Ford shares are falling as high costs and supplier problems could take their toll

Shares of Ford Motor Co. are trading lower in premarket Tuesday after the company told investors that 2024 earnings will hit the lower end of its forecast.

On Monday, the Detroit automaker said it expects full-year adjusted profit of about $10 billion. The previous forecast was for profits of between $10 billion and $12 billion. The company also maintained its guidance for adjusted free cash between $7.5 billion and $8.5 billion.

For the July-September quarter, Ford reported revenue of $46 billion, up 5% year-over-year and marking its 10th consecutive quarter of growth. Net income fell $0.3 billion to $0.9 billion, partly due to the company's plans to make its next three-row SUVs hybrid models rather than fully electric as planned. Adjusted profit rose 16% to $2.55 billion.

“Our strategic advantages are clearly not reflected in the bottom line as they should,” CEO Jim Farley said on an earnings call Monday. “Costs, especially warranty costs, have slowed our profitability.”

JP Morgan (JPM) analysts on Tuesday lowered their price target for Ford from $15 per share to $14 per share, admitting that “2024 has been a somewhat frustrating year for Ford investors.” Ford shares fell 6.7% year-to-date through Tuesday; Shares fell 7% in premarket trading. By comparison, shares of rival General Motors are up 46% year to date, and the S&P 500 is up 22% year-to-date.

Analysts pointed to Ford's high warranty costs, which the company said improved in the third quarter compared to the second quarter, when higher-than-expected warranty costs led to lost earnings. Chief Financial Officer John Lawler said Monday that higher-than-expected warranty costs and inflation costs impacting Ford's Otosan business in Turkey have prevented record adjusted profits this year. That's despite the company being on track with a $2 billion cost-cutting plan.

The majority of the company's profits came from its commercial vehicle and fleet businesses, as well as the company's traditional Pro and Ford Blue divisions. The Pro division reported a profit of $1.81 billion, while Blue earned $1.63 billion.

Those companies' operations have been impacted by supplier issues, in part due to Hurricanes Helene and Hurricane Milton, Ford said. There are also issues with a “certain supplier” that are causing problems for Ford Blue, Lawler said, adding that Ford expects that they will be resolved by the end of the fourth quarter.

Ford's Model e electric vehicle division reported a loss of $1.22 billion, an improvement from the $1.8 billion it lost during the same period in 2023. The automaker plans to launch a new low-cost platform in 2027, moving some work overseas to the U.S. to make its vehicles eligible for electric vehicle tax credits.

“In 40 years in the industry, I have seen many groundbreaking products,” Farley said, calling a planned midsize electric pickup truck “one of the most exciting,” adding that “it fits the cost structure of any Chinese car.” Manufacturer building in Mexico in the Future.”

Although Farley expressed optimism for Ford's electric vehicle business, the company is also focused on hybrid vehicles, which are proving more popular than Ford expected. In May, Farley described hybrids less as a transitional tool to get more electric vehicles on the road and more as another permanent vehicle class in the mix.

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