Ford Stock Falls After Q3 Earnings: Key Takeaways

Ford (NYSE: F) stock is trading lower in US premarkets today after it missed Q3 earnings estimates. Here are the key takeaways from the Detroit automaker’s Q3 earnings report.

Ford reported automotive revenues of $41.18 billion in the September quarter which was slightly below the $41.22 billion that analysts expected. Its total revenues rose 11% YoY to $43.8 billion.

The company’s adjusted EPS came in at 39 cents which trailed analysts’ estimate of 45 cents. The company’s net income rose to $1.2 billion in the quarter as compared to a loss of $827 billion in the corresponding quarter last year.

Ford Model e posted massive losses

Ford Pro, which is the company’s commercial business, reported revenues of $13.6 billion – a YoY rise of 16%. The segment posted a pre-tax profit of $1.7 billion at a healthy margin of 12%.

Ford Blue which houses the company’s internal combustion engine (ICE) business posted pre-tax profits of $1.7 billion which was 17% higher than the corresponding period in 2022. The business was profitable in all the regions in which it operates. Notably, as part of the transformation exercise, Ford has quit several loss-making markets over the last few years.

Meanwhile, the segment’s Q3 profits were marred by higher warranty costs which it said “was driven by recalls and higher per unit repair costs due to inflation.”

Ford’s Model e business which is its electric vehicle (EV) business posted a loss of $1.33 billion which it attributed to “continued investment in next-generation EVs and challenging market dynamics.”

During the Q2 earnings call, Ford raised the segment’s 2023 loss guidance from $3 billion to $4.5 billion.

Ford’s EV strategy

In July, Ford toned down its ambitious EV program and said that it would hit an annual production capacity of 600,000 by 2024 instead of 2023. It also rolled back the targeted production capacity of 2 million cars and said that it would be “flexible” about the timing – instead of reaching the goal in 2026 as previously stated.

During the Q3 earnings call, Ford’s CFO John Lawler said, “The transition to EVs is well underway. Adoption is growing, even if pace is slower than what the industry, including us, expected.”

He added, “Along the way, we’re going to balance production of gas, hybrid and electric vehicles in ways that many companies can’t, based on what consumers want.”

According to Lawler, “Given the dynamic EV environment, we are judicious about our production.”

Ford scales back EV investments

Ford would also delay its planned $12 billion investments towards building electric cars and also postpone the construction of the EV battery plant in Kentucky. Rival General Motors has also scaled back its EV plans and has delayed the production of electric trucks at the Orion assembly plant until late 2025.

Ford is also focusing on hybrids and said in its earnings report it realizes that “many North America customers interested in buying EVs are unwilling to pay premiums for them over gas or hybrid vehicles, sharply compressing EV prices and profitability. Partly in response, Ford this month introduced the F-150 Lightning Flash pickup, combining popular technology-based features in a competitively priced electric truck.”

F withdrew its guidance

Meanwhile, Ford withdrew its 2023 earnings guidance and said “given effects of the UAW strike and with ratification of the tentative agreement with the union that was announced Wednesday night pending, Ford is withdrawing its guidance for full-year 2023 operating results.”

The company estimates that the six-week strike cost it $1.3 billion in operating profits and that once ratified the new labor deal would add between $850 to $900 per vehicle assembled.

Lawler said, “We going to have to find efficiencies and productivity throughout the system and throughout the company to help mitigate the impacts.”

Jim Farley on Q3 performance

Ford’s CEO Jim Farley termed the Q3 performance as “mixed” and said “The strength of our products and revenues and businesses defined definitely came through in our results.” He however added that the company was “negatively impacted by the strike, and our cost and quality remain a drag on our business.”

He also talked about the cost and quality issues and said, “A great product is not enough in the EV business anymore. We have to be totally competitive on cost. Tesla actually gave us a huge gift with a laser-focus on cost and scaling the Model Y. They set the standard, and we are now making real progress on our second- and third-cycle EVs that are in the midst of being developed today as we get closer to the introduction.”

How analysts reacted to Ford’s earnings

Commenting on Ford’s Q3 earnings, UBS analyst Joseph Spak said, “We won’t sugar coat it was a miss, higher warranty, higher labor costs, a rethink needed on EV strategy there was little to get enthused about from 3Q23 earnings.”

He added, “Our hope is that the commentary causes sentiment to bottom. But, it may take some time for confidence to rebuild in the strategy.”

Goldman Sachs’ Mark Delaney is also apprehensive over the EV pricing environment. There has been a brutal price war in the EV industry and Tesla which started the price war last year yet again lowered car prices in the US earlier this month. After this round of price cuts, Tesla’s website lists the starting price for the Model 3 at $38,990 while the Model Y at $45,990. After these price cuts, Tesla has lowered the prices of the Model 3 standard version by almost 17% in the US since the beginning of the year.

Delaney said, “We believe the intermediate to longer-term margin potential for the company will be a key debate and likely a concern for investors post the quarter.”

Notably, even Tesla’s operating margins have nosedived amid the price war and came in below 8% in Q3.

Morgan Stanley stays bullish on Ford stock

Meanwhile, despite the earnings miss, Morgan Stanley analyst Adam Jonas maintained his overweight rating on Ford stock and said, that the company’s ICE segment can “continue to be the bulwark of cash flow and shareholder value at Ford for at least a decade or more to come.”

F stock is down almost 3% in pre-market and looks set to continue its dismal 2023 run after the Q3 earnings miss.