Ford’s Struggles in 2024: A Year of Setbacks as GM Thrives

Ford Motor Company (NYSE: F) and General Motors (GM) have been long-time rivals in the automotive industry, but 2024 marked a stark contrast between the two Detroit giants. While Ford’s stock plummeted 18%, GM saw an impressive 48% gain, according to data from S&P Global Market Intelligence. What went wrong for Ford and propelled GM forward?

The Root of Ford’s Decline: Production and Quality Issues

Ford’s challenges became clear as the year unfolded, with key issues negatively impacting its performance:

1. Recalls and Warranty Costs:
   Ford has been leading the U.S. industry in recalls for three consecutive years, and the trend seems set to continue in 2024. The massive recall numbers have driven up warranty expenses, significantly affecting profits. In Q2 2024, Ford reported an operating profit of $2.8 billion, a 26% drop from the previous year, well below Wall Street’s forecast of $3.7 billion. The high cost of recalls resulted in $800 million in additional warranty expenses during the quarter, pushing Ford’s warranty costs to about 4% of sales — a high figure for the industry.
2. Warranty Costs Soar:
   Between 2011 and 2019, Ford’s warranty costs averaged 1.6% of revenue, but this increased to 2.9% since 2022, spiking further in Q2 2024. The $2 billion in warranty expenses during the second quarter contributed significantly to Ford’s financial woes. Although the company has been working to resolve its quality issues, the improvements will take time to translate into reduced recalls and warranty costs.

Ford’s Electric Vehicle (EV) Struggles

In addition to quality concerns, Ford is facing mounting losses in its EV division. For 2024, the company is expected to report a $5 billion loss on its Model E electric vehicle lineup. As Ford pushes forward with its EV strategy, the costs of development and production are piling up, adding further strain on its bottom line. The company will need to streamline EV production, meet growing demand, and significantly reduce costs to make the division profitable.

Challenges in China: EV Price War

To make matters worse, Ford is struggling in China, a market increasingly dominated by new-energy vehicles (NEVs), including full-electric and hybrid vehicles. Over half of the Chinese market is now controlled by NEVs, putting immense pressure on traditional automakers.

Moreover, China’s EV price war has intensified competition, with government subsidies fueling aggressive pricing strategies from local manufacturers. Ford, along with other foreign automakers (except Tesla), is finding it difficult to compete in this increasingly hostile market.

What It Means for Ford and Its Investors

Ford’s 18% stock decline in 2024 stems from a combination of quality issues, costly EV investments, and market challenges, particularly in China. While these problems are significant, they are not insurmountable. Ford needs to:

1. Improve quality: Addressing the ongoing recall issues and reducing warranty costs will be crucial for restoring investor confidence.
2. Optimize its EV strategy: Matching supply with demand while cutting costs in the EV division will be essential for achieving profitability.
3. Reevaluate its China strategy: Ford must come up with a plan for the Chinese market, potentially considering exiting the market if necessary.

The good news is that Ford’s challenges are fixable, but it will require time and significant strategic shifts. Patience will be key for investors, especially when comparing Ford’s struggles to GM’s strong performance in 2024