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Ford's Junk Bonds and Stock Fell After Weak Earnings and Losses from Electric Vehicles

October 29, 2023
minute read

Ford Motor Co. witnessed a significant plummet in its stock value, with a staggering 12% decline on a fateful Friday. The primary culprits behind this unexpected downturn were the disappointing quarterly earnings and Ford's decision to withdraw its previously provided guidance. These unfortunate events further exacerbated the existing downward pressure on the company's high-yield bonds, making for a gloomy day for Ford investors.

One of the pivotal reasons behind Ford's abrupt change in guidance was the recent agreement it reached with the United Auto Workers union following a disruptive strike. While this settlement was undoubtedly a step towards labor harmony, the company found itself in the unenviable position of announcing an adjusted loss of $1.3 billion for its electric vehicle (EV) unit. This loss was notably wider than what Wall Street had been anticipating, adding to the market's uncertainty and displeasure.

Ford's explanation for this significant loss in the EV unit was rather disheartening. The company stated that prospective customers interested in EVs appeared to be "unwilling" to pay the premium prices associated with these vehicles. This glaring consumer reluctance to embrace EVs at higher price points forced Ford to halt several billion dollars in long-term investments earmarked for electric vehicles, citing a glaring disconnect between their strategic goals and the reality on the ground.

It's essential to understand the context of Ford's financial predicament within the broader market. Ford holds a prominent position as the largest issuer in the U.S. high-yield, often referred to as junk, bond market. The company's bonds outstanding amounted to a substantial $72.4 billion, a significant figure that gives an idea of the scale of Ford's financial operations. This is illustrated in the chart provided by BondCliQ Media Services, with the bulk of these dollar-denominated bonds, accounting for $15.9 billion, maturing in the year 2026.

Jim Farley, Ford's Chief Executive, acknowledged the challenging landscape the company faces, especially in the rapidly evolving electric vehicle market. During a call with financial analysts to discuss the disappointing results, he candidly admitted, "Our business is never short of challenges, especially right now with the evolution of the EV market."

However, it's not all doom and gloom for Ford. In the third quarter, the company managed to post earnings of $1.2 billion, equivalent to 30 cents per share. This was a stark turnaround from the previous year when Ford had reported a loss of $827 million, or 21 cents per share. Nevertheless, it's crucial to note that these figures are not the complete story, as the earnings were adjusted to exclude one-time items. When these adjustments were made, Ford's earnings came in at 39 cents per share. These adjustments incorporated a substantial $2.7 billion impairment charge, related to the investment Ford had made in the now-defunct Argo AI driverless-car company, which was originally backed by the automaker.

On the brighter side, Ford also reported a noteworthy 11% increase in revenue, which amounted to $43.8 billion. This surge in revenue was a glimmer of hope in an otherwise bleak financial report. Nonetheless, it failed to meet the expectations of analysts polled by FactSet, who had anticipated that Ford would report adjusted earnings of 46 cents per share on sales amounting to $43.94 billion.

The stock's disappointing performance extended beyond the quarterly report, with the year-to-date figures painting a grim picture. Ford's stock had already experienced an 11% drop in its value, while in stark contrast, the S&P 500 had managed to gain a commendable 8%. These numbers highlighted the stark disparity between Ford's fortunes and those of the broader market, leaving investors and industry analysts puzzled and concerned about the company's future prospects.

In conclusion, Ford Motor Co. found itself facing a tumultuous period marked by declining stock values, unsatisfactory earnings, and the abandonment of guidance. The unexpected loss in the electric vehicle unit, coupled with customer reluctance to embrace higher-priced EVs, prompted the company to reevaluate its long-term investment plans in this sector. Ford's position as a major player in the high-yield bond market added to the complexity of its financial situation. While the company did manage to post positive earnings in the third quarter, the adjusted figures revealed underlying challenges. With the stock's lackluster performance throughout the year, the road ahead for Ford appears uncertain, as it grapples with the dynamic and evolving automotive landscape.

Adan Harris
Managing Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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