Ford Stock Rises on Q4 Earnings Beat and Strong 2024 Guidance

Ford stock is trading sharply higher in US premarket price action today after the company shattered fourth-quarter earnings estimates and also provided rosy guidance for 2024.

The price action is similar to what we saw with rival General Motors last month when it too impressed markets with its Q4 earnings and 2024 guidance. Both the shares underperformed the markets last year and have been perennial underperformers even as Tesla shares have soared ahead.

Ford stock rises after Q4 earnings bear

Ford reported revenues of $46 billion in Q4 which was around 2% higher than the corresponding quarter last year. The company’s automotive revenues rose to $43.2 billion which was well ahead of the $40.12 billion that analysts expected. The company managed to report strong automotive revenues despite the crippling worker strike during the quarter which negatively impacted production.

Ford’s adjusted EPS of 29 cents was also over twice what the market expected. However, the company posted a net loss of $526 million or 13 cents in the quarter due to one-time items, including those related to the UAW strike.

Ford forecasted $10 billion to $12 billion in pretax profit for 2024 which is not only higher than the $10.4 billion that it posted last year but also ahead of what markets expected.

Allaying concerns over peak profitability, Ford CEO Jim Farley said, “It was a solid year, but I want to be really clear we are nowhere near our earnings potential for Ford Motor Co.” He added, “We are really positioned well this year for growth and profitability, for revenues as well.”

Farley on Ford’s Q4 earnings

Farley was quite upbeat on the company’s Q4 performance and termed 2024 as a “foundational year.” He added, “Despite the UAW strike, our auto profits were up year-over-year. We returned to investment grade, we have higher ROIC, and we have really solid conversion from profits to cash. We’re returning capital to shareholders; we’re declaring a regular and a special dividend; and we’re getting much more disciplined on capital not just where we allocate, but more importantly, how much we spend and when.”

Notably, Ford said that it is committed to returning between 40%-50% of its free cash flows to shareholders, and along with the usual quarterly dividend it announced a special dividend of 18 cents per share.

Last year, General Motors also announced a $10 billion share buyback as like Ford the company has too much cash on the balance sheet.

Ford expects hybrid sales to rise

Last year, Ford doubled down on hybrid cars amid slowing sales of electric cars. During the earnings call, it said that its hybrid sales rose 20% last year and it expects growth to be 40% in 2024.

Farley pointed to varying levels of hybrid penetrations in different regions and said, “Hybrids will play an increasingly important role in our industry’s transition and will be here for the long run.”

Farley also pointed to the slowdown in EV sales and touched upon the price war by highlighting the fact that while US EV volumes rose in the second half of 2023 the revenues actually fell due to the lower selling prices.

“Our data shows that EVs are a clear destination for many customers based on their unique duty cycle. It’s going to take time, more than we expected 18 months ago. But we are seeing big adoption variances by geography, and that’s why the power of choice at Ford is so important and a big advantage for us. We’re betting that choice and flexible manufacturing is going to get us successfully through this transition,” said Farley.

Notably, even General Motors is now looking at plug-in hybrids amid slowing EV sales. Both these companies have incidentally cut back on their ambitious EV expansion plans.

F forecast massive losses in the EV business

Ford forecasted that its EV business would lose between $5 billion-$5.5 billion in 2024 and also withdrew the previous guidance of that business hitting an 8% pre-tax margin by 2024.

I don’t think anybody believes that by ’26, we can bridge from here to 8%,” said the company’s CFO John Lawler.

Notably, last year Ford said that expects EV adoption to be slower than what it previously envisioned and said that its annual capacity would now hit 600,000 by the end of 2024 instead of 2023 as it previously expected. It also said that it might not hit the 2 million production capacity by 2026 as “we maintain flexibility on where we reach when we reach two million total EV global capacity because we are balancing growth, profitability, and returns.”

Farley said Ford needs to compete with Chinese companies and Tesla

Meanwhile, Farley was quite candid that Ford needs to up its game to compete in the hypercompetitive EV market and said, “All of our EV teams are ruthlessly focused on cost and efficiency in our EV products because the ultimate competition is going to be the affordable Tesla and the Chinese OEMs.”

Notably, during Tesla’s Q4 earnings call, CEO Elon Musk also echoed similar views and said, “Frankly, I think, if there are not trade barriers established, they will pretty much demolish most other companies in the world,” said Musk during the earnings call.

Musk on Chinese EV companies

The billionaire added, “The Chinese car companies are the most competitive car companies in the world. So, I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established.”

To be sure, this is not the first time when Musk has praised Chinese EV companies and the world’s richest person had made similar comments a year back during Tesla’s Q4 2022 earnings call as well.

Farley has also praised Chinese EV companies in the past even as Ford continues to struggle in China.

In 2022 BYD became the world’s largest seller of new energy vehicles – which includes both battery electric cars and hybrids. The Chinese EV giant delivered over 3 million cars in 2023 which was in line with its guidance. Importantly, it delivered 525,409 electric cars in Q4 which was ahead of Tesla.

While Tesla is still the EV market leader in terms of full-year EV deliveries, BYD was the biggest global seller of EVs in Q4. The bulk of BYD’s sales however come from its home market of China even as it is trying to expand into new geographies.

Tesla is banking on the upcoming low-cost model to revive its growth. Meanwhile, Ford is also doubling down on smaller EVs which would challenge Tesla’s rumored Model 2.

Meanwhile, after a 4% gain yesterday, Ford stock is up over 6% in US premarket price action today as markets give a thumbs up to its Q4 earnings and 2024 guidance.