Ford (NYSE: F) reported its third-quarter earnings yesterday after the markets closed. The company missed consensus earnings estimates in the quarter and booked a massive loss on its investment in Argi AI.
Ford reported revenues of $39.4 billion in the quarter. The revenues surged 10% YoY and were ahead of the $36.25 billion that analysts were expecting. However, its adjusted EPS came in at 27 cents while analysts were expecting it at 30 cents.
Notably, Ford had lowered its profit guidance for the quarter and said that higher inflation would be a headwind to the tune of $1 billion. While the company has raised prices for several models, higher inflation continues to be a headwind.
The company booked a $2.7 billion noncash charge on its investment in Argo AI. Argo is an autonomous driving startup bit has announced that it is winding up operations. Along with Ford, Volkswagen also invested in the company.
Ford said that Argo AI failed to attract new investors. The company also announced that it would not focus on L4 autonomous systems. Ford’s CEO said that while companies have spent a cumulative $100 billion towards level 4 autonomous vehicles, no company has been able to define a profitable business model.
Ford Books a Loss on Its Autonomous Investment
During the earnings call, Doug Field, Ford’s chief advanced product development and technology officer said, “Commercialization of L4 autonomy, at scale, is going to take much longer than we previously expected.” He added, “L2+ and L3 driver assist technologies have a larger addressable customer base, which will allow it to scale more quickly, and profitability.”
Ford’s CFO John Lawler said that the company believes that it does not needs to create fully autonomous technology on its own. Notably, companies like Tesla are betting on autonomous cars. Tesla’s CEO Elon Musk previously said that the company would hit the milestone of full autonomy by the end of this year.
However, the company’s autonomous driving system is still way off full autonomy. Tesla meanwhile calls the system FSD (full-self driving). US regulators have criticized Tesla for the nomenclature which is misleading as the cars are not fully autonomous.
Even Tesla advises drivers to be in control and keep their hands on the steering all the time. In what could be another setback for Tesla, Reuters reported that the company is facing criminal investigations over its self-driving claims.
Ford’s Guidance Also Spooked Markets
Coming back to Ford’s earnings, the company said that its full-year adjusted EBIT (earnings before interest and taxes) would be around $11.5 billion, which is at the lower end of its previous guidance. Notably, when Ford lowered its third-quarter EBIT guidance last month, it reaffirmed its full-year earnings guidance.
Meanwhile, the company increased its full-year adjusted free cash flow guidance to $9.5-$10 billion, versus its previous guidance of $5.5-$6.5 billion. Ford’s strong cash flows enabled it to restore the dividend last year. Its current dividend yield is around 5% which is quite healthy. We have a list of some of the stocks with high dividend yields.
Automakers are Betting on Electric Cars
Ford has set ambitious plans for its EV business. It expects its annual EV production run rate to reach 600,000 by the end of 2023 and 2 million by 2026. The company had previously restructured the business between the electric and ICE (internal combustion engine) business.
Starting next year, Ford would start reporting the results for Ford Blue, which is the traditional ICE business, Ford Model e, which is the electric vehicle business, and Ford Pro, which is the commercial vehicle business, separately. This would give markets better insights into the performance of Ford’s EV business.
Bank of America is optimistic about the EV plans of both Ford and General Motors. It expects them to snatch market share for Tesla which is the market leader in the US by a wide margin.
While some Wall Street analysts have turned bearish on F stock amid the recession concerns, billionaire hedge fund manager Ray Dalio bought more Ford shares in the second quarter. Dalio also added more NIO shares in the quarter.
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