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Ford F150 Raptor.
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ford motor
The stock price plummeted after the company revised its earnings forecasts due to parts shortages and rising costs, but did not lower them.
Investors responded with disgust and sold their shares. But we may have overlooked the silver lining in Ford’s (Ticker: F) update.
Ford shares fell 12% on Tuesday,
S&P 500
Shares tumbled 1.1% after Ford announced on Monday night that its third-quarter operating profit would be between $1.4 billion and $1.7 billion. That’s a far cry from Wall Street’s forecast of his $2.9 billion, but Ford didn’t change its full-year guidance. The company still expects operating income in the range of $11.5 billion to $12.5 billion in 2022.
A big reason for the disappointment in the third quarter is that 40,000 to 45,000 trucks and SUVs can’t be completed due to parts shortages. RBC analyst Joseph Spak and Morgan Stanley analyst Adam Jonas both estimated in research reports that the partially built trucks cost him $600 million in lost operating income.
This means that Ford’s most profitable trucks and SUVs have operating profits of over $14,000 per vehicle. can’t believe it.
In the first two quarters of 2022, Ford sold nearly 2 million vehicles and reported adjusted operating income of about $6 billion. That’s an average of $3,000 per unit.
Heavy trucks and SUVs seem to make up the bulk of Ford’s profits. In the US, Ford has sold about 480,000 of his F-Series trucks, with the Ford Explorer going on sale in his first half of 2022. If these vehicles earn him $14,000 in operating profit per copy, Ford loses about $700 per car on everything else.
That’s just a rough estimate, and the rest of Ford’s business probably isn’t all that bad. Ford says it’s a Wall Street calculation and doesn’t want to touch on profitability per unit.
Of course, just because the truck and SUV businesses are doing well doesn’t make Ford’s stock worth more. It’s still one business. However, how profits are distributed has several implications for investors.
First of all, it highlights how important the electric Ford F-150 Lightning is to the company. For Ford to be profitable as it transitions from making gasoline cars to making electric cars, its vehicles must meet high profit standards.
And it shows the potential of EV. Ford wants to sell 2 million EVs annually worldwide by 2026. This could be 30% to 40% of total sales once sales return to pre-pandemic levels.
If Ford’s EVs turn out to be more profitable than its lower-end petrol cars, then Ford’s operating profit has room to grow because mix matters.
Earnings per unit may be up now due to higher pricing associated with the kind of industry-wide production struggle that ruined Ford’s quarter. If Ford remains profitable on EV sales, the company could easily exceed $15 billion in operating income. It does not depend on increasing volume.
The $15 billion figure is much better than if investors were to assume that all Ford vehicles (electric cars, trucks, SUVs, sedans) earn some average corporate profit margin. It’s also better than what Wall Street expects in 2022 and his $11.5 billion in 2023.
Predicting operating profit based on car model profit is just an exercise, but it’s good to know where the profit is actually coming from.
Please contact Al Root (allen.root@dowjones.com).
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