What happened
Ford Motor (F 0.41%) stock slumped this morning and was down 6.6% as of 10:35 a.m. ET. Investors in the legacy automaker found not one but three reasons to be worried today, and it goes beyond the market sell-off. Interest rates are soaring, gas prices are surging, and Ford just halted deliveries of a popular electric vehicle (EV).
So what
Growth can be hard to come by for automakers in a rising interest rate environment. With inflation hitting 40-year highs last week, the Federal Reserve just increased its benchmark interest rate by a whopping 0.75 percentage point, the biggest such hike since 1994. As interest rates rise, debt becomes costlier for auto companies, while buying cars on loans becomes costlier for consumers. It's a double whammy.
To top that, gas prices shot up again today. The pain at the pump will likely force many to postpone or cancel car purchases.
Image source: Ford.
On the flip side, high gas prices can provide a fillip to the electric vehicle industry as consumers opt for fuel-efficient cars to cut transportation costs. From that standpoint, Ford is firing on all cylinders in terms of EV sales. Mustang Mach-E, for example, delivered a record sales month in May. However, an unexpected blow has just forced Ford to stop sales of its hot-selling crossover.
Ford is recalling 48,924 Mach-Es for potential overheating, and has asked its dealers to stop selling the vehicle until further notice, according to CNBC.
While a recall isn't uncommon in the auto industry, Ford's problem goes beyond that. At a recent conference, Ford just said that high raw material costs have made Mach-E unprofitable, as reported by Bloomberg.
That's not all: Over and above the Mach-E recall, Ford is now recalling nearly 2.9 vehicles from model years 2013 to 2019 for a gear problem.
Now what
Given the multiple challenges facing Ford, the drop in its stock price today isn't surprising. Yet, all of these are near-term headwinds that shouldn't hurt Ford's long-term plans, especially for EVs. Ford already has a lot on its plate, having secured more than 200,000 reservations for all-electric F-150 Lightning pickup trucks that it started selling only in May. If Ford's long-term EV goals are anything to go by, its stock looks like a surefire winner in the long term.
