Despite Promising Q2 Report, Ford's EV Business Faces Challenges

Key Points

• Ford's stock experienced a sharp decline of 3.02% at the open on July 27, following its second-quarter report.
• By the end of the session, the stock had lost 3.42%, with trading volume nearly double the average.
• Earnings and revenue beat views, and the company raised its full-year earnings guidance.
• Investors were disappointed by slower-than-expected growth in EV sales.
• Ford is not the only auto maker facing EV challenges, as consumers still have concerns about price and charging-station availability.

You don’t usually see a stock’s price go off a cliff after an earnings beat and an increase in guidance, but that’s precisely what happened to Ford Motor Co. NYSE: F after its second-quarter report.

Ford stock gapped down 3.02% at the open on July 27, and ended the session with a loss of 3.42%. Trading volume was nearly double the average.

Earnings came in at 72 cents a share, up 6% from the year earlier. Revenue of $45 billion was a 12% increase. MarketBeat’s Ford earnings data show the company exceeded views on the top and bottom lines.

There was good news in the report: 

• The Ford Pro unit, which serves commercial customers, saw a 22% sales increase. The unit’s repair sales also increased. 
• The company expects Ford Pro’s full-year earnings before interest and taxes (EBIT) to approach $8 billion, more than double 2022’s level. 
• The Ford Blue gas-and-hybrid business posted higher wholesale revenue, with the new Ranger pickup becoming more popular, as well as profitable.
• The company expects Ford Blue EBIT to come in at around $8 billion. 
• Model e, the electric vehicle business unit, saw revenue growth of 39%.
• The company raised full-year 2023 guidance for adjusted EBIT to a range between $11 billion and $12 billion, and for adjusted free cash flow to a range between $6.5 billion and $7 billion.

On the surface, that’s all well and good. However, the company also said it expects a loss of about $4.5 billion from the Model e EV unit, “reflecting the pricing environment, disciplined investments in new products and capacity, and other costs.”

That’s worse than Ford’s previous forecast of a $3 billion loss from its EV business. 

Industry-Wide, EV Sales Growing, But More Slowly Than Hoped

Wait a minute. Aren’t EVs supposed to be racing off dealers’ lots, now that politicians are mandating their use? 

Not so fast. 

Consumers, it turns out, don’t quite yet share the unbridled enthusiasm about EVs that you might find in Washington and in certain statehouses. 

While it’s clear that EVs are gradually catching on, and that the future looks to be increasingly electrified, politicians may have gotten ahead of themselves, when it comes to their targets versus real-world concerns. 

In the second-quarter release, Ford CEO Jim Farley said, “The near-term pace of EV adoption will be a little slower than expected.” 

Already, reports have shown that EV sales industry-wide have been increasing, but lagging expectations.

Lingering Concerns About Price, Charging Stations

Make no mistake: EV sales are rising, and many consumers are interested in purchasing. But those purchases are being postponed, as concerns about high prices for the high-tech cars are stopping people from plopping down their cash, or taking on debt. 

While the cost argument in favor of EVs is, of course, that buyers will save on gas, many still don’t see a good tradeoff between that and shelling out more money for an EV. 

Concerns about availability of charging stations also stop some potential buyers. 

This isn’t a forever thing, though. Manufacturers, including Ford, are slashing prices; and the charging-station infrastructure issues will eventually be resolved. 

Ford Investing In EV Production 

Along those lines, Ford said in its second-quarter report that it was transforming a Canadian plant to produce EV battery packs and install them in vehicles. It also opened an electrification center in Germany, where it will produce the electric Ford Explorer for Europe.

In addition, Ford added capacity expansion for the Mustang Mach-E in Cuautitlan, Mexico, and expanded an EV facility in Dearborn, Michigan. It made substantial progress on the construction of a next-generation EV pickup plant in Tennessee, as well as three joint-venture battery manufacturing facilities in Tennessee and Kentucky, and started site preparation for a wholly-owned plant in Michigan that will produce lithium iron phosphate batteries for EVs.

So where does that leave Ford now? 

Forming Potentially Bullish Base

On the Ford chart, you can see a cup-with-handle base that’s been forming since August of last year, within a larger correction. The current buy point would be above $15.42, where it twice hit resistance in the first half of July. 

With the stock tumbling for the past two weeks, now is not the ideal time to make a purchase. However, if the stock reverses higher before the handle breaks down, watch for the stock to break through resistance above $15.42 as a potential buy opportunity.