Ford Q2: $700 million warranty charge, possible EV partnership

Ford’s earnings took a hit in the second quarter as sales of its gas-powered vehicles fell and expenses from warranty costs and electric vehicle production mounted.

Ford’s Q2 performance:

Ford posted quarterly revenues of $7.8 billion, up roughly 6% from last year. The small increase was supported by an even smaller 0.8% increase in vehicle sales, which was driven partly by demand for costly EVs and partly by demand for profitable SUVs. Sales of Ford’s internal combustion engine (ICE) models dropped 5%, with pickups performing uncharacteristically poorly.

These shifts combined with a $700 million jump in warranty expenses and ongoing investments into EV production caused the automaker’s profitability to drag. Ford said it generated $1.8 billion in net income in Q2, down about 4% year-over-year but slightly better than the previous quarter.

Executives share updates:

During the company’s earnings call, Ford CFO John Lawler and CEO Jim Farley were quick to characterize the additional $700 million in warranty expenses as a temporary fluke, which would correct itself once new, high-quality models made their debut in the coming months.

Despite the charge, the automaker says it remains on track to meet its adjusted earnings before interest and taxes target of $10 billion to $12 billion.

While Ford has continued to lose money on EVs despite aggressively ramping up production, Farley also commented that the company was looking to partner with another automaker to bring more EVs to the market. “…This is absolutely a flip-the-script moment for our company,” the Ford executive remarked, although he declined to confirm any details about the possible collaboration.

Bottom line: Automakers are facing a normalization in demand as consumers continue to prioritize affordability. Brands are accommodating this shift in different ways and at different speeds. If Ford can continue to capitalize on its better selling models and improve cost efficiency, there’s no reason it can’t see a sizeable increase in earnings over the next quarter.

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