After a turbulent 2022 for the automotive industry, investors were thrilled when General Motors posted surprisingly strong fourth-quarter results. The better-than-expected earnings on strong revenue drove GM stock higher, and it also pulled competitor Ford Motor Company (F -1.66%) stock higher in anticipation it would have similar results.
But Wall Street was wrong, and Ford posted fairly brutal fourth-quarter results on Feb. 2. Worse yet, Ford management didn't have many details about its plan to fix its problems -- at least, not yet. Let's dive in to the good, the bad, and the ugly from Ford's fourth-quarter report -- and unfortunately for investors, there's really only one bright spot.
The good news
Ford's fourth-quarter adjusted earnings checked in at $0.51 per share, well short of the $0.62-per-share estimates. There was one bright spot in the company's fourth quarter, however, and that was its accelerating electric vehicle portfolio.
Toward the end of 2022, Ford produced the 150,000th Mustang Mach-E in less than two years, a vehicle that Ford is on track to produce at a run rate of 600,000 annually by year-end. The electric F-150 Lightning has been America's best-selling EV truck since its launch and was honored with the North American Truck of the Year and the 2023 MotorTrend Truck of the Year awards.
Those two EVs have driven Ford to become the No. 2 EV brand in the U.S., with more than 60% of sales to customers new to Ford, which is a huge deal in the historically brand-loyal automotive industry. Its EV portfolio is growing sales at roughly twice the overall EV segment and is on track to hit 600,000 units of global capacity by year-end.
Ford's EV narrative is about where the good news ends during the fourth quarter, but it's important for investors to take in the bad news as well.
The bad news
Ford has always relied on its North America business to drive profits, and that region is still doing well, but its international business continues to struggle.
While South America turned in its first full-year profit in 10 years, Ford's results in key international markets continue to disappoint. Europe's results were below expectations, and its business in China continues to lose momentum. This chart show Ford's recent results in China.
Data source: Ford Motor Company's Q4 presentation.
The bad news continues with Ford Credit, which has been an unheralded source of serious profits for the company -- often more valuable than all of its international markets combined.
Ford Credit's full-year earnings before taxes of $2.7 billion was down $2.1 billion compared to the prior year, driven by lower financing margin and lower lease return rates. Ford Credit's ability to generate larger profits will likely be hindered in 2023 as auction values of vehicles returning from lease are expected to decline further.
The ugly truth
There was enough bad news for investors to digest during Ford's fourth quarter, but the ugly truth was that management was, at least so far, vague on having detailed answers for shareholders. Ford admits it has serious problems with its "industrial system" and needs to improve its manufacturing and engineering processes, essentially from beginning to end.
"We should have done much better last year," Ford CEO Jim Farley said in a statement. "We left about $2 billion in profits on the table that were within our control, and we're going to correct that with improved execution and performance."
Perhaps worse than that $2 billion in profits were large special items. Those special items during the full year of 2022 include a staggering $7.4 billion mark-to-market net loss on its Rivian investment and another $2.7 billion impairment on its Argo AI investment.
So what should investors think now?
Ford drove through the financial crisis in 2008 arguably better than any automaker, and it has prevailed through worse quarters than this most recent fourth quarter. However, it's clear after crosstown rival General Motors posted strong fourth-quarter results that Ford has internal problems to fix.
Management noted on Ford's conference call that investors wouldn't have to wait long to hear more about the company's plans to get back on track through cost cuts of roughly $3 billion by mid-decade and other initiatives, but it's clear Ford has much work to do if it's to win back investors in the near term.
