Ford's second-quarter net income falls to $1.8 billion due to unexpected warranty costs

Ford Motor Co. on Wednesday said net income in the second quarter fell 4% to $1.8 billion, a drop the company attributed to increased warranty expenses and the launch of new vehicles, and which came as the company continued to lose money on electric vehicles.

Ford posted adjusted operating earnings for the April-to-June period of $2.8 billion, down 27% from $3.8 billion in the same period last year.

Overall, Ford’s revenue for the quarter was $47.8 billion, up 6% from a year ago.

Here's what we learned as company executives answered questions from the news media and analysts Wednesday:

1. Warranty costs have added up

Ford CFO John Lawler said Wednesday in a call with the media after the automaker released its second-quarter earnings report that the increased warranty costs were unplanned and represent about a $700 million increase in warranty expenses for the second quarter compared with the same period in 2023, and an $800 million increase from the first quarter of this year.

In total, Lawler said the warranty costs for the quarter were about $1.5 billion-$2 billion.

He said that's a one-time issue, though, and expectations for full-year 2024 adjusted earnings before interest and taxes (EBIT) remain unchanged at $10 billion to $12 billion, Ford said in a news release. The company raised adjusted free cash flow outlook by $1 billion, to between $7.5 billion and $8.5 billion.

Analysts, though, on a call with Ford executives after the earnings were released, said Ford's warranty costs have run high before and asked how investors can have confidence that this won't keep happening.

Ford CEO Jim Farley said it takes time for new Ford vehicles of higher quality to make their way into the market, but once they do, warranty costs will be reduced over time.

2. Ford's electric vehicles continue to be a money loser

The automaker's electric vehicle business posted a loss of $1.1 billion in the second quarter. Farley divided the company into Ford Blue, Ford Model e (electric vehicles) and Ford Pro (commercial products) in 2022.

As Ford is grappling with a more complicated EV sales picture than anticipated a few years ago, like other automakers, and looking to save money on building EVs, Farley said the interest at Ford in partnering with another company on EVs "is record-level high."

"We're not going to make any announcements on this earning call, but this is absolutely a flip-the-script moment for our company," Farley said.

Ford said last week that it will move planned production of a three-row electric utility vehicle to another plant, shifting from plans to build them at Oakville Assembly Complex in Ontario. Details on where the EV production will be done were not disclosed.

The automaker will instead build Super Duty trucks at Oakville, a move it described as a way to meet booming demand from its Ford Pro unit. 

More on this move:Ford announces plan to build Super Duty in Canada as EV production moves elsewhere

3. Ford loves Ford Pro

Speaking of Ford Pro, executives talked a lot on both the media and analyst call about how successful this business unit is, and what more can be done to increase its profits.

"No other company has Ford Pro," Farley said on the analyst call. "We intend to fully press that advantage."

Ford Pro made $2.6 billion in the second quarter of 2024, an increase of 7% compared with the same period last year.

4. How Wall Street reacted

Shares were down about 11% after markets closed. The stock closed Wednesday at $13.67 per share.

5. How other automakers fared in Q2

General Motors on Tuesday reported a 37% increase in its adjusted pretax income in the second quarter, to $4.4 billion. The automaker said the gain was due to strong sales of gasoline-powered pickups and SUVs, improving sales of electric vehicles and stable pricing with low incentives.

Based on those results, GM said it is increasing its guidance for full-year earnings. GM expects to report a pretax income of $13 billion to $15 billion this year, compared with earlier guidance of $12.5 billion to $14.5 billion.

More on GM's Q2 earnings:GM reports $4.4 billion in Q2 pretax profits, increases expected earnings for full year

Stellantis, owner of Jeep, Ram, Chrysler, Dodge and Fiat, will report earnings for the first half of 2024 on Thursday.

Free Press staff writer Jamie L. LaReau contributed to this report.

Contact Adrienne Roberts: amroberts@freepress.com