Ford Motor Shares Plummet Amid Quality Issues and EV Competition

Ford Motor's shares tumbled over 13% after missing second-quarter profit estimates. The automaker faces quality-related costs and stiff competition in its EV business. Adjusted profits fell significantly short of expectations, and warranty expenses increased. Ford's CEO aims to fix quality problems, but challenges remain with EV ambitions and market competition.

Ford Motor's shares took a nosedive by over 13% to a near six-month low on Thursday, following an earnings miss in the second quarter. The automaker's struggles with quality-related costs and stiff competition in the electric vehicle market played a significant role. Ford reported an adjusted profit of 47 cents per share, well below analysts' expectations of 68 cents, as per LSEG data. In comparison, General Motors surpassed earnings targets earlier in the week.

The share drop was steep, with an 11% fall in after-hours trading in New York on Wednesday and an 8% decline in Frankfurt-listed shares on Thursday. Ford is expected to lose about $7.22 billion in market capitalization at the current share price of $11.86. A significant hit came from an $800 million increase in warranty expenses in the second quarter, which critically impacted the profits of Ford Blue's combustion and hybrid vehicle business.

Analysts at Piper Sandler attributed the stock slump to these 'unwelcome warranty headwinds,' emphasizing that Ford's quality concerns on vehicles from the 2016 and 2021 model years led to a higher-than-expected warranty burden. However, Ford remains optimistic about aligning with warranty cost expectations in the second half of the year. CEO Jim Farley has prioritized solving quality issues since taking over in October 2020. Despite efforts, including hiring a new executive director of quality and changing production practices, Ford leads the industry in recalls.

Meanwhile, legacy automakers have scaled down their electric vehicle ambitions due to easing demand and competition from Tesla and Chinese EV makers. Morningstar analyst David Whiston pointed out that shareholders might have to settle for quarterly and special dividends as the company navigates through warranty problems and slower EV rollouts. Ford's price-to-earnings ratio stands at 6.9 compared to GM's 4.7, with Ford's shares rising about 14% this year while GM has gained 29%.

(With inputs from agencies.)