Legacy automakers have been struggling to keep up with production due to ongoing supply issues, mainly their reliance on certain semiconductor chips that continue to be in high demand but low supply. While in contrast, certain companies like Tesla have worked their way around the shortage, producing and delivering cars at a record pace for Q4 of 2021.
Ford has big plans but limited resources
Ford is the focus of our article today, for those of you familiar with TWC, you know we have traded Ford before for both upside and its downside. This week, Ford is expected to cut production across 8 different factories across the US, Mexico and Canada. These production cuts include idling production of Ford’s best selling vehicle and one of the top selling vehicles in the country, the Ford F-150. Now for those of you who have been following Ford’s plans for transitioning into EV’s, you know that demand has been sky high for their upcoming models. With the F-150 Ev variation currently having a 3-year production backlog as it is, investors have to wonder if the recent round of production cuts and halts will begin to bleed into the already strained production of future EV models.
Now, Ford’s total sales for the year in 2021 reached 1.9 million cars which is down 6.8% compared to what they sold in 2020. With the production cuts including their top selling F-150, Bronco and their new competitor for Tesla’s model 3 in the Ford Mach-E, it is difficult to imagine Q1 including the sales recovery shareholders would like to see. Ford has committed to creating a large-scale factory for batteries and Light ev pickups in Tennessee, but before that point Ford will have to find a solution to their ongoing production halts. Not even the largest factory in the U.S, dubbed “Blue Oval City” will help them reach the sales goals they need to recover, if it spends most of its time with suspended production. Ford has the customer demand it needs to compete, but 2 years into the semiconductor shortage they are falling behind their competitors in adapting.
What this means for us as traders
Ford shares went tumbling over the weekend when the new production cuts were announced. Since Friday shares have fallen 13% and there is the possibility we will see more of a bleed throughout the week as the share price comes down from last year’s highs. Long Term Ford has room to grow with expanding demand for their electric cars, they have had immediate success in selling the cars they have been able to produce. Although there lies the problem, for the immediate future, they are going to continue struggling to produce in demand cars fast enough until they adapt to the now constant semiconductor shortage which is showing no signs of being alleviated this year.
With that in mind, Ford can continue to see downside for it’s shares until buyers see value in its price again and a potential solution to stalled production amidst a strong auto market. For the sake of innovation in the sector, Ford has to be able to compete for the growing EV market share, large companies pushing for customers means us as consumers have more options to choose from and oftentimes better quality. Gone are the days when Tesla was the only electric vehicle option, and Ford bouncing back from these issues will only strengthen the competition going forward for more affordable EV’s that the market needs.