amounted to an increase of $800 million compared to the previous quarter. Lawler stated that field service actions were a one-time cost increase for these older vehicles and that Ford expects the second half of the year to align with its warranty cost expectations.
EV Business Struggles
Ford’s electric-vehicle (EV) and software division recorded a significant operating loss in the second quarter. The division reported a $1.1 billion loss, adding to the $1.3 billion loss from the first quarter. Executives anticipate that this section of the company will sustain a pretax loss of up to $5.5 billion for the year. This highlights the challenges Ford faces in the EV market, where competition from Tesla and Chinese EV makers has intensified.
Shift in Plans
Recognizing the shifting dynamics of the EV market, Ford has adjusted its plans. Earlier this month, the company announced a change in its Canadian assembly plant’s purpose. Originally intended for building a three-row EV, the plant will now focus on producing Ford’s flagship F-150 pickups. This decision reflects Ford’s struggle to meet the high demand for gas-powered vehicles.
Hybrid Production and Affordable EVs
Ford is directing its efforts towards ramping up hybrid production as well as developing a platform for a lineup of affordable, smaller electric vehicles. These initiatives are being led by CEO Jim Farley and are being developed by Ford’s California-based “skunk works” team. By focusing on hybrids and more accessible EV models, Ford aims to address the evolving demands of the market.
Comparison to Competitors
In contrast to Ford’s performance, General Motors reported second-quarter profit and revenue that exceeded Wall Street’s expectations. Strong pricing and demand for gas-powered trucks buoyed General Motors’ results, leading the company to raise its annual forecast for the second time this year. Tesla also reported a decrease in second-quarter profit compared to the same period last year.
Conclusion
Ford Motor is facing challenges in its second-quarter performance due to quality issues and struggles in its electric-vehicle business. Despite efforts to address these issues, Ford has experienced a high number of recalls and significant losses in its EV division. However, the company remains committed to its annual guidance for earnings before interest and taxes. Ford is adapting its plans to prioritize gas-powered vehicles and ramp up hybrid production while also developing affordable electric vehicles to compete in the evolving market. The company faces tough competition from rivals such as General Motors and Tesla, but it aims to regain momentum and improve its performance in the coming quarters.
