Ford Motor Co. reported a loss of $827 million in the third quarter, driven by costs associated with the shutdown of an autonomous vehicle technology company that Blue Oval has backed as a major investor.
In confirming the decision to shut down Pennsylvania-based Argo AI, founded by two Michigan natives in 2017 with a $1 billion investment from automaker Dearborn, Ford executives acknowledged the challenges of developing advanced AI systems. level 4 fully autonomous driving aids with human observations. — and said it would likely take at least five more years and require billions more in investment in Argo.
The automaker initially said it plans to have ADAS Level 4 technology commercially available by 2021. they’re in their vehicles,” CEO Jim Farley said in a statement. “It is essential for Ford to develop high-performance and differentiated L2+ and L3 applications which, at the same time, make transport even safer.”
“We are optimistic about the future of L4 ADAS,” he added, “but large-scale, cost-effective, fully autonomous vehicles are still a long way off, and we won’t necessarily have to create this technology ourselves. .”
The effective dissolution of Argo amid tougher economic conditions and the global auto industry’s pivot towards electrification shows how unpredictable the advance of next-generation technology is proving – and how Things from less than five years ago are proving to be less unpredictable as automakers focus more intently on providing partial self-driving solutions to customers.
Doug Field, a former Apple Inc. and Tesla Inc. engineer who now leads advanced technologies and embedded systems at Ford, said the work Argo was doing was “what I consider the technical problem the most most difficult of our time. It’s harder than putting a man on the moon to create an L4 robotaxi that can operate in a dense urban environment, safely, and navigate to its destination.”
The decision to end Argo’s operations led Ford to record a $2.7 billion pre-tax non-cash write-down on its investment, resulting in the quarter’s net loss. Meanwhile, Ford executives have acknowledged that they see signs of a weakening macroeconomic environment.
Chief Financial Officer John Lawler said the automaker thinks a “mild to moderate recession” in the United States next year is likely, along with a “bigger downturn” in Europe, although he thinks the automaker is better positioned to weather a recession. than in previous eras.
Lawler pointed out that the rate of cash transactions on vehicle purchases was down, customers were looking for longer loan payment terms, used vehicle prices were down, and demand for mid-series was down relative to higher-margin options, as signs that consumers are reacting to economic conditions. — although he said Ford still sees strong demand.
Reporting strong quarterly results on Tuesday, Crosstown rival General Motors Co. also signaled that it continues to see strong consumer demand. The Detroit automaker made a net profit of $3.3 billion on record revenue of $42 billion.
Meanwhile, Ford posted a revenue loss of $39 billion, compared to $35.7 billion in the third quarter of 2021. The company posted adjusted earnings before interest and taxes, or adjusted operating profit, $1.8 billion in the third quarter, down from $1.5. billion to $1.7 billion the forecast the company gave last month, but down from $3 billion in the same period last year.
Ford expects to post an adjusted EBIT or operating profit of around $11.5 billion for the full year, down from its previous guidance of $11.5 billion to $12.5 billion. dollars. Last year, Ford’s adjusted operating profits were $10 billion.
Lawler pointed to problems with Ford’s supply base, as well as the decline in the value of the pound, for indications that are now at the lower end of the range.
“Over the past few weeks, we’ve done a lot of in-depth on-site analysis of our supply base. We’ve looked at almost 300 suppliers on-site and done a comprehensive analysis,” he said. there are a number of non-chip vendors who are struggling to ramp up production because the restrictions on the chips have started to loosen up a bit, and so they’re not able to ramp up for a confluence of The labor shortage is really hitting the supply base hard.
Third-quarter results were hurt by two factors that Ford warned investors of last month: supply constraints that forced it to park about 40,000 vehicles while waiting for parts, and about $1 billion higher-than-expected supplier payments. The company expects to deliver these vehicles in the fourth quarter.
The company ended the quarter with $32 billion in cash and $49 billion in cash. In a bright spot for the quarter, Ford raised its full-year adjusted free cash flow target to between $9.5 billion and $10 billion from $5.5 billion to $6.5 billion, after ending the third quarter with adjusted free cash flow of $3.6 billion.
In North America, the automaker posted operating profit of $1.3 billion and an operating profit margin of 5%. Both are down from a year ago, which Ford attributed to rising commodity costs, inflationary pressure and an unfavorable mix due to it having thousands of trucks and high-margin SUVs parked waiting for parts. It posted profits in every international market it reports except China, where it posted a loss of $193 million.
Ford will pay a regular dividend of 15 cents per share in the fourth quarter. The company’s board has also authorized share buybacks of up to 35 million shares. In after-hours trading, Ford shares fell less than 0.1%.
“I think investors are going to welcome the quarter and now the drumbeat into the fourth quarter and into 2023,” said Dan Ives, analyst at investment firm Wedbush Securities Inc. “And I think for Farley, that’s is a notch on the belt in terms of this quarter.”
Experts say the decision to shut down Argo is a sign of the struggles to succeed in self-driving – and a setback for the self-driving vehicle industry.
However, analysts said Ford and Volkswagen AG (another major backer of Argo) could benefit. Enterprises have invested an additional $2.6 billion since Argo’s launch, and they could leverage its core technology for more use cases that match their priorities.
“It’s a cautionary tale about complexity and competition in the autonomous space,” said Wedbush’s Ives. “It was a great idea when it launched in 2017, but it ran into a lot of execution issues, encountered significant hurdles, and was overshadowed by Cruise, Waymo, and others who have become giants of this space. .”
Volkswagen has also confirmed that it is no longer investing in Argo, although other partnerships with Ford remain unchanged.
Argo is not alone in its challenges. Shares of competitor Aurora Innovation Inc. are down 75% year-to-date, and last month CEO Chris Urmson considered a sale to Apple Inc. and Microsoft Corp., spin-outs and dismissals in a leaked memo to the company. plank. GM bought Softbank Vision Fund’s $2.1 billion stake in Cruise in March. Waymo LLC, Google’s parent company, Alphabet Inc., has arranged external funding rounds.
Argo was expected to make an initial public offering this year, said Sam Abuelsamid, senior e-mobility analyst at market research firm Guidehouse Inc.
“When the markets crashed this year, that became impossible,” he said. “They knew they were going to have to raise more capital. Ford and Volkswagen, as two main shareholders, discussed what was going to be needed in the future, the challenges they face and the investments they need to make in electrification and the current issues in the supply chain. supply. They decided that investing more money in Argo at this point was not a wise move, as there would be no return on that investment for many, many years.
“The whole deployment of this technology is clearly much slower, much longer, much more difficult,” Abuelsamid said. “There will be a few companies that will hold out.”
Argo, however, seemed to be making progress. It has tested self-driving Ford Fusions and Escape hybrids on public roads in several US cities, including Detroit, and ID Buzz vehicles in Germany. It had also launched pilot programs with companies like ride-sharing app Lyft Inc. and Walmart Inc. Last month, it announced several software products around AV technology to support commercial delivery and robotaxi operations. .
Ford executives said Wednesday they plan to hire an as yet undetermined number of about 2,000 Argo employees who will work on the automaker’s Level 2+ and Level 3 hands-free driving technologies.
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