Ford Ended The UAW Strike But It Did It At A High Cost Along With Having To Hit The Brakes On Its EV Plans

Unlike its Detroit rival General Motors GM who topped Wall Street revenue and profit estimates with its third quarter results, Ford Motor F fell short of estimates, with its executives attributing the shortfall to the impact of the United Auto Workers’ strike at three of its key U.S. factories, including its truck plant in Kentucky. Upon results, Ford stock closed the week down more than 12%, despite the Blue Oval becoming the first of the three Detroit automakers to reach an agreement with the UAW, with workers returning to their jobs before the new deal is officially ratified. Stellantis STLA followed its footsteps on Saturday by also reaching an agreement following a template set by the UAW and Ford, leaving only GM without a deal. GM got another hit from the UAW who expanded the strike at its Spring Hill, Tennessee, engine facility, hampering GM's large pickup production and adding to its financial pain.

Third Quarter Highlights

For the third quarter, Ford reported a profit of $1.2 billion, successfully turning from a loss of $827 it made during last year’s comparable quarter. Revenue increased 11% YoY to $44 billion.

Ford reported that is EV unit, Ford Model, lost $1.3 billion on an operating basis during the quarter, which is about doubled compared to the loss from last year’s comparable quarter, despite a 26% increase in revenue.

Ford’ CFO John Lawler focused on Ford’s ability to balance the production of gas, hybrids and EVs to match the speed of EV adoption from its customers in a way other automakers cannot. Lawler expressed optimism regarding that by not chasing scale at all costs, Ford is able to maximize profitability and cashflow, aided by disciplined capital allocation.

The Newly Agreed Upon Terms Put Additional Pressure On Ford’s Ongoing Cost Efforts

As the United Auto Workers union leaders approved a tentative agreement on Sunday, Ford is in for $8.1 billion in new plant investments, $5,000 in ratification bonuses and other economic costs such as 25% compounded wage increases and improved profit-sharing payments. The 4 ½-year tentative agreement will now be rolled out to 57,000 UAW-Ford members for regional informational meetings and voting, therefore taking about a few weeks.

While the deal is a record, it did fall short of some of the UAW’s initial goals which are a 40% pay increase, a 32-hour workweek and traditional pensions for all workers, among others. If passed, the UAW deal will add $850 to $900 in costs to every vehicle assembled in the U.S., according to Lawler. In light of this pending deal, Ford withdrew its 2023 guidance. 

Hitting The Brakes On EV Plans

Last week, Ford also announced its plans to postpone about $12 billion in its EV investment due to observing that North America customers are not willing to pay a premium to obtain an EV vehicle as opposed to its traditional internal-combustion-engine alternative. Throughout this year’s three quarter, Ford reported its model e EV unit lost about $3.1 billion which is in line with Ford’s previously given full year guidance for an operating loss of $4.5 billion.

Even Without The UAW, Ford Still Has Plenty Of Worries To Think About

Ford no longer has to worry about the UAW, but it has plenty of worries on its plate concerning its EV strategy and cost control. The deal that Ford agreed upon will further weaken its position against the EV king, Tesla Inc TSLA. Fortunately for Ford, Tesla also has its concerns, with its latest earnings report being the least of its worries. The market was certainly not impressed with the soft earnings that Tesla reported. Tesla is also fighting for market share in China with BYD Company Limited BYDDY being its biggest threat but startups like Xpeng Inc XPEV are also intensifying their efforts and expanding their footprint. Last week, Xpeng announced it will be rolling out its driver-assist technology in Europe by the end of 2024. While Tesla posted disappointing third quarter figures, its China rivals posted record EV sales. BYD reported record Q3 deliveries with sales rising by double digits and crossing the 2-million milestone this year. Xpeng posted its second highest quarter ever and Li Auto Inc LI led on the startups front and along with Nio Inc NIO, the two scored their highest quarterly sales. 

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