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Ford warns supplier costs to be $1 billion more than expected

Yahoo Finance Live anchors discuss the Ford stock dropping premarket after the automaker warned on third-quarter supplier costs.

Video Transcript

- Shares of Ford, they're in focus. And they're down about 5% right now. This is after the automaker warned supplier costs of more than $1 billion. That's what's expected during this quarter. Ford forecasted adjusted EBIT to fall between $1.4 billion and $1.7 billion for Q3. Now this is well below Ford's earnings of $3.7 billion in Q2.

Particularly here, they were citing the supply shortages. And it would be resulting in higher than planned numbers of vehicles on wheels remaining in Ford's inventory and awaiting needed parts. And so that really goes to show where they're expecting this backlog because of either the parts that they need or the materials to make anything from chips to other key parts that will go into the automobiles and then be able to equip them necessarily so that they can get them out into the dealer network as well.

- What illustrates the remaining unpredictability of the supply chain better than a company saying here's $1 billion in costs that we didn't expect from supply chain issues. And when you talk about more partially built cars that are going to be sitting around, we're talking about 40,000 to 45,000 at the end of the third quarter that are not done because they can't get the parts that they need to finish them, which is a pretty remarkable number here that we're talking about.

At the same time, there is something reassuring that Ford said as well, and that's that it is not changing its forecast for its full year or operating earnings number, $11.5 billion to $12.5 billion. And so the implication there is that right now it thinks it is going to be able to finish those cars and get them out the door in the fourth quarter, allowing it to meet that full year previously announced forecast.

Now, does the street have confidence in that? Maybe not, judging from the action this morning. I'm not seeing any big questions on that front in the analyst notes I'm seeing this morning. But given that the situation continues to change, you have to wonder.

- And it's the types of vehicles as well that they're looking at this impact through. You mentioned the 40,000 to 45,000 figure in quantity. But in terms of the quality that they would see from those actual vehicles, we're talking about high margin trucks and SUVs. That's where some of those profit expectations are going to really be evaluated by the Street. And you're seeing that priced in, at least into today's market activity. We'll see exactly what the actuals are for those deliveries moving forward and what types of figures they're are able to hit.

But if this is going to hit some of the highest margin trucks and SUVs, of course, where Ford has been the category leader in the pickup truck department for decades, it really comes back to how much they're going to be able to not just look at the future of electrification as they've broken up these two businesses or how they're going to report going forward into the internal combustion engine or the ICE business, versus the Ford Model e business, which is that electrified part of the business.

And so all of that considered, it's really about which vehicles specifically they're going to be seeing the biggest hit as a result of these additional supplier costs too going forward.

- I mean, maybe one sort of reassuring thing, or not as bad thing-- I mean, everybody's experiencing this still. General Motors has come out and made these kinds of comments already. If you look at Ford and GM shares, by the way, this year, they're neck and neck down about 28%, 29%, both of them. Tesla is only down 12% on the flip side.

And these are the other companies, by the way, in other industries that have been cutting their forecasts because we've been adding to the list of these large cap companies that have been coming out and warning. Ford is just the latest.

- Since we're talking some of the impacts here, Stellantis, their CEO also came out and said that raw materials and the scarcity, they're expecting that to increase in the next 10 years. What does that really mean for the rest of the automaker companies, the auto manufacturers as well?

If they're all navigating that and vying for the same types of parts or materials--

- Mhm, that's true.

- --to be able to create their vehicles, that creates even more of a crunch or a competition that they may have to pay higher for some of those long term contracts to secure that supply or secure that materials so they can essentially make sure that they're able to navigate some of the broader supply chain concerns that might result out of that raw material scarcity that Stellantis is talking about.

- Yeah, that glass half full interpretation is much smarter than my glass-- wait, that glass half empty, whatever. That was the correct interpretation, is that they're all competing for the same parts, rather than they're all in the same boat.

- Spot on.

- That makes more sense.