Ford Motor Co. reported a loss of $827 million in the third quarter, driven by costs associated with the shutdown of the self-driving technology company Blue Oval backed as a major investor.
Ford executives acknowledged the challenges of developing Level 4 fully self-driving advanced driver assistance systems through human observations, while approving the decision to shut down Pennsylvania-based Argo AI, which was founded by two Michigan folks in 2017 with a $1 billion investment from the Dearborn automaker. – and it will take at least five more years to do so, and will require billions of dollars more investment in Argo.
The automaker initially said it expects to launch Level 4 ADAS technology by 2021. “But things have changed, and there is now a great opportunity for Ford to give back time, the most precious commodity of modern life, to millions of customers. They’re in their vehicles,” CEO Jim Farley said in a statement. “It’s critical for Ford to develop great and differentiated L2+ and L3 applications that also make transportation even safer.”
“We are optimistic about the future of L4 ADAS,” he added, “but profitable, fully autonomous vehicles at scale are far away and we don’t have to create this technology ourselves.”
Argo’s effective disintegration amid the hardening economic conditions and the global auto industry’s shift to electrification proves how unpredictable the progress of next-gen technology is, and how certain things are less than five years ago as automakers focus more carefully. . in providing partial self-driving solutions to customers.
A former Apple Inc. and Tesla Inc. Doug Field, an engineer and now head of advanced technology and embedded systems at Ford, said what Argo did was “what I think is the most difficult technical challenge of our time.” “It’s more difficult than sending a man to the moon to build an L4 robotaxis that can safely operate and navigate in a dense urban environment.”
Argo’s decision to cease operations resulted in Ford’s non-cash pre-tax impairment of its investment of $2.7 billion and triggered a net loss for this quarter. Ford executives, meanwhile, admitted they were seeing signs of a weakening macroeconomic environment.
Chief Financial Officer John Lawler said the automaker believes there is a “mild or moderate recession” in the US and a “more significant decline” in Europe next year, but believes the automaker is in a better position to weather a recession. than previous periods.
Lawler pointed to the decline in cash transaction rates in vehicle purchases, customers’ demand for longer loan repayment terms, the decline in used vehicle prices, and the changing demand for high-margin options against mid-range vehicles as signs that consumers are reacting to economic conditions. – Despite saying that Ford is still in strong demand.
In announcing strong quarterly results Tuesday, long distance rival General Motors Co. also signaled that it continues to see strong consumer demand. The Detroit automaker posted net income of $3.3 billion on record revenue of $42 billion.
Meanwhile, Ford posted a revenue loss of $39 billion in the third quarter of 2021, up from $35.7 billion. The company recorded adjusted earnings or adjusted operating profit before interest and taxes, which rose from $1.5 to $1.8 billion in the third quarter. The company’s guidance last month fell to $1.7 billion from $3 billion in the same period last year.
Ford expects to post full-year adjusted EBIT, or approximately $11.5 billion in operating profit, at the lower end of its previous guidance of $11.5 billion to $12.5 billion. Last year, Ford’s adjusted operating profit was $10 billion.
Lawler pointed to problems with Ford’s supply floor and the falling value of the British Pound, now for guidance from the lower end of the range.
“Over the last few weeks, we’ve done multiple deep dives into our onsite supply base. We’ve surveyed nearly 300 suppliers onsite and have done a thorough analysis,” he said. “And there are a lot of non-chip suppliers struggling to increase production as chip restrictions are starting to loosen a bit, and then for a combination of reasons they can’t ramp up. The labor shortage is really pushing the supply base.”
Third-quarter results were driven by two factors Ford warned investors about last month: supply constraints that forced roughly 40,000 vehicles to park while waiting for parts, and nearly $1 billion in higher-than-expected supplier payments. The company expects to deliver these vehicles in the fourth quarter.
The company closed the quarter with $32 billion in cash and $49 billion in liquidity. In a bright spot for the quarter, Ford increased its full-year adjusted free cash flow target from $5.5 billion to $6.5 billion to $9.5 billion to $10 billion after ending the third quarter with $3.6 billion of adjusted free cash flow.
In North America, the automaker posted an operating profit of $1.3 billion and an operating margin of 5%. Both fell from a year ago, which Ford attributed to the unfavorable mix due to higher commodity costs, inflationary pressure, and having thousands of high-margin trucks and SUVs waiting for parts. It recorded profits in every international market it reported, with the exception of China, where it reported a $193 million loss.
Ford will pay a regular dividend of 15 cents per share in the fourth quarter. The company’s board of directors has also authorized share repurchases of up to 35 million. Ford shares fell less than 0.1% in after-hours trading.
Investment firm Wedbush Securities Inc. “I think investors will welcome the quarter, and now it’s the 4th and 2023 will enter this quarter,” said analyst Dan Ives.
self driving problems
Experts said the move to shut down Argo is a sign of the challenges of succeeding in the self-driving space and a setback for the autonomous vehicle industry.
But analysts said Ford and Volkswagen AG (another big Argo backer) could benefit. Companies have invested another $2.6 billion since Argo’s launch and can develop core technology for more use cases that fit their priorities.
“This is a cautionary tale for complexity and competition in the autonomous space,” said Wedbush’s Ives. “It was a great idea when it launched in 2017, but it had many implementation issues, ran into significant hurdles and was overshadowed by Cruise, Waymo and others who have become giants in the space.”
Volkswagen likewise confirmed that it is no longer investing in Argo, although other partnerships with Ford remain unchanged.
Argo is not alone in the challenges it faces. Shares of competitor Aurora Innovation Inc. are down 75% to date, and last month, CEO Chris Urmson, Apple Inc. and a sale to the likes of Microsoft Corp., the company considered the departures and layoffs in a leaked memo from the company. writing board. In March, GM bought Softbank Vision Fund’s $2.1 billion stake in Cruise. Waymo LLC, of Google’s parent company Alphabet Inc., has held external funding rounds.
Sam Abuelsamid, chief e-mobility analyst at market research firm Guidehouse Inc., said Argo has plans to go public this year.
“When the markets fell this year, it became impossible,” he said. “They knew they would have to raise more capital. Ford and Volkswagen, as the two major shareholders, looked at what will be needed in the future, the challenges they face and the investments they have to make in electrification, and the current supply chain challenges. At this point, they decided it was not wise to invest more money in Argo because that investment would be irreversible for many years to come.”
“The whole rollout of this technology is obviously much slower, much longer, much more difficult,” Abuelsamid said. “There will be several companies that will remove it.”
But Argo seemed to be making progress. It has tested self-driving Ford Fusions and Escape Hybrids on public roads in ID Buzz vehicles in several US cities, including Detroit, and in Germany. Also, ride-hailing app Lyft Inc. and Walmart Inc. started pilot programs with companies such as Last month, it announced several AV technology-related software products to support commercial delivery and robotaxis operations.
Ford executives said Wednesday that they expect to hire an as-yet undetermined number of approximately 2,000 employees of Argo, who will work on the automaker’s hands-free Level 2+ and Level 3 technologies.
jgrzelewski@detroitnews.com
Twitter: @jgrzelewski
bnoble@detroitnews.com
Twitter: @BreanaCNoble
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