Ford (F 2.50%) is at the very early stages of reinventing its business. Next year, the company will operate three different segments under its Ford+ umbrella. As it gears up to separate its legacy internal combustion engine brands, new fully electric vehicles (EVs), and its commercial and government customer sales, the automaker is struggling with rising costs and other supply chain issues. Investors don't appear confident that the company will turn things around anytime soon, pushing its stock down 26.5% last month, according to data provided by S&P Global Market Intelligence.
The main catalyst for the stock's September decline came after Ford released an update on Sept. 19, warning investors that it would absorb $1 billion in unanticipated supply chain costs in the third quarter. The company also said the supply chain disruptions would cause it to finish the quarter with between 40,000 and 45,000 vehicles in inventory waiting for some needed parts before they can be completed.
Management tried to soothe investor nerves by reaffirming its estimate for 2022 adjusted earnings before interest and taxes (EBIT) of between $11.5 billion and $12.5 billion. But it would have to make up for those added costs to do so. Those costs have also been growing. In its second-quarter report, Ford increased its estimate for inflation-related costs to $3 billion for 2022. That was $1 billion more than it expected just several months prior, and now it has bumped those projected costs by another $1 billion.
Subsequent to the third-quarter update, investors got some idea on how Ford plans to make up for the growing expenses. For the second time in just two months, the company has increased the price of its electric F-150 Lightning pickup truck. Ford raised the base price for its Lightning Pro model by more than 10% to $51,974. That's also 30% higher than the original pricing below $40,000 that Ford announced in May 2021. The company said it took the pricing action "due to ongoing supply chain constraints, rising material costs and other market factors." It also said it would continue to monitor pricing, implying it could make additional changes within the 2023 model year.
Some analysts don't think that's enough to turn the stock around, however. Just today, UBS downgraded Ford to a sell rating, reports CNBC. The firm believes the auto sector is facing an oversupply situation following several years with a favorable supply-demand balance that gave automakers strong pricing power. Investors seem to think that Ford's transition into the EV space will get even bumpier from here.