Ford's third-quarter profit will be hit by the cancellation of its electric SUV

DETROIT (AP) — Stubbornly high warranty costs and sluggish cost-cutting efforts are holding back Ford Motor Co.'s profits this year, prompting the company to cut its full-year profit forecast.

This sent the company's share price down 6% in trading after the closing bell on Monday.

The Dearborn, Mich., automaker, which reported its third-quarter results on Monday, said its net income fell nearly 26% as it incurred $1 billion in accounting costs for asset write-downs canceled three-row electric SUV.

Ford said it earned $892 million from July to September, compared with $1.2 billion a year earlier.

But excluding the one-time items, the company posted adjusted pretax income of $2.6 billion, or 49 cents per share. That beat analyst estimates of 46 cents, according to FactSet.

Sales rose 5.5% to $46.2 billion, also beating Wall Street forecasts.

Ford cut its full-year pretax profit forecast to $10 billion, at the low end of the $10 billion to $12 billion expected at the end of the second quarter, spooking investors.

“Costs, particularly the warranty, have been a drag on our earnings power, but as we change that curve, there is significant financial upside for investors,” CEO Jim Farley told analysts on a conference call.

Chief Financial Officer John Lawler said warranty costs were slightly below last year's third quarter but were still high. The company wouldn't provide numbers until it filed its quarterly report with securities regulators on Tuesday, but said costs will be higher than a year ago.

Ford reported increased warranty costs of $800 million in the second quarter of this year.

Farley has been trying to get warranty costs under control for four years. In October 2020 he the company said worked to limit quality-related repairs after failure-prone small car transmissions hurt the automaker's bottom line.

Ford said it had a $7 billion cost difference over competitors, and Lawler said Monday it had made progress on that figure. The problem is that competitors he hasn't identified are also cutting costs.

“We have reduced costs, but we are not doing so faster than our competitors,” he told analysts.

Ford saved $2 billion in material, freight and labor costs this year, but that was offset by warranties and inflation at its Turkish joint venture, he said.

He said Ford is focused on reducing warranty and other costs, which will become apparent in later quarters.

The company's plans are working, as evidenced by sales growth for 10 consecutive quarters, Lawler said.

Farley said Ford has restructured its operations in Europe, South America, India and China, which collectively lost $2.2 billion in 2018 but are now profitable overall. For example, including exports, China contributed over $600 million to pretax profits this year, Farley said.

“We will continue to focus on costs and become leaner as a company,” he said.

Farley said Ford has cut electric vehicle costs by $1 billion this year by redesigning its battery manufacturing operations and reducing its capacity by 35%. This will help the company survive a highly competitive electric vehicle environment as competitors offer low-cost leases and about 150 new models come to North America by the end of 2026, he said.

Once again, Ford Pro, the company's commercial vehicle division, led the way with pretax profits of $1.81 billion, followed by Ford Blue, which makes gasoline and hybrid vehicles, with $1.63 billion. Model e, Ford's electric vehicle business, lost $1.22 billion in the quarter.

Farley said future electric vehicles will be profitable within the first 12 months of sale and it is working to reduce the cost of existing electric vehicles.

He said a small team in California is working on a midsize electric pickup truck that matches the cost structure of Chinese manufacturers that may build in Mexico in the future, he said.

Say industry analysts Chinese car manufacturer BYD In particular, manufacturing and design costs are significantly lower than US automakers, and that should be a wake-up call for American companies.

In May, President Joe Biden announced major new tariffs to Chinese electric vehicles and other goods. Republican Donald Trump also suggested tariffs on Chinese goods.