Ford Motor Company (NYSE: F) shares were 18% lower following the company's warning that it would incur $1 billion more than expected in costs due to higher prices for parts and supply chain issues. It was the biggest one-day loss in Ford's shares in more than a decade.
It also continues a string of bad luck for the legacy automakers. They are in the midst of spending huge sums of money to stay competitive in regard to electric vehicles (EV) which are clearly the future. During the boom between the latter months of 2020 and the early months of 2022, the automakers were unable to take advantage of higher prices and insatiable demand due to chip demand, impacting production.
There was some hope that auto production would be able to return to full capacity by the end of the year. However, these hopes are also proving to be false as indicated by Ford's warning. Additionally, these automakers are now facing the prospect of a recession which could result in a combination of higher costs and falling revenue.
Ford said that it currently has between 40,000 and 45,000 vehicles that are in inventory and lacking parts. And, the company didn't provide much guidance on when it expects these issues to finally normalize. However, the company is slated to report third-quarter earnings on October 26 and it's expecting full-year 2022 EBIDTA between $11.5 billion and $12.5 billion.
Ford's warning also sent other automakers lower as the timeline for recovery from supply chain woes was once again pushed back. Previously in July, Ford had said that higher commodity prices were adding to inflation and cost pressures. It also followed FedEx (NYSE: FDX), another blue-chip company, that warned about a slowing in the second half of the year.
Ford's shares are now down more than 40% YTD. It's interesting that its shares are basically priced as if a recession is a certainty. For investors who believe that a recession will be avoided especially from a consumer spending perspective, shares could be a good buy given a forward P/E of 6.5 and a P/FCF of 10.5. It also pays nearly a 5% dividend.