Ford Motor Company (F +1.27%) and General Motors have long been rivals, so much so that when one coughs the other generally sneezes, and vice versa. But 2024 was different for the Detroit automakers as Ford's stock sank 18% while GM's jumped 48%, according to data provided by S&P Global Market Intelligence. The question is: What sent Ford spiraling while its rival thrived?
What have you done for me lately
Looking at the graphic below, investors can easily pinpoint when things went wrong for the automaker.
NYSE: F
Key Data Points
While rival GM was beating estimates and raising guidance multiple times in 2024, Ford struggled. The problem has been Ford's production and/or design quality. The Detroit icon has led the U.S. industry in recalls for three consecutive years, and may lead for a fourth year when the data for 2024 is official.
Those large amounts of recalls have increased Ford's warranty expense significantly, and it's weighed down earnings. This was most evident during Ford's second quarter when the company reported operating profit of $2.8 billion, a significant 26% decline from the prior year, and lower than Wall Street estimates calling for $3.7 billion, per FactSet.
Much of the decline was driven by higher warranty costs, which were $800 million higher than the first quarter of 2024. Ford's warranty expense during the second quarter was roughly $2 billion, or about 4% of sales -- a fairly high percentage for automakers. In fact, according to analyst Mike Ward of Freedom Capital Markets, between 2011 and 2019 Ford's warranty averaged 1.6% of revenue. That jumped to an average of 2.9% since the beginning of 2022, before spiking during the second quarter.
The good news is that Ford has been diligently working on fixing its quality problems over the past couple of years; it just takes time for the newer models to filter into the vehicle mix and impact not only recalls, but the warranty costs correlated with them.
That's not all
Beyond its warranty cost woes, Ford is also developing its lineup of electric vehicles (EVs), and it's costing a pretty penny. In fact, when Ford wraps up 2024 and holds its full-year earnings call, the company is likely to post a roughly $5 billion loss on its electric division, or model-e.
And if that isn't enough, Ford also has a growing problem in China where the market is increasingly owned by new-energy vehicles -- essentially including all full-electric, plug in hybrids, and hybrids -- which own over half the market.
To make matters worse, the Chinese EV market is currently in a brutal price war thanks to wildly high competition and a list of automakers that have been heavily subsidized by the government in a push to advance China's EV technology. Almost every foreign automaker is struggling mightily in China right now, with the exception of Tesla.
What it all means
The truth is, Ford's stock declined 18% in 2024 because it has a lot of problems it needs to fix. It needs to continue improving quality until leading the industry in recalls is a distant painful memory. It also needs to continue developing EVs, matching supply and demand, while bringing costs down significantly. Last but not least, the company needs to go to the drawing board with a strategy on China, and one strategy might actually include a complete exit of the country -- time will tell.
The good news for investors is that all of these problems are fixable, it will just require patience and understanding why Ford is down 18% and its crosstown rival is up 48% for 2024.
