Ford Motor Company (NYSE:F) stock went down on Wednesday after executives talked about how hard it will be for the company to fix operational problems.
During a fireside chat at the Wolfe Research Global Auto Conference, CEO Jim Farley and CFO John Lawler talked about the company’s “dysfunction” and the need for better execution. In fact, Farley started the conversation by telling the moderator that in the auto industry, “it’s all about execution now.”
Farley started by saying that the $2B “left on the table” during the fourth quarter was due to problems with the supply chain and lost production. To fix this kind of problem, however, he said that the company will have to do more than just cut costs.
“We can cut the cost and cut people, we can do that really quickly. We’ll do whatever we need to,” Farley said. “But the reality is that if you don’t chain the efficiency of engineering, supply chain, and manufacturing, [the inefficiencies] will grow back…we decided to make a more fundamental change.”
He said that the company’s management had to “literally change the way the company works” if they wanted to improve both quality and cost, not just one or the other. Farley said that the company is still working on making “huge changes” that will take some time.
Lawler also said that the company’s costs are about $7B to $8B higher than those of many of its competitors. He said that the difference in costs is made up of about $3 billion to $4 billion in material costs, $1 billion in warranty costs, and about $3 billion in structural costs.
Lawler, however, said that he thinks things will get better in the years to come.
He said that material costs are going up because the company is scaling up new projects, and that revenue is growing faster than costs. However, he thinks that structural costs will go down over time because the company is now divided into different parts. Costs for commodities are also expected to go down in 2023, and fixing “very, very poor schedule stability” is expected to save $1 billion.
Lawler also said that he thinks the price of batteries will go down over time, especially if the company keeps investing in LFP technology. He thinks that over time, batteries will become like any other product and their prices will go down.
On the consumer side, Lawler said that even though prices have gone up, people still want to buy cars. He said that the company is selling all of the electric vehicles it can make right now. Farley also said that he is happy with the steps the company has taken to become number 2 in sales of electric vehicles (EVs) and to keep doing well in sales of commercial vehicles, where they want to get a 50% market share.
Farley also talked about the changes the company plans to make to distribution and inventory. By relying on the growth of e-commerce, he hopes to reduce “the number of people it takes to sell a car.”
“It needs to be a really simple, couple of clicks to buy,” he said. “We have to do things remotely so people do not have to go into a physical dealership.”
Farley also said that EVs will have prices that can’t be changed. Price tags that stay the same should be better for the customer, help e-commerce grow, and give the company more control over prices in a market with a lot of competition.
He said that “radical simplicity” is the key to lowering the costs of making EVs, which will allow the automaker to offer more competitive prices as it tries to compete with Tesla (NASDAQ:TSLA). Farley said that splitting the business into separate units should make costs go down. Also, labor costs are expected to go down because employees will be doing more jobs, so there won’t be as much need for a big workforce.
As a result, cost savings and strong demand should allow prices to return to normal and the company to stick to its margin guidance.
Shares of the automaker based in Dearborn, Michigan, dropped 1.7% on Wednesday. This means that Ford stock has lost more than 10% since its earnings call on Groundhog Day.
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