There is some long-term good news for Ford Motor following Monday’s grim financial revelations.
Key Details
- Ford announced on Monday that parts shortages have delayed production of 40,000 to 45,000 vehicles, running costs $1 billion higher than anticipated and lowering profit projections.
- “The supply shortages will result in a higher-than-planned number of ‘vehicles on wheels’ built but remaining in Ford’s inventory awaiting needed parts, at the end of the third quarter,” says Ford.
- “Ford now anticipates third-quarter adjusted EBIT to be in the range of $1.4 billion and $1.7 billion. The company intends to announce full third-quarter 2022 financial results—and provide more dimension about expectations for full-year performance—on Wednesday, October 26.”
- Ford’s stock dipped 12.7% on Tuesday, following the Monday announcement. The price has recovered by just 3.3%.
Why it’s important
The supply chain shortages have wreaked havoc on Ford, but the company claims that the majority of the vehicles currently awaiting parts will be available sometime in the fourth quarter and that they will start making up profits.
Analysts aren’t that worried about Ford and seem optimistic that the company’s stock will bounce back.
“The magnitude of that miss actually isn’t all that bad. RBC analyst Joseph Spak broke down the shortfall, writing that the unfinished vehicles cost the company about $600 million in operating profit, or roughly $14,000 each,” says Barron’s.
“The implication is that Ford might have beaten expectations for the third quarter by about $200 million in a normal operating environment.”
“The company still expects to earn operating profit in the range from $11.5 billion to $12.5 billion in 2022. Ford will just earn more of it in the fourth quarter.”
Possible solutions
The current situation also creates opportunities for electric vehicle production. Ford’s F-150 Lightning electric truck is a major priority for the company, especially as automotive markets shift towards electric vehicles.
“Ford wants to be selling 2 million EVs around the globe each year by 2026. That could be 30% to 40% of all vehicles sold—when car volumes return to pre-pandemic levels,” says Barron’s.
“Per-unit profits might be elevated now because of high pricing related to the kind of industry-wide-production struggles that ruined Ford’s quarter. Still, if Ford’s trucks maintain higher-than-average profitability in coming years and if Ford makes money selling EVs, total company-wide operating profit could easily top $15 billion. That doesn’t depend on volumes growing.”
