The upcoming earnings report from Ford Motor Company on July 30, 2023 is raising concerns among investors as the company navigates a challenging automotive landscape. Following a sharp decline in General Motors’ (GM) stock, which fell over 8% on July 22 despite exceeding second-quarter earnings expectations, analysts are questioning whether Ford will experience a similar fate. GM’s difficulties stemmed from a reported $1.1 billion impact from tariffs implemented during the Trump administration, with the automaker forecasting an annual cost of between $4 billion and $5 billion.
Stellantis also reported grim results earlier this week, revealing a first-half loss of nearly $2.7 billion. The company attributed these losses to tariffs and one-time charges, leading to an unusual interim results announcement instead of full earnings. As Ford prepares to disclose its Q2 earnings, market observers are keen to understand how it will fare in this turbulent environment.
Ford’s Q2 Earnings Estimates and Challenges
Analysts predict that Ford’s revenues for Q2 will decline by 2% year-over-year, totaling approximately $43.9 billion. However, the company has shown strength in its vehicle deliveries, noting a substantial 14.2% increase in U.S. deliveries this quarter, significantly outperforming the industry-wide sales growth of just 1.4%. Ford’s F-series trucks, a crucial component of its profitability, recorded their best second-quarter performance since 2019.
Despite this positive delivery trend, Ford faces pressure from tariffs, having previously warned of a $1.5 billion net pre-tax hit due to these levies. Analysts expect the company to report earnings per share (EPS) of $0.34, reflecting a year-over-year decline of 27.7%.
Key Factors to Monitor in the Earnings Call
As Ford approaches its earnings announcement, several critical areas warrant attention.
Quality issues have plagued the automaker, with a recent recall of around 700,000 vehicles due to fuel injector problems, incurring estimated costs of $570 million. This ongoing challenge not only affects Ford’s reputation but also its financial performance. In a statement following the recall, Ford emphasized its commitment to swiftly addressing hardware and software issues to protect customers.
The company is also navigating a turbulent electric vehicle (EV) market. While GM remains optimistic about profitable EV production, Ford acknowledged a projected pre-tax loss between $5 billion and $5.5 billion in its EV business for the year. Insights on Ford’s EV strategy will be closely monitored, especially as tax credits for EVs are set to expire after September.
Additionally, changes to the Corporate Average Fuel Economy (CAFE) regulations could impact Ford’s operations. The One Big Beautiful Bill Act has removed penalties for automakers that do not meet emission standards. GM has indicated limited immediate effects, calling this a “transition year,” but Ford’s management may provide clarity on how these new regulations will shape their future expenses.
Analysts remain cautious about Ford’s stock ahead of the earnings report. Among the 24 analysts covering the stock, only three rate it as a “Strong Buy,” while 16 categorize it as a “Hold,” and five consider it a “Moderate Sell” or “Strong Sell.” Ford is currently trading above its mean target price of $10.18 and the highest target of $14 represents a 25% premium over its closing price on July 22.
In summary, while Ford has shown some resilience in vehicle deliveries, the looming challenges related to tariffs, quality control, and the EV market create a complex landscape. As the company prepares to report its earnings, stakeholders will be watching closely for insights that could shape its strategic direction moving forward.
