Ford Motor Company faced a significant setback as its shares tumbled 11% following a disappointing second-quarter earnings report. Despite a 6% increase in revenue to $47.8 billion, the automaker fell short of Wall Street's expectations, reporting adjusted earnings of 47 cents per share compared to the anticipated 67 cents. This earnings miss can be attributed to rising warranty costs and quality issues with new vehicles, which have significantly impacted the company's profitability.
Ford's CEO, Jim Farley, acknowledged the challenges during the earnings call, stating, "We have to make tremendous progress on Model e; it's a huge drag on profits". The company's electric vehicle (EV) division, Model e, reported a loss of $1.1 billion in the second quarter, contributing to a total loss of $2.5 billion for the first half of 2024. Despite these setbacks, Ford's EV sales surged 61% year-over-year, with notable increases in sales of the Mustang Mach-E, F-150 Lightning, and E-Transit EV van.
The company's traditional gas-powered vehicle business, Ford Blue, and its commercial unit, Ford Pro, showed resilience. Ford Pro, in particular, saw a 9% increase in revenue to $17 billion and posted a strong EBIT margin of 15.1%. However, the overall financial performance was not enough to offset the losses from the EV division and the rising costs associated with quality issues.
Ford's outlook for the year remains unchanged, with an adjusted EBIT target range of $10 billion to $12 billion. The company also raised its adjusted free cash flow expectations by $1 billion, now projecting between $7.5 billion and $8.5 billion. Despite these positive projections, the market reaction was swift and severe, with Ford's stock dropping over 11% after hours.
The automaker's challenges highlight the difficulties faced by traditional car manufacturers in transitioning to electric vehicles. Ford has recently revised its product strategy to emphasize hybrids over fully electric models, reflecting slower-than-expected demand for EVs. The company also announced plans to increase production of its large Super Duty trucks at a Canadian facility initially intended for EV production.
Ford's second-quarter earnings report underscores the complexities and financial pressures of the automotive industry's shift towards electric vehicles. While the company has made strides in EV sales, the significant losses and quality issues have cast a shadow over its financial performance, leading to a sharp decline in its stock price.
