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As 2024 has officially entered the history books, it was not a smart year for Ford Motor Company (F 1. 70%). Unfortunately, for investors this has become a trend. Over the past 10 years, Ford’s stock has fallen 35% compared to the S’s 186% increase
It’s been a rough ride, no doubt. The good news is that most of Ford’s woes are fixable; management just needs to execute. Here are two things that Ford needs to fix in 2025 to reward investors going forward.
The challenge in China, at least for foreign automakers, arose when the government massively subsidized its electric vehicle (EV) industry. This created a long list of competition with a complex generation of electric vehicles and very low costs – it worked almost too well.
Now, this long list of competition has created a brutal price war, which has slowly put pressure on most foreign automakers, unable to compete on value, especially with electric vehicles. This has even forced some countries to impose price lists on Chinese electric cars. to its territory, as Chinese electric vehicle brands are beginning to export their competitive cars around the world.
“I think we want to see the [Detroit Three] leave China as soon as possible,” Bank of America Securities analyst John Murphy said in his annual presentation of “Car Wars,” a highly respected industry report, according to Reuters.
Ford may not fix this problem in 2025, but it can come up with a solution to start the process. Whether it’s exiting the country, figuring out destinations to move its manufacturing from China, or somehow becoming more competitive and filling its production capacity in the region.
Whatever it does, Ford wants to solve it quickly, because China is no longer the market that the corporate idea would be along with North America in terms of profitability; now it is the opposite.
One of the biggest speed bumps Ford hit in 2024 was, no doubt, higher warranty costs. Ford has led the U.S. industry in recalls for the past three years and may end up leading for 2024 when the data is collected. Those recalls and warranty issues can get expensive, and that was evident during Ford’s second quarter.
During the second quarter, Ford’s warranty prices increased to $800 million from the first quarter and reached around $2 billion. It is a developing challenge and an expanding expense. This was a driving force that Ford missed its earnings estimates for the second quarter, with operating profit. 26% less than the previous year.
“Warranty has been a driver of development at Ford over the past five years and has intensified over the past year,” Freedom Capital Markets analyst Mike Ward wrote in a report released Thursday, according to Barrons. “Between 2011 and 2019, insurance represented an average of 1. 6% of turnover, but since the beginning of 2022, accruals have averaged 2. 9% and exceeded 4% in the second quarter.
This is also a problem that Ford can’t solve solely in 2025, but management has also reassured investors numerous times that it’s been doubling down on quality over the past couple of years and that it will take time for those higher-quality vehicles to work into the vehicle mix and start impacting change. Most of the recalls were for older-model vehicles.
That said, investors can also keep an eye on warranty expense compared to revenue and see if it’s improving throughout the next 18 months.
The good news for investors is that Ford’s problems can be fixed, and that may offer investors a buying opportunity after Ford’s inventory lags the S&P 500 and even rival General Motors, which has recorded a 48% gain in 2024, to 18%. fall for Ford.
The bad news for investors is that Ford’s practicality turns out to be more of a trend. In the last 10 years, Ford shares have fallen 35%. Ford’s dividend yield is steady, unlikely to decline unless drastic events arise, and offers investors a dividend yield of 6. 2%. However, that juicy dividend won’t be enough of an explanation for why to own Ford until it starts solving some major problems in 2025.
Daniel Miller holds positions at Ford Motor Company and General Motors. The Motley Fool recommends General Motors and recommends the following options: $25 calls in January 2025 on General Motors. The Motley Fool has a disclosure policy.
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