Ford (Ford) announced that inflation will lead to an extra $1 billion in costs in the third quarter. On Tuesday (20th), the close plunged more than 12%, the largest one-day drop in 11 years, and the market value lost about $7 billion in one go, peers General Motors (GM) also fell. Analysts worry that automakers may need more time to recover from supply chain problems.
Ford (F-US) tumbled 12.3% to $13.09 a share on Tuesday after it released preliminary third-quarter earnings after the bell on Monday, citing material shortages and inflation, and was last in the S&P 500. It was Ford’s biggest one-day drop since Jan. 28, 2011, when Ford tumbled 13.4 percent after its earnings missed expectations, according to FactSet.
General Motors (GM-US) also fell 5.6% on Tuesday to close at $39.06 a share.
“The pace of improvement in chip and parts issues across the auto industry appears to be slower than expected,” said Deutsche Bank analyst Emmanuel Rosner.
Ford warned after the bell on Monday that inflation would cost an extra $1 billion in supply chain costs this quarter (Q3), and forecast adjusted earnings before taxes (EBIT) of between $1.4 billion and $1.7 billion, well below The levels last quarter and the same period last year were also lower than analysts’ estimates of close to $3 billion, but the full-year forecast remained unchanged.
In addition, the inventory level of semi-finished vehicles will remain high due to some parts shortages, there may still be about 40,000 to 45,000 units by the end of the season (September 30), but there is confidence that these vehicles will be assembled by the end of the year Completed and sold in full. Ford is scheduled to report earnings on October 26.
Some analysts were surprised by Ford’s warning, which until recently was a relatively well-positioned company to deal with supply chain problems, but no analyst has yet downgraded his investment recommendation.
“For the past few months, general managerial news has shown a gradual improvement in the supply chain, so Ford’s statement was a bit of a surprise,” said John Murphy, an analyst at BofA Securities.
From FedEx (FDX-US), GE (GE-US), McDonald’s (MCD-US), and most recently Ford, industries are warning of sluggish demand, stubborn supply chain hurdles, and a rising possibility of a recession high.
Ford’s inventory problem echoes GM’s previous claims and may mean the automaker is still struggling with parts shortages. GM said in July that it was trying to reduce inventory levels of semi-finished products, but, like Ford, kept its full-year forecast unchanged.
“Supply chain costs associated with high inflation appear to have a higher chance of recurring than chip shortages, suggesting some of the impact may extend into 2023,” JPMorgan analyst Ryan Brinkman said.
However, some analysts have questioned that this may be a problem unique to Ford rather than the entire industry. GM Chief Executive Mary Barra said in an interview on Tuesday that supply chain issues continued to ease and the situation was improving.
Ford has fallen four of the past six sessions and is down 35% this year, far outpacing the S&P’s 19%.