Key Points

• Car industry underperformed in Q2, with Ford hit hard by warranty costs.
• Automakers struggle to balance profitable gas cars with costly EV investments.
• EV adoption faces hurdles, making it unlikely to meet 2035 government targets.
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Summary

In this discussion, Lee and Doug talk about the struggles faced by the car industry in the second quarter, with a specific focus on Ford’s (NYSE: F) disappointing performance due to high warranty costs. Lee highlights how Ford’s promise to address these quality issues has yet to be fulfilled under the leadership of Bill Ford and CEO Jim Farley. Doug notes the challenges car companies face as they balance the profitability of gas-powered vehicles like the F-150 with the push towards electric vehicles (EVs). Both agree that the industry is not yet ready to meet the ambitious EV targets set for 2035, especially without a reliable and affordable $25,000 EV model that can meet consumers’ needs.

Transcript:

The car industry did not turn out to be a very good industry in the second quarter.

You know, all three of them posted results that were way underneath, I think, expectations.

Now, it was for different reasons.

But there was disappointment.

And I’m going to single out Ford here because the reason that they did poorly is warranty costs, right?

So you have to show on your financials all the money that you spent because people had their cars fixed because they were broken.

Now, Bill Ford, the executive chairman and the guy who represents the family’s controlling interest, said two or three years ago, he said, this is a big problem and, you know, we’re going to solve it.

And guess what?

Under him and CEO Farley, it’s not fixed.

It’s good.

And I think in this day and age to build cars that have significant quality problems is absolutely nuts.

Yeah.

Yeah.

And one of the biggest problems I think all of the big three have had is that, you know, cars are now very computer based.

You know, a lot of the cars run on computers and chips and all of that are chip driven.

And one thing, if you’ve ever noticed that if for any reason your computer ever goes out, like the battery terminal falls off or for some reason it shuts everything down, you’re doomed.

You are absolutely doomed.

Because they’ll say, well, sorry, that’s not covered.

And it’ll be $1,000 to replace your computer.

And it’s just like, I bet that has happened in a lot of instances.

Yeah, I think that’s probably true.

The other thing that was notable is even though car companies are retreating from their multi, multi-billion dollar promises of investment.

But what you’re still seeing is you’re still seeing multi-billion dollar losses in those parts of these companies.

Ford breaks their own out.

So as long as they are trapped between, in Ford’s case, the F-150, which is 37% of its unit sales in the United States, incredibly profitable, as is true with most full-size pickups.

As long as you’re trapped between people who will always buy a gas-powered car and the people you’re trying to get to buy EVs, it’s always going to be difficult to walk that line and have good earnings.

Yeah.

And again, until you can have a twenty five thousand dollar EV that doesn’t break down the charges.

And, you know, this could this could be in the future.

It could be five to 10 years away.

But until you have that model that people know they can have a 500 mile range and there’ll be some place to plug it in after 400.

It’s just not going to be and it’s never going to be to the government.

EV standards that were set for 2035, where like 50% of all cars have to be EV, that will never happen.

Well, it’s interesting.

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