By Nora Eckert and Nathan Gomez
(Reuters) – Ford Motor Co reported a drop in second-quarter adjusted profit on Wednesday as the automaker continued to grapple with costly quality issues and an electric vehicle business that weighed on its bottom line, sending shares down 11% in after-hours trading.
The Detroit automaker posted adjusted earnings of 47 cents per share, well below analysts’ expectations of 68 cents, according to LSEG data.
Executives insisted that Ford (NYSE:) is continuing to root out structural inefficiencies and transform its gas-powered and electric-vehicle operations, but Wall Street wasn’t convinced.
“You said Ford is a different company now than it was three years ago, but the stock market doesn’t seem to agree with you at all on that,” Morgan Stanley analyst Adam Jonas told Ford CEO Jim Farley on a conference call.
Ford’s CEO has made fixing the automaker’s quality problems a priority since taking office in October 2020. Since then, Ford has hired a new quality chief executive and changed some of its production practices to avoid errors, but it still leads the industry in the number of recalls.
Warranty expenses rose $800 million in the second quarter compared to the previous quarter, John Lawler, Ford’s chief finance officer, told reporters. Lawler said most of that warranty expense was related to older vehicles launched in 2021 or earlier. He said field service actions in the quarter were a one-time cost increase for older vehicles and Ford expects the second half of the year to be in line with its warranty cost expectations.
The automaker maintained its annual guidance of between $10 billion and $12 billion in earnings before interest and taxes.
‘growing pains’
“We can’t read this quarter as a derailment. That’s not true,” Lawler said. “We’re very confident about where we are this year. The plan is working. In this transition, it’s not going to be straight. We’re going to have bumps as we reshape things.”
Traditional automakers have scaled back their electric vehicle ambitions amid softening demand, a shift to hybrid vehicles and stiff competition from Tesla Inc. (NASDAQ:) and Chinese EV makers in global markets.
Earlier this month, Ford reversed plans to build an assembly plant in Canada that was expected to build a three-row electric vehicle, saying instead it would produce Ford’s flagship F-150 pickup truck. Farley said the company is struggling to meet growing demand for fuel-efficient vehicles.
“Overall, the electric vehicle journey has been modest, but it has forced us to be more fit as a company, including applying it to our (conventional gas engine) business, and that will pay off in the long run,” Farley said. “Ford’s reshaping is not without growing pains.”
On the battery-powered vehicle front, Farley is focusing on expanding its global hybrid portfolio by 40 percent this year, as well as developing a platform for a range of smaller, more affordable electric vehicles, something Ford is doing through its California-based “skunk works” team.
Ford posted a $1.1 billion operating loss for its electric-vehicle and software division in the second quarter, adding to a $1.3 billion loss in the first quarter. Executives expect the division to post a pretax loss of up to $5.5 billion this year.
“Losing patience”
The company’s repeated messages about shedding structural costs are not going down well with some on Wall Street.
“Investors may be losing patience with this story despite management’s insistence that it is laying the foundation for profitable long-term growth,” Garrett Nelson, an analyst at CFRA Research, said in a note.
Meanwhile, Ford’s commercial vehicle business, which Farley called its “secret weapon,” continued to drive overall earnings. The segment posted an operating profit of $2.6 billion during the quarter and an operating margin of 15%.
Regional rival General Motors Co. reported second-quarter earnings and revenue that beat Wall Street expectations, helped by strong pricing and demand for gas-powered trucks. The company raised its annual outlook for the second time this year. Still, its stock fell about 6% on Tuesday, amid analysts’ concerns that the auto industry’s resilience may not hold much longer.