Ford shares suffer heavy losses as warranty issues spook investors

Ford (NYSE:F) shares were in a freefall Thursday, opening the session below the 50-, 100-, and 200-day moving averages as Q2 results and the lingering concerns over warranty expenses spooked investors and drove shares down by as much as 18%.

The company’s profitability took a hit in the second quarter as warranty costs and losses tied to its electric vehicle division caused Ford (F) to miss profit and revenue expectations, although losses on Wednesday were mitigated by an increase in the company’s free cash flow and strength of its ICE segment.

But the warranty issue remained front and center for analysts on the earnings call as Ford (F) continued to be the most-recalled automaker for the third straight year (“warranty” was mentioned more than 25 times on the call). CEO Jim Farley acknowledged that field service actions, or FSAs, and inflationary pressures raised the cost of repairs and resulted in a lower EBIT range for Ford Blue this year.

But as some of these issues can be addressed through connected data going forward, the over-the-air updates will be at a much lower cost as the company launches newer and more connected models. And by using a more rigorous testing system prior to launch, Ford (F) can correct some of these issues prior to the vehicle’s release, mitigating the cost of a recall or FSA later on, the company said.

“It’s painful to have all these vehicles [unlaunched] over quarter ends, but it’s the right thing to do for the company, and it’s the only way, we believe, in addressing our warranty spend,” Farley said on the call.

To that end, the company has delayed the launch of the refreshed Bronco, Explorer, and Maverick to conduct additional quality control inspections.

And despite the increased warranty costs and Ford’s (F) struggle to contain them, there are investors who remain bullish on the stock given the consistency of its dividend and strong stable of products that remain very popular with consumers, like the F-Series.

“Ford’s free cash flow, dividend yield, and historically low P/E make it a compelling value investment opportunity,” said Seeking Alpha investor Mike Zaccardi, while its “profitable core business bolstered by an increasingly robust Ford Pro commercial business,” makes betting on an undervalued Ford (F) stock to recover an astute play, for JR Research.