What happened
A day after Ford Motor Company (F 5.00%) shares plunged due to the company warning that supply chain issues would eat into third-quarter results, investors are warming to the stock again. Shares of Ford were up as much as 3.7% on Wednesday on hopes that the company's issues, though severe, will be temporary.
So what
For some time now the auto industry has been struggling due to a lack of available parts. There are more than 1,200 microchips in the average modern car, and roughly 30,000 parts in total. In an environment where supply chains are taxed and semiconductors in particular are struggling to keep pace with demand, vehicle production is going to take a hit.
On Tuesday, Ford quantified the toll these issues were taking. The company said it expects to end the quarter with tens of thousands of vehicles parked on lots awaiting key parts. Inflation is also eating into results. Ford said it expects supply costs in the quarter will be about $1 billion above expectations, leading the company to reduce its earnings guidance for the period.
But as noted yesterday, Ford is still standing by its full-year guidance. That implies the company sees the issue as temporary, and believes it is merely pushing sales into the fourth quarter instead of losing the sales completely. On Wednesday, investors appear to be taking those words to heart and buying back in at the lower price.
NYSE: F
Key Data Points
Now what
Ford and other legacy automakers are in a period of transition, supporting their traditional gas-fueled vehicle businesses while also beginning the long-term switch to electric vehicles. Ford has arguably handled the transition well so far, with its F-150 Lightning and Mustang Mach-E electric vehicles getting rave reviews and more orders than the company can fill.
Ford still has its work cut out for it trying to compete with the likes of Tesla and other electric vehicle upstarts, but it is that long-term shift, and not one supply-constrained quarter, that will ultimately determine whether this is a stock worth buying.
Shares of Ford are a little more affordable today than they were 48 hours ago thanks to that profit warning. On Wednesday, investors are buying in on the hopes that despite the speed bump Ford remains on course for success.
