Ford Shares Drop After Warning Inflation Is a $1 Billion Problem

Ford CEO Jim Farley speaks at the launch of the all-new electric Ford F-150 Lightning pickup truck at the Ford Rouge Electric Vehicle Center in Dearborn, Mich., on April 26, 2022. Bill Pugliano/Getty Images

Auto manufacturer Ford saw it stock shares crash after the company announced a cost increase in the current quarter due to inflation.

“Based on recent negotiations, inflation-related supplier costs during the third quarter will run about $1.0 billion higher than originally expected,” Ford said in a news release on Sept 19.  In addition, the company warned that supply shortages will result in “a higher-than-planned number of ‘vehicles on wheels’ built, but remaining in Ford’s inventory awaiting needed parts, at the end of the third quarter.” Ford is expecting such vehicles to number 40,000–45,000 by the end of the third quarter.

The market reacted violently to the news, with the company’s stock falling from around $14.94 per share to trade at $13.54 as of Sept. 20, 11:19 EDT, which is a decline of 9.37 percent. Stock prices were also affected by lower expected earnings.

According to the company, adjusted earnings before interest and taxes (EBIT) for the third quarter is expected to be between $1.4 and $1.7 billion. This is far below the $3.7 billion in EBIT the company reported last quarter. Third-quarter results are due in October.

Back in July, Ford had said that it expects commodity costs for the entire year to come in at $4 billion and that the management was “actively looking” at offsetting rising costs, according to Reuters. The same month, the car manufacturer stated that it was facing disruptions in supply chains.

Last month, Ford announced increasing the starting prices of electric F-150 Lightning pickups by around $6,000 to $8,500 due to “significant material cost increases and other factors.” The company also announced last month that it will be cutting down its workforce by 3,000 jobs globally.

Inflation Impact on Car Industry

Inflation is weighing down on the car industry, with executives predicting declining sales. Last month, BMW CEO Oliver Zipse said during an earnings call that “new incoming orders are falling,” according to Reuters.

Earlier, Volkswagen’s chief financial officer, Arno Antlitz, said that the demand is coming down and that the warning signs are evident in North America and Europe.

Until recent months, carmakers were able to protect their margins in the face of rising input costs by raising prices. But with inflation becoming a major financial strain on household budgets, car manufacturers are no longer in a position to pass on the rising costs.

In an August research report, Ryan Brinkman, lead automotive equity research analyst at J.P. Morgan, stated that prices of new vehicles are unlikely to fall in 2022 due to persistent inflationary pressures.

“There’s still a lot of inflation bubbling up in the new vehicle supply chain. Even though raw material costs are falling, suppliers have a lot of other higher non-commodity costs—diesel, freight, shipping, logistics, labor, electricity—to pass on to automakers,” Brinkman said.