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Ford Restructures Europe Operations: Should Investors Stay on Board?
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Ford (F - Free Report) is set to reduce its European workforce by around 4,000 employees, approximately 14% of its regional headcount, citing weak demand for electric vehicles (EVs), insufficient government support for the EV transition and competition from subsidized Chinese automakers. The layoffs, representing 2.3% of Ford's global workforce of 174,000, will primarily impact Germany and the U.K., with 2,900 and 800 positions cut, respectively. The U.S. auto giant plans to complete the layoffs by 2027. The move is part of the company’s restructuring program in Europe.
Ford will also scale back production of its Explorer and Capri EV models at its Cologne facility. This move comes as Ford continues a costly restructuring of its European operations, which included 3,800 job cuts announced in early 2023 and the planned closure of its Saarlouis plant in Germany next year. According to Ford Europe vice president Peter Godsell, the company is grappling with weaker-than-expected demand for EVs and significant challenges around operating costs. This restructuring reflects Ford's broader effort to streamline operations and compete in a rapidly evolving automotive market.
With EV operations under pressure and frequent layoffs to contain costs, investors are left questioning: Is Ford stock still a worthwhile investment or is it time for investors to rethink their positions?
Challenges in Ford’s EV Segment
Ford’s woes extend beyond Europe, with its EV business—operating under the Model e segment—struggling globally. In the third quarter, the unit reported an 11% year-over-year drop in wholesale volumes, a 33% decline in revenues and a loss of $1.22 billion before interest and taxes. The division is on track to incur a $5 billion loss this year, up from $4.7 billion in 2023 due to pricing pressure and costly investments in next-generation EVs.
With President-elect Donald Trump set to remove EV tax credits, things may get even tougher for the company’s EV business. Trump’s push to repeal the $7,500 EV tax credit is likely to hurt U.S. legacy automakers like General Motors (GM - Free Report) and Ford, which still lean heavily on EV tax credits. Ford faces stiff competition in the EV market, not only from established rivals like Tesla (TSLA - Free Report) but also from emerging Chinese players who benefit from government subsidies and cost advantages.
Inflation, Warranty & Material Costs to Add to Ford’s Pain
The economic backdrop has further complicated Ford’s recovery efforts. Inflation, particularly in Turkey where Ford has a significant joint venture, has heightened cost pressures. Rising material costs for the Transit van, a key product in Europe, are expected to squeeze margins further. Additionally, the automaker has yet to address internal challenges, such as high warranty expenses stemming from quality issues with older models. These warranty-related costs could take up to 18 months to stabilize, adding to Ford’s financial strain.
Amid these challenges, Ford has lowered its earnings before interest and taxes (EBIT) forecast for 2024. It now expects the metric to be around $10 billion, at the lower end of the previously guided range of $10-$12 billion. The company now expects EBIT from its Ford Blue unit, which focuses on internal combustion engine vehicles, to decline from $7.5 billion in 2023 to $5 billion this year.
While Ford has achieved a $2 billion reduction in material and manufacturing costs, inflation and warranty-related expenses have offset these savings, limiting its ability to deliver record financial performance.
Tough Road Ahead for Ford
The road ahead for Ford is fraught with challenges. The automaker is caught in a perfect storm of external pressures, including intensifying competition, rising costs, weakening EV demand and internal inefficiencies such as warranty-related expenses.
Year to date, shares of Ford have declined 8.3%, underperforming the industry, sector and the S&P 500. Meanwhile, its closest peer, GM, has seen its shares gain 63%. TSLA shares have also risen 42% during the same timeframe.
YTD Price Performance Comparison
Image Source: Zacks Investment Research
Indeed, Ford’s Pro division, which focuses on commercial vehicles, remains a bright spot for the company. The unit has consistently delivered strong financial results, bolstered by robust demand for its fleet-oriented offerings. But that’s just one silver lining. While Ford is undertaking restructuring efforts, the magnitude of its challenges might overshadow these initiatives.
Ford stock has been trading below its 200-day moving average for a long time.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2024 and 2025 EPS implies a decline of 10% and 4.4%, respectively. Discouragingly, Ford has seen its EPS estimates move south in the past seven days.
Image Source: Zacks Investment Research
Avoid F Stock for Now
For investors, Ford’s recent struggles present a cautionary tale. While the company’s Pro division and generous dividend yield offer some reasons for optimism, the broader challenges it faces cannot be ignored. Persistent EV losses, rising warranty expenses and cost pressures in a weakening automotive market paint a grim picture for Ford’s near-term prospects. As the automaker navigates turbulent waters, particularly in Europe where market dynamics are growing increasingly hostile, the decision to trim its workforce underscores deeper struggles. Until the company can demonstrate meaningful progress in addressing its challenges, investors may be better off avoiding Ford stock
Ford currently carries a Zacks Rank #5 (Strong Sell).
Image: Bigstock
Ford Restructures Europe Operations: Should Investors Stay on Board?
Ford (F - Free Report) is set to reduce its European workforce by around 4,000 employees, approximately 14% of its regional headcount, citing weak demand for electric vehicles (EVs), insufficient government support for the EV transition and competition from subsidized Chinese automakers. The layoffs, representing 2.3% of Ford's global workforce of 174,000, will primarily impact Germany and the U.K., with 2,900 and 800 positions cut, respectively. The U.S. auto giant plans to complete the layoffs by 2027. The move is part of the company’s restructuring program in Europe.
Ford will also scale back production of its Explorer and Capri EV models at its Cologne facility. This move comes as Ford continues a costly restructuring of its European operations, which included 3,800 job cuts announced in early 2023 and the planned closure of its Saarlouis plant in Germany next year. According to Ford Europe vice president Peter Godsell, the company is grappling with weaker-than-expected demand for EVs and significant challenges around operating costs. This restructuring reflects Ford's broader effort to streamline operations and compete in a rapidly evolving automotive market.
With EV operations under pressure and frequent layoffs to contain costs, investors are left questioning: Is Ford stock still a worthwhile investment or is it time for investors to rethink their positions?
Challenges in Ford’s EV Segment
Ford’s woes extend beyond Europe, with its EV business—operating under the Model e segment—struggling globally. In the third quarter, the unit reported an 11% year-over-year drop in wholesale volumes, a 33% decline in revenues and a loss of $1.22 billion before interest and taxes. The division is on track to incur a $5 billion loss this year, up from $4.7 billion in 2023 due to pricing pressure and costly investments in next-generation EVs.
With President-elect Donald Trump set to remove EV tax credits, things may get even tougher for the company’s EV business. Trump’s push to repeal the $7,500 EV tax credit is likely to hurt U.S. legacy automakers like General Motors (GM - Free Report) and Ford, which still lean heavily on EV tax credits. Ford faces stiff competition in the EV market, not only from established rivals like Tesla (TSLA - Free Report) but also from emerging Chinese players who benefit from government subsidies and cost advantages.
Inflation, Warranty & Material Costs to Add to Ford’s Pain
The economic backdrop has further complicated Ford’s recovery efforts. Inflation, particularly in Turkey where Ford has a significant joint venture, has heightened cost pressures. Rising material costs for the Transit van, a key product in Europe, are expected to squeeze margins further. Additionally, the automaker has yet to address internal challenges, such as high warranty expenses stemming from quality issues with older models. These warranty-related costs could take up to 18 months to stabilize, adding to Ford’s financial strain.
Amid these challenges, Ford has lowered its earnings before interest and taxes (EBIT) forecast for 2024. It now expects the metric to be around $10 billion, at the lower end of the previously guided range of $10-$12 billion. The company now expects EBIT from its Ford Blue unit, which focuses on internal combustion engine vehicles, to decline from $7.5 billion in 2023 to $5 billion this year.
While Ford has achieved a $2 billion reduction in material and manufacturing costs, inflation and warranty-related expenses have offset these savings, limiting its ability to deliver record financial performance.
Tough Road Ahead for Ford
The road ahead for Ford is fraught with challenges. The automaker is caught in a perfect storm of external pressures, including intensifying competition, rising costs, weakening EV demand and internal inefficiencies such as warranty-related expenses.
Year to date, shares of Ford have declined 8.3%, underperforming the industry, sector and the S&P 500. Meanwhile, its closest peer, GM, has seen its shares gain 63%. TSLA shares have also risen 42% during the same timeframe.
YTD Price Performance Comparison
Image Source: Zacks Investment Research
Indeed, Ford’s Pro division, which focuses on commercial vehicles, remains a bright spot for the company. The unit has consistently delivered strong financial results, bolstered by robust demand for its fleet-oriented offerings. But that’s just one silver lining. While Ford is undertaking restructuring efforts, the magnitude of its challenges might overshadow these initiatives.
Ford stock has been trading below its 200-day moving average for a long time.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2024 and 2025 EPS implies a decline of 10% and 4.4%, respectively. Discouragingly, Ford has seen its EPS estimates move south in the past seven days.
Image Source: Zacks Investment Research
Avoid F Stock for Now
For investors, Ford’s recent struggles present a cautionary tale. While the company’s Pro division and generous dividend yield offer some reasons for optimism, the broader challenges it faces cannot be ignored. Persistent EV losses, rising warranty expenses and cost pressures in a weakening automotive market paint a grim picture for Ford’s near-term prospects. As the automaker navigates turbulent waters, particularly in Europe where market dynamics are growing increasingly hostile, the decision to trim its workforce underscores deeper struggles. Until the company can demonstrate meaningful progress in addressing its challenges, investors may be better off avoiding Ford stock
Ford currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.