Ford stock falls as executives outline cost disadvantages
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Ford Motor Company (NYSE:F) shares slid on Wednesday as executives highlighted the steep climb the automaker faces to fix operational issues.
During a fireside chat at the Wolfe Research Global Auto Conference, CEO Jim Farley and CFO John Lawler talked about the âdysfunctionâ at the company and the necessity of better execution. Indeed, Farley started the discussion by telling the moderator that âit is all about execution nowâ in the auto industry.
Farley began by explaining that supply chain issues and lost production caused the $2B âleft on the tableâ during the fourth quarter. In order to remedy this type of issue, however, he said that the company will need to make major changes beyond simply cost cuts.
âWe can cut the cost and cut people, we can do that really quickly. Weâll do whatever we need to,â Farley said. âBut the reality is that if you donât chain the efficiency of engineering, supply chain, and manufacturing, [the inefficiencies] will grow backâ¦we decided to make a more fundamental change.â
He said that management had to âliterally change the behaviorâ of the company in order to improve both quality and cost rather than one or the other. Farley said that the company is still working towards making âhuge transformationsâ at the company that will take time.
Lawler added that the company has about a $7B to $8B cost disadvantage to many rivals. He explained that the cost gap is made up of about $3 to $4B in material costs, $1B in warranty costs, and about $3B in structural costs. 
That said, Lawler said that he expects improvement in coming years. 
He noted that material costs are rising based largely due to the companyâs scaling of new efforts and revenue is outpacing costs, while he expects structural costs to come down over time due to the new segmentation of the company. Commodity costs are expected to be lower in 2023 as well, while the remediation of âvery, very poor schedule stabilityâ is expected to help drive $1B in cost savings.
Finally, Lawler said that he expects battery costs to decrease over time, especially as the company invests in LFP technology. He believes that, over time, batteries will become commoditized and costs will come down.
On the consumer front, Lawler said that consumer demand for autos remains strong despite elevated prices. He said that the company is selling every EV it can manufacture at this point. Farley added that he is pleased with the strides the company has made to become number 2 in EV sales and continue strength in commercial vehicles, courting a 50% market share in the latter segment.
Farley also highlighted distribution and inventory changes the company expects to make. In particular, he expects to trim âthe number of people it takes to sell a vehicleâ by leaning on e-commerce growth.
âIt needs to be a really simple, couple of clicks to buy,â he said. âWe have to do things remotely so people do not have to go into a physical dealership.â
Farley also said that EVs will come with non-negotiable prices. The steady price tags are expected to be better for the customer, drive e-commerce growth, and grant the company control over prices in a highly competitive market.
He stressed âradical simplicityâ as a key to lowering costs on EV manufacturing that will allow for more competitive pricing as the automaker seeks to compete with Tesla (TSLA) in particular. Farley said that the reorganization of the business into distinct units should streamline costs. Additionally, labor costs are expected to come down by virtue of employees taking on more functions, lessening the need for a hulking workforce.
As such, cost savings are expected to dovetail with resilient demand, allowing prices to normalize and enabling the company to maintain margin guidance.
Shares of the Dearborn-based auto manufacturer fell 1.7% on Wednesday, extending losses since the company's earnings call on Groundhog Day into the double-digits.
Read more on the companyâs $3.5B in a new battery plant.