Tag: Ford Motor Company (F)

Is Ford's Recall a Buying Opportunity or a Red Flag?

Posted on by The INO.com Team

Ford Motor Company (F) will recall 90,736 vehicles due to a potential issue with engine intake valves that may break while driving, as stated by the National Highway Traffic Safety Administration (NHTSA). This recall affects certain 2021-2022 models, including the Bronco, F-150, Edge, Explorer, Lincoln Nautilus, and Lincoln Aviator, equipped with either a 2.7L or 3.0L Nano EcoBoost engine.

The recall, initiated by U.S. regulators, has prompted concerns among investors regarding the potential financial and reputational impact on F. This situation raises an important question: Does this recall represent a buying opportunity due to an overreaction in the stock price, or is it a red flag signaling deeper issues within the automaker?

Recall’s Financial and Reputational Impact on Ford

The recall could carry significant financial implications for Ford. While the exact cost of the recall will depend on the number of engines that need to be replaced, the expense of performing engine cycle tests and potential engine replacements will likely be substantial. However, it is essential to consider the company’s financial health when assessing the impact of recall.

For the second quarter that ended June 30, 2024, F’s revenue increased 6.2% year-over-year to $47.80 billion. However, the company failed to surpass analysts’ estimate of $44.90 billion. Also, Ford reported adjusted EPS of $0.47, down 34.7% year-over-year. That missed the consensus EPS estimate of $0.68.

The company’s second-quarter adjusted free cash flow grew 10.3% from the prior year’s quarter to $3.20 billion. Ford’s cash and cash equivalents stood at $19.95 billion as of June 30, 2024. The automaker raised its full-year guidance for free cash flow while maintaining its 2024 earnings guidance. F’s guidance range for adjusted EBIT is $10-$12 billion, and expectations for adjusted FCF increased by $1 billion to between $7.5 billion and $8.5 billion.

From a reputational standpoint, Ford’s recall could undermine consumer confidence, especially in the models affected. The vehicles involved include some of the automaker’s best-sellers, such as the F-150 and the Bronco, which play critical roles in Ford’s product lineup.

Recalls, particularly those related to engine issues, can tarnish the brand’s image and lead to concerns about its vehicles' overall quality and reliability. This could potentially affect Ford’s sales in the short term, as customers may hesitate to purchase models involved in the recall.

Immediate Impact on Ford’s Stock

In the immediate aftermath of the recall announcement, investor sentiment around F could turn negative, leading to a decline in the stock price. Market overreactions to such news are common, mainly when the recall involves critical components like engines. However, the dip in the stock price could present a buying opportunity for long-term investors who believe in Ford’s ability to navigate through these challenges.

Ford has been making significant strides in the electric vehicle (EV) and autonomous driving sectors, which are well-poised to witness substantial growth in the near future. Fortune Business Insights projects the global EV market to expand from $671.47 billion in 2024 to $1.89 trillion by 2032, exhibiting a CAGR of 13.8% during the forecast period.

F, announced in earlier 2022, has committed to investing $50 billion in EVs by 2026, aiming to produce 2 million EVs annually. The company’s push into autonomous driving technologies also positions it well in a rapidly evolving automotive landscape. These promising long-term growth prospects could outweigh the short-term challenges posed by the recall, making the current dip in stock price an attractive entry point for investors with a long-term horizon.

Competitor Analysis: Opportunities for GM and STLA

While Ford deals with the fallout from this recall, competitors like General Motors Company (GM) and Stellantis N.V. (STLA) could seize the opportunity to capture market share. Both companies are heavily invested in the EV market and have been gaining traction with their respective product lines.

With its solid portfolio of electric vehicles, including the Chevrolet Bolt and the upcoming Hummer EV, GM is well-positioned to benefit if F’s recall leads to a loss of consumer confidence. Similarly, STLA, with its diverse product lineup and focus on electrification, could attract customers who might otherwise have considered Ford vehicles.

Therefore, investors may consider buying GM and STLA as they could see an uptick in sales and market share at Ford’s expense.

Bottom Line

F’s recent recall over the engine value issue, initiated by NHTSA, presents a complex situation for investors. On one hand, the recall could lead to a short-term decline in stock price due to negative investor sentiment and potential financial costs. On the other hand, this dip could offer a buying opportunity for those who believe in Ford’s long-term prospects in EVs and autonomous driving.

Moreover, the recall opens up potential opportunities for competitors like General Motors and Stellantis to capitalize on any loss of market share that Ford might witness. As such, investors may find value in diversifying their portfolios by considering GM and STLA, which are also well-positioned in the evolving EV landscape.

While Ford’s recall is a concerning development, it may not be a long-term red flag. Instead, it could be a temporary setback for the automaker, creating a buying opportunity for discerning investors. However, it is crucial to monitor the situation closely, as the extent of the recall’s impact on F’s reputation and financials will ultimately determine whether this is a buying opportunity or a sign of deeper issues within the company.

Ford's Financial Crisis: What It Means for Investors

Posted on by The INO.com Team

The stock market has seen a significant downturn over the past few days, with many overvalued mega-cap tech companies leading the slide. At the top of this is Ford Motor Company (F), whose shares have plummeted by 22% in the past month, far outpacing the S&P 500's 4% decline.

But what’s behind Ford’s sharp decline? A growing consensus among investors is that Ford is struggling due to mismanagement, making it arguably the most poorly run major automaker in the world today. Since the worst of the COVID-19 pandemic, Ford has made a series of costly missteps, especially in its ambitious $30 billion plan to catch up to Tesla, Inc. (TSLA) in the electric vehicle (EV) market. Despite these efforts, Ford is losing an alarming $50,000 on each EV it sells, raising questions about the sustainability of its strategy.

To put things in perspective, Ford's stock was trading around $11 at the end of June 2022, just before the Federal Reserve began raising interest rates. While Ford and major automotive players were impacted by supply chain issues and the semiconductor shortage through much of 2022, high interest rates and relatively weak consumer confidence in the U.S. have all contributed to the company’s decline.

In the second quarter of 2024, which ended June 30, Ford reported a 6% year-over-year revenue growth, reaching $47.81 billion, thanks to a fresh lineup of vehicles, including the all-new F-150. However, this fell short of Wall Street’s expectations of $44.90 billion. The company’s adjusted earnings also missed estimates by $0.21, coming in at $0.47 per share due to higher warranty-related costs. Ford’s net income for the second quarter dropped 4.5% compared to the previous year to $1.83 billion, mainly because its combustion-engine unit posted a pretax loss driven by rising warranty and recall expenses.

This disappointment was enough to cause Ford’s stock to plunge in after-hours trading, wiping out nearly a year’s worth of gains. The company reported $2.30 billion in warranty and recall costs for the last quarter alone, $800 million more than the first quarter and $700 million higher than a year ago.

Ford Blue, the company’s internal combustion engine unit, earned $1.17 billion before taxes during the quarter, down $1.1 billion from the previous year. While investors had hoped for better guidance from Ford Blue, the company cut its outlook instead. On the other hand, Ford Pro, the commercial vehicle unit, posted a $2.56 billion profit, which was $173 million above 2023. Meanwhile, Model E, the EV unit, reported a $1.14 billion loss ($63 million worse than the previous year), further deepening the company’s financial woes.

Despite these setbacks, Ford maintained its guidance range for adjusted EBIT between $10 billion and $12 billion while raising expectations for adjusted free cash flow (FCF) by $1 billion to a range of $7.50 billion to $8.50 billion. Ford Pro's EBIT outlook for the full year has been adjusted upward to $9 billion to $10 billion, thanks to growth and a favorable product mix. However, Ford Blue's outlook has been revised downward to fall between $6 billion and $6.5 billion, reflecting higher-than-expected warranty costs.

The combination of a profit drop and escalating warranty costs from April through June did not sit well with investors and has shaken their confidence in the company. Shares of F are down more than 19% over the past year and nearly 16% year-to-date.

Ford CEO Jim Farley acknowledged the company’s growing pains, particularly in its EV strategy, which has faced significant challenges. Despite these hurdles, Farley expressed confidence in Ford’s ability to reduce losses and build a profitable EV business. The company plans to focus on producing “very differentiated” EVs priced under $40,000 and $30,000, targeting work and adventure segments. However, success in this area will require significant breakthroughs in cost reduction, a goal that remains uncertain.

A pressing concern for investors is whether Ford has enough cash to navigate the ongoing economic challenges. The company’s total debt, excluding its financing operations, is $20.40 billion, while its cash reserves are roughly $20 billion. Given the current macroeconomic environment, marked by high oil prices and interest rates, could Ford face a repeat of its struggles from 2022 and 2023 and underperform the S&P over the next 12 months? Or will it manage to make a strong comeback?

Ford has recently backed off on its ambitious EV goals, recognizing that gasoline-powered vehicles are the primary drivers of short-term profits and possibly will be for some time. The EV versions of its best-selling F-150 pickup and Mustang Mach-E have not met expectations, leading management to argue that the key to success lies in developing a profitable $25,000 EV. However, the path to achieving this remains unclear.

Bottom Line

In summary, Ford’s stock has taken a significant hit due to management’s missteps and the challenges facing its EV strategy. While the company’s leadership remains optimistic about its future, investors are understandably concerned about the road ahead. The Ford family and management have a difficult task ahead as they try to steer the company back on course. For investors, the question remains whether now is the right time to buy shares, with Ford’s stock near its lowest point in recent years, or whether more challenges lie ahead.

Tesla vs. BYD: The Battle for Global EV Dominance in Ride-Hailing

Posted on by The INO.com Team

In 1995, while Elon Musk was kicking off his first venture in Silicon Valley, another entrepreneur, Wang Chuanfu, was starting his own journey in Shenzhen with BYD, making batteries for Motorola. It’s wild to think that nearly three decades later, Musk and Wang would be leading two of the biggest names in electric vehicles, caught in a geopolitical tug-of-war that’s all about manufacturing, energy, tech, and tariffs.

The rivalry between Tesla, Inc. (TSLA) and BYD Company Limited (BYDDY) isn’t as clear-cut as it seems. Despite being on opposite sides of a geopolitical divide, their businesses are deeply intertwined. Tesla’s second-largest market and biggest factory are in China, with significant investment from billionaires like He Xiaopeng. On the flip side, BYD’s largest external shareholders are American giants like Berkshire Hathaway and Blackrock, and it even supplied the largest-ever order for electric buses in the U.S. Plus, BYD sells batteries to Tesla.

These examples illustrate the difficulty of 'de-risking' between two deeply intertwined economies and determining who is 'winning' at any given moment. One thing’s for sure, though: both Wang and Musk remain optimistic about the future.

Tesla vs. BYD: The Competition Is Hot on Its Heels

While TSLA enjoys a near-mythical status among EV enthusiasts, BYD is rapidly closing the gap. In the last quarter, Tesla delivered 443,956 all-electric cars, 5% less than a year ago but 14.8% more than the previous quarter. Meanwhile, BYD’s sales volume surged 28.8% in July compared to the previous year, reaching 342,383 vehicles. In the first quarter, BYD was only 18,000 cars short of Tesla’s deliveries from April to June 2024, indicating how close this race is getting.

TSLA’s total revenues for the second quarter ended June 30, 2024, increased 2.2% from the previous year to $25.50 billion, showcasing its continued growth and success. However, BYD’s strong performance, with a 4% year-over-year increase in operating revenue, indicates a shifting landscape in the EV market, with BYD poised to challenge Tesla’s long-standing dominance.

On the bottom line, TSLA’s non-GAAP net income and EPS for the second quarter declined by 45% and 43% year-over-year to $1.81 billion and $0.52, respectively. In contrast, BYDDY’s attributable net profit for the March quarter grew 10.6% from the prior year to RMB4.57 billion ($640.82 million). Moreover, its EPS stood at RMB1.57, up 10.5% year-over-year.

Despite Tesla’s recent decline in profits, it has maintained its leadership position in EV deliveries, thanks to its significant advantage over other manufacturers in previous years. But with BYD closing in, the competition in the EV market is only getting hotter.

Tesla Has a Massive Leg Up on Its Competitors

Tesla is building EVs cheaper than anyone else, and it's giving Elon Musk's company an edge even with increasing competition. According to Bank of America, Tesla spends less than $30,000 on components per vehicle. This is $17,000 cheaper than other EV makers and about $10,000 below the industry average. Despite shrinking margins and slowing sales, these lower costs keep Tesla ahead of traditional automakers like Ford Motor Company (F) and General Motors Company (GM), who still rely on profits from gas-powered cars and haven't yet made a profit on their EVs.

High input costs lead to higher consumer prices, making it challenging for TSLA’s competitors to compete in a price-sensitive market. To make its cars even more affordable, the company offered attractive financing options in Q2, helping to offset high interest rates.

Elon Musk has big plans to compete with Uber Technologies, Inc. (UBER) through Tesla's autonomous (self-driving) robotaxis dubbed ‘Cybercab’. Musk is heavily investing in this technology and aims to release a more advanced, steering-wheel-free model possibly this fall. He envisions Tesla owners renting out their cars as self-driving taxis, similar to Airbnb, Inc. (ABNB), which could pose a severe challenge to ride-sharing giants like Uber and Lyft.

The idea is that Tesla owners can earn extra income by letting their cars operate as robotaxis during their off hours, with Tesla taking a cut of the profits. Musk even predicts that each participating Tesla could generate around $30,000 in gross earnings annually for its owner.

In a recent earnings call, Musk mentioned significant progress in full self-driving technology, with version 12.5 showing notable improvements. He also announced a slight delay in the Robotaxi product reveal, now scheduled for October 10th, to allow for essential updates and enhancements. Additionally, Tesla is ramping up production in its U.S. factory and building a new Megapack factory in China, potentially tripling its output.

BYD Joins Forces With Uber to Close the Gap With Tesla

BYD, Tesla's biggest competitor, has just struck a major deal with UBER. The deal aims to bring 100,000 BYD electric vehicles (EVs) to Uber’s global fleet, starting in Europe and Latin America before expanding to other regions. To encourage drivers to switch to EVs, both companies would offer incentives like discounts on maintenance, charging, financing, and leasing.

This move comes as global EV sales slow and Chinese automakers face higher import tariffs. The collaboration aims to lower the total cost of EV ownership for Uber drivers, boosting EV adoption on Uber’s platform and providing greener rides for millions of users.

BYD is also working on integrating its self-driving technology into Uber’s platform. With $14 billion invested in smart cars, BYD is developing a “Navigate on Autopilot” feature similar to Tesla’s “Autopilot,” which could potentially make BYD-Uber autonomous vehicles direct competitors to Tesla’s robotaxis.

BYD is expanding its production facilities outside China in response to increased tariffs on Chinese-made EVs. The company has recently secured a $1 billion deal to build a new manufacturing plant in Turkey, which will produce up to 150,000 vehicles annually and create around 5,000 jobs by 2026. They’ve also opened an EV plant in Thailand, with similar production capacity and expected to generate 10,000 jobs. Additionally, BYD plans to establish a passenger car factory in Hungary and another in Mexico.

Given these strategic diversifications and a focus on innovation, BYD has transformed into a global EV powerhouse. The company’s hefty investments in expanding its production capacity and approach to vertical integration have further solidified its competitive edge in the EV market​​.

Bottom Line

BYD’s strategic focus on electric and hybrid vehicles, along with its tech innovations and global expansion, makes it a serious contender against Tesla. As the EV market evolves, the competition between BYDDY and TSLA is expected to intensify, with both companies pushing hard to lead the charge and grab a bigger slice of the global market. The battle for EV dominance is far from over, and it would be interesting to see how these two giants move forward will shape the future of electric mobility.

Buy Alert: Is Ford (F) Entering a New EV Era?

Posted on by The INO.com Team

In recent years, the automotive industry has witnessed a seismic shift towards electric vehicles (EVs), fueled by both environmental concerns and technological advancements. One company that has been at the forefront of this transition is Ford Motor Company (F).

Traditionally known for its robust lineup of combustion engine vehicles, F’s foray into the EV market has been met with both skepticism and anticipation. However, recent developments suggest that F might be poised to make a significant impact in the EV space, potentially ushering in a new era for the iconic automaker.

Over the past few years, F has worked relentlessly to capture the EV market by launching several EV models. Beginning with the electrification of its most iconic products, the Mustang, F-150, and Transit, F rapidly ascended to become the second-largest EV brand in the U.S. by 2022.

Beyond simply providing zero-emission variants of its top-selling vehicles, the company is leveraging electrification to enhance the qualities that customers cherish most: performance, capability, and productivity. F’s strategy for electrification serves as a cornerstone in the company’s broader mission to achieve worldwide carbon neutrality by the year 2050.

In addition, in 2022, the company bifurcated its EV and traditional business into two distinct units, providing investors with greater transparency into its operations. The EV division was branded as “Ford Model e,” while the conventional operation retained the name “Ford Blue.”

However, despite F’s ambitious visions, the company’s EV division has grappled with major losses. In the fourth quarter of 2023, F’s EV division “Ford Model e” posted a $1.57 billion loss, more than doubling a loss of $631 million during the fourth quarter of 2022. Meanwhile, the company’s top-line and bottom-line figures for the same quarter topped Wall Street estimates.

While discussing the losses from its EV unit during the earnings call, F’s CEO Jim Farley highlighted a pivotal lesson learned. He noted that scaling EVs from 5,000 to 7,000 units per month and entering the early majority customer segment unveiled customers’ reluctance to pay a substantial premium for EVs.

However, in light of the significant losses incurred by its EV segment and customers’ unwillingness to pay premium prices, F’s teams are unwaveringly dedicated to prioritizing cost-effectiveness and efficiency in their EV products. This strategic focus is aimed at competing effectively with more affordable models from Tesla, Inc. (TSLA) and Chinese automakers.

Farley further added that F is reconsidering its strategies regarding EVs. The automaker had previously announced its intention to delay or reduce spending by $12 billion on all-electric vehicles. He emphasized that while F remains committed to the growth of EVs, widespread adoption among mass-market consumers is unlikely until the costs are comparable to traditional vehicles.

As F scales back and reassesses its EV business, it plans to focus more on the sales of hybrid vehicles, particularly trucks. The company anticipates a 40% increase in hybrid sales this year, having sold 133,743 hybrid vehicles in the U.S. in 2023.

Apart from F’s cost-cutting measures to make its EV models cheaper for its customers, the company has further taken significant measures to bolster its EV sales. A recent notable move involves tapping into TSLA’s Supercharger Network, enabling F car owners to conveniently charge their vehicles using TSLA's North American Charging Standard (NACS) plug.

Furthermore, F is offering a complimentary charging adapter to owners of 2021 through 2024 F EV models until June 30, 2024. Following this deadline, customers can acquire the adapter from F for $230.

Also, the forthcoming generation of F EVs will come equipped with NACS plugs straight from the factory, ensuring seamless access to the TSLA Superchargers Network. CEO Farley emphasized that this initiative enhances the public charging experience, offering customers increased choice and playing a crucial role in F’s evolution as an EV brand.

On top of it, F announced its acquisition of Auto Motive Power (AMP), a startup specializing in electric charging technology and battery management software. This strategic move aims to overhaul F's charging infrastructure and reduce the costs associated with its electric vehicles.

Analysts forecast for Ford’s first-quarter earnings reveal a mixed outlook, projecting a 21% year-over-drop in its EPS, reaching $0.56. The company’s revenue, on the other hand, is anticipated to increase 8.2% year-over-year to $42.28 billion.

Bottom Line

Despite the challenges being faced by its EV business, it’s crucial to acknowledge F’s significant advancements in the EV market. By prioritizing the enhancement of performance and productivity, F’s initiatives are in alignment with global carbon neutrality goals.

These strides underscore F’s steadfast commitment to innovation and sustainability within the automotive industry, highlighting resilience amidst the obstacles encountered in its EV segment.

Moreover, F’s proactive measures to enhance EV sales through price reductions and cost-saving initiatives are yielding tangible results, marking a promising trajectory for the company's EV endeavors.

Following an 11% year-over-year decline in January EV sales, F witnessed a notable turnaround in February. In February, F delivered 6,368 electric vehicles, marking an impressive 80.8% increase compared to the previous year. Specifically, sales of its Mustang Mach-E model surged by 64.3% year-over-year, with 2,930 units sold in February.

Furthermore, by tapping into TSLA’s Supercharger Network, F is addressing a critical concern among EV owners regarding charging infrastructure, enhancing convenience and accessibility for its customers.

The National Renewable Energy Laboratory (NREL) revealed that the United States has only reached 3.1% of its 2030 goal for DC fast chargers without the inclusion of the TSLA’s Supercharger Network. However, when factoring in the TSLA’s Supercharger Network, this figure rises to 9.1% of the nation’s target.

As highlighted by TSLA upon the official opening of the Supercharger Network to F’s electric vehicles, the network is expanding rapidly, with the addition of one new stall every hour. Considering the domination of TSLA’s Supercharger Network, the collaboration between TSLA and F could be a pivotal step in bolstering F’s EV sales.

Additionally, F’s strategic acquisition of AMP has demonstrated the company's dedication to advancing charging technology and reducing costs associated with electric vehicles.

F also remains steadfast in its commitment to returning value to its shareholders through dividend distributions. On March 1, the company paid a quarterly dividend of $0.15 to its shareholders. The company’s annual dividend of $0.60 translates to a 4.85% yield on the prevailing price level, while its four-year average dividend yield is 4.83%.

Overall, F’s strategic initiatives and promising developments in the electric vehicle market could position the company for long-term success in the rapidly evolving EV landscape, enhancing its competitiveness and brand loyalty. To that end, investors could closely monitor this stock for potential gains.

Is Ford Motor (F) Stock Gearing up to Crash and Burn?

Posted on by The INO.com Team

Ford Motor Company (F) has been dealing with the United Auto Workers (UAW) strikes. Now, another difficulty confronts the automaker — it recently issued two separate recalls, affecting 273,127 vehicles across the United States. The two models impacted are the 2020-22 Ford Explorer and the Ford Mustang Mach-E.

The larger recall applies to 238,364 Ford Explorers produced between 2020 and 2022. According to filings with the National Highway Traffic Safety Administration (NHTSA) from Ford, a defectively manufactured mounting bolt in the rear axle might snap, potentially resulting in vehicle roll-aways even when parked. The issue stems from this bolt enduring constant bending forces during acceleration, resulting from torque transmission.

If the bolt fails after sufficient vehicular launches, the axle might shift, disconnecting the driveshafts or half-shafts from the integrated powertrain system. If complete separation occurs, the transmission becomes unlinked from the car's wheels, paving the way for possible roll-aways as engaging the park gear would no longer prevent wheel spin.

According to a Ford report, 396 customers reported incidents linked to this problem, often signaled by loud clunking or grinding sounds. Less than 5% of these cases resulted in vehicle roll-away or impaired vehicular control. However, as a remedial measure, F will replace the faulty bolt and implement a re-engineered subframe bushing to ensure correct axle positioning.

The second recall targets 34,763 Mustang Mach-E models fitted with extended-range batteries. This rectification is due to an overheating battery contactor potentially causing a loss of motive power when driving. As per F, this can occur when the vehicle has experienced fast DC charging followed by intense acceleration.

This is the second recall to involve battery contactors on the Mustang Mach-E. Last year, a similar complication led the company to recall 48,924 Mach-E models and replace a diagnostic control module with an alternate model capable of monitoring the battery contactor's temperature. Unfortunately, the initiative did not successfully nullify the issue.

Hence, in this latest recall, F will replace the high-voltage battery junction box at no expense to its customers. The car manufacturer has confirmed that the previous recall has adequately addressed power loss issues affecting standard-range Mach-E units; hence, this recall targets only extended-range versions.

The recall follows an investigation initiated by the auto safety regulator, assessing whether F adequately addressed the issues during the June 2022 recall of about 49,000 Mach-E vehicles.

Implications

F is already grappling with UAW strikes, with predicted impacts of $120 million being realized in the upcoming quarter. As per industry experts, F is losing $44 million daily. Additionally, cuts to F’s future product investments could come if the UAW deal turns out unfavorable. Further, potential reductions in F's future product investment could follow if the UAW deal proves less favorable.

A challenge no company wants to find itself dealing with is product recalls. Recalls can significantly reshape a company's financial landscape, have far-reaching effects on its market performance and negatively impact its reputation.

Under consumer protection laws, manufacturing and supplying companies are required to shoulder full responsibility for the cost of recalling products and any associated costs. Though insurance may cover some costs for defective product replacement, many product recalls result in lawsuits. Considering the accumulated costs from lost sales, replacing faulty units, government sanctions, and legal proceedings, a large recall can quickly escalate into a daunting, multi-billion-dollar predicament.

For example, F's recall of 169,000 vehicles in the United States to replace faulty rear-view cameras and perform software upgrades would take a $270 million toll on the company's finances.

Large-scale organizations such as F can recover relatively quickly from such short-term financial loss. However, diminishing confidence among shareholders and consumers could lead to more severe long-term consequences, such as a marked drop in stock prices. Hence, it would be prudent for F to take measured steps swiftly toward addressing vehicular recalls and safeguard their reputation.

Despite the second-quarter earnings surpassing expectations, these unforeseen expenses could affect the upcoming quarter earnings.

During the second quarter, F’s revenues rose 11.9% year-over-year to $44.95 billion, and automotive revenues peaked at $42.43 billion, surpassing the $40.38 billion estimate. The net income almost tripled to $1.92 billion, marking an 187.4% year-over-year increase.

The automaker anticipates its full-year adjusted EBIT guidance between $11 billion and $12 billion, while its adjusted free cash flow is projected to come between $6.5 billion and $7 billion. The company anticipates to hit an 8% EBIT target by 2026.

Investors' apprehension arises from multiple aspects of the company's earnings and projections. The EV segment of the business, recently rebranded as Model E, reported a pre-tax loss of $1.08 billion. The firm anticipates losses for this segment could mount to $4.5 billion in 2023, a staggering 50% surge on prior predictions.

Additionally, the company has publicly acknowledged the sluggish uptake of EVs, which has led to a scaling back of their previously ambitious production objectives for EVs. The company now expects to hit an annual production capacity of 600,000 vehicles by 2024 instead of 2023 while being “flexible” about the goal of 2 million vehicles it previously forecast by 2026.

Analysts expect F’s revenue and EPS in the fiscal third quarter (ending September 2023) to be $42.51 billion and $0.46, registering 14.3% and 53.8% year-over-year growths, respectively.

Considering these developments, F’s shares have been facing pressures, sending its stock down to May 2023 levels. Over the past year, the stock declined 5% and 8.2% over the past month to close the last trading session at $11.53.

Institutions hold roughly 54.6% of F shares. Of the 1,765 institutional holders, 797 have decreased their positions in the stock. Moreover, 128 institutions have taken new positions (11,202,366 shares), while 132 have sold positions in the stock (10,742,511 shares).

Bottom Line

F has unveiled a bold scheme to invest billions in the advancement of EVs while also returning capital to its shareholders. This plan is predicated on robust revenue streams from its traditional combustion-engine trucks and SUVs portfolio. Given the increasing costs associated with UAW strikes, contract resolutions, and vehicular recalls, these plans seem to be in considerable peril.

To counteract these losses, the automaker could reduce capital spending, delay EV targets, increase cost-sharing initiatives, and make other alterations to its corporate portfolio.

The company experienced negative free cash flow in 2022 and forecasts a similar scenario for this year owing to lofty capital expenditure commitments.

While the company continues offering its shareholders dividends, its history is somewhat mottled. Given the ongoing difficulties, there is an elevated risk of dividend discontinuation or minimization. This eventuality was seen during the pandemic in 2020 and was resumed at the tail-end of 2021. A previous incident occurred before the Green Financial Crisis, with reinstatement happening three years later. This inconsistency may dissuade shareholders from seeking stability in their dividend returns.

Compounding the issues at F is their escalating debt load, which jumped from $105.06 billion in 2012 to nearly $139 billion in 2022. Simultaneously, the firm increased its cash holdings to boost liquidity.

One factor that could entice investors is the relatively low valuation of F. Its forward non-GAAP Price/Earnings of 5.78x is 59.7% lower than the industry average of 14.33%. Also, its forward Price/Sales multiple of 0.28 is 66% lower than the industry average of 0.83.

However, considering the automaker’s tepid price momentum and mixed profitability, it could be wise to wait for a better entry point in the stock.