ford Motor reported a decline in second-quarter adjusted profit on Wednesday as the automaker continues to grapple with costly quality issues and an EV business that is weighing on profits, sending shares down 12% in after-hours trading.
The Detroit automaker posted adjusted earnings of 47 cents per share, significantly below analyst expectations of 68 cents, according to LSEG data.
Ford CEO Jim Farley has made fixing the automaker’s quality issues a priority since taking the helm in October 2020. Since then, Ford has hired a new chief quality officer and transformed some of its manufacturing practices to prevent errors, but it still leads the industry in the number of remembers.
Ford’s chief financial officer, John Lawler, said most of these Guarantee expenses related to older vehicles that were introduced before 2021. Warranty costs rose $800 million in the second quarter compared to the previous quarter, Lawler told reporters. The CFO said field service actions in the quarter were a one-time cost increase for the older vehicles and Ford expects the second half of the year to meet its warranty cost expectations.
The automaker maintained its annual earnings before interest and taxes forecast of $10 billion to $12 billion.
Legacy Automakers have scaled back their electric vehicle ambitions as demand slows and there is a shift to hybrids and heavy competition from Tesla and Chinese EV manufacturers in the global market.
Earlier this month, it changed plans for a Canadian assembly plant that was to build a three-row electric car, saying it would instead produce Ford’s flagship F-150 pickups. Farley said the company has struggled to meet rising demand for the gas-guzzlers.
In the battery power space, Farley is focusing the company’s efforts on ramping up hybrid production and developing a platform for a range of affordable, smaller electric vehicleswhich Ford carries out with the help of its California-based “skunk works” team.
Ford posted a $1.1 billion operating loss at its electric vehicles and software division in the second quarter, on top of a $1.3 billion loss in the first quarter. Executives expect that part of the business to post a pretax loss of up to $5.5 billion for the year.
Crosstown rival General Motors reported second-quarter profit and revenue on Tuesday that beat Wall Street expectations, buoyed by strong prices and demand for gas-powered trucksThe company raised its annual forecast for the second time this year. Tesla also reported second-quarter profit on Tuesday that was lower than the same period last year.