Ford Stock Slides as Supply Chain Woes and Warranty Costs Persist

Ford's (F) stock dropped 7.3% on Tuesday after the automaker revised down its full-year profit forecast, citing supply disruptions and higher warranty costs amidst a fiercely competitive automotive market. Ford now expects 2024 adjusted earnings before interest and taxes (EBIT) to reach around $10 billion, a decrease from its prior $10 billion to $12 billion range. The company faces increasing challenges as the industry grapples with a pricing war fueled by excess capacity and a consumer trend toward more affordable, compact vehicles. Ford’s struggles come in stark contrast to rival General Motors, which raised its profit forecast last week, signaling a divergence in performance among Detroit automakers. While Ford reported a stronger-than-expected third-quarter profit, it closed the quarter with inventory levels above its target range, which CEO Jim Farley attributed to supply chain and operational snags. Analysts noted a tactical shift in Ford’s approach, with management now focusing on navigating year-end pressures as they brace for an uncertain 2025. Market Overview:

• Ford shares fell 7.3% following a downward revision in its profit forecast due to rising costs.
• Higher-than-expected inventory levels and ongoing supply chain issues pressured Ford’s outlook.
• Competitor GM raised its profit outlook, while Toyota (TM) also flagged pricing and inventory concerns.

Key Points:

• Ford now anticipates 2024 EBIT at approximately $10 billion, down from $10-$12 billion.
• Warranty costs rose due to recalls, adding strain to Ford’s profit expectations.
• Inflationary pressures in Turkey are increasing costs for Ford’s Transit vans sold in Europe.

Looking Ahead:

• Ford’s inventory concerns may heighten pricing pressures and impact year-end performance.
• Analysts are wary of Ford’s ability to achieve substantial improvements in warranty performance by early 2025.
• Ford’s strategy shift suggests a conservative outlook as it navigates near-term headwinds.

Ford’s conservative forecast is a sobering reminder of the challenges in today’s auto market, from elevated warranty expenses to intensifying pricing competition. With inventory levels running high, Ford faces pressure to streamline operations while controlling costs, a delicate balance that may take center stage in the months ahead. Competitors like GM (GM), which recently raised its forecast, underscore the need for Ford to adapt quickly to industry shifts or risk falling further behind. As automakers contend with supply disruptions and evolving consumer preferences, Ford’s latest guidance highlights the strategic recalibrations underway to mitigate risks. Investors will be closely watching the automaker’s execution in addressing inventory issues and managing warranty costs as market pressures continue to reshape the landscape.