Ford shares fall as supply snags and costs hurt profit forecast

Ford Motor (F.N) shares fell 6.6 per cent premarket on Tuesday after the automaker tempered its full-year profit forecast, blaming supplier disruptions and warranty costs amid a global price war fueled by overcapacity.

It expects 2024 adjusted earnings before interest and taxes (EBIT) of about $10 billion, compared with its earlier projection of $10 billion to $12 billion.

In contrast, Detroit rival General Motors (GM.N) boosted its profit expectations last week.

Toyota (7203.T), GM and Ford all reported weaker sales growth for the third quarter and remain under pressure to discount vehicles as consumers feeling the pinch of high inflation increasingly opt for cheaper options.

The US auto industry is also expected to face further pricing pressures through the remainder of the year as significant US operational errors at Stellantis (STLAM.MI) have left the company working to clear its bloated inventories.

“We remain cautious over concerns about a deflationary pricing cycle across the industry,” RBC Capital Markets analyst Tom Narayan said in a note, adding that Ford’s forecast cut was expected and the guidance is now “more realistic”.

Though Ford reported third-quarter profit above estimates, its inventory was higher than its target range, as it ended the quarter with 91 days of gross stock and 68 days of dealer stock, CEO Jim Farley told analysts.

“During the call, we sensed a tactical turn in the focus of management as they try hard to get through the remainder of the year and look towards an increasingly uncertain 2025,” Bernstein analysts said.

Ford also warned of inflationary pressures in Turkey, which will increase the cost of Transit vans sold in Europe. It also experienced higher-than-expected warranty costs due to recalls and other fixes.

“We’ve made more progress on material costs but we’ve gone backwards on warranty costs,” CFO John Lawler said.

Ford shares have declined 5.4 per cent this year, giving it a price-to-earnings ratio of about 12, compared with GM’s 5.62.