24/7 Insights

• The many headwinds Ford Motor Co. (NYSE: F) faces explain the underperformance of its stock.

It is simple to show how badly Ford Motor Co. (NYSE: F) has done for shareholders. In the past year, its stock is down 16%. Rival GM’s performance, up 28%, is better than the S&P 500’s advance of 24% over the same period.

One reason Ford’s stock is off so much is its acknowledgment of quality problems. A recent analysis shows it has topped the industry for recalls over the past three years. While artificial intelligence (AI) has started to help the company identify vehicle defects while they are being built, warranty costs have taken a bite out of its earnings. Whether AI helps solve the problem remains to be seen until the new vehicles are on the road for several months–or even years.

Ford is still dogged by its lack of electric vehicle (EV) sales, despite a surge so far this year. Through May of this year, EV volume reached 37,208, up 87.8% year over year. However, that figure is only a little over 4% of Ford’s total. After the company has invested billions of dollars in EV development and production, it is difficult to justify the investment. As other large car companies flood the U.S. market with EVs, Ford continues to have an uphill battle.

Another problem Ford faces is sales in the world’s largest car market, China. According to a Good Car/Bad Car analysis, its sales there collapsed from a peak in 2016. Chinese manufacturers continue to grow in their home market, making a Ford recovery nearly impossible.

Ford’s problems outweigh any improvement over the past year. That is why the stock is down.

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