Ford Motor Company (F) stock took a significant hit in 2024, dropping 18% compared to General Motors' (GM) 48% gain. The question on investors' minds is: What sent Ford spiraling while its rival thrived? The answer lies in a combination of factors that have plagued the automaker for some time.



Quality Issues and Recall Costs

Ford has led the U.S. industry in recalls for three consecutive years, which has significantly impacted its earnings. In the second quarter of 2024, the company's warranty expense was roughly $2 billion, or about 4% of sales, which was a fairly high percentage for automakers. This increase in warranty costs was driven by higher recall costs, which were $800 million higher than the first quarter of 2024. Ford's warranty expense during the second quarter was roughly $2 billion, or about 4% of sales -- a fairly high percentage for automakers. These quality issues and the resulting recall costs have weighed down Ford's earnings and contributed to its stock price decline.

Electric Vehicle Development Costs

Ford's investment in electric vehicle (EV) development has also taken a toll on its financial performance. The company's model-e division, which focuses on electric vehicles, posted a nearly $3.7 billion loss in earnings before interest and taxes (EBIT) during the first nine months of the year. This loss was just a few dollars behind the $3.703 billion in total EBIT that its traditional business, Ford Blue, generated over the same time frame. The substantial investment in EV development, coupled with the losses incurred, highlights the significant financial impact of Ford's electric vehicle development costs on its overall financial performance in 2024.



China Market Challenges

Ford has struggled in the Chinese market, with domestic brands years ahead in EV technology and pricing, and EVs accounting for 51% of total new vehicle sales. The company has implemented an "asset-light" strategy in China, producing vehicles in China for export to other markets, and has earned roughly $600 million last year despite challenging market conditions. However, the intense competition and price war in the Chinese EV market have made it difficult for Ford to maintain a strong presence in the country. The company may be considering a complete exit from the Chinese market to focus its resources on more profitable markets.



Conclusion

Ford's 18% stock plunge in 2024 can be attributed to a combination of factors, including quality issues and recall costs, electric vehicle development costs, and challenges in the Chinese market. The company has been working to address these issues, but investors should remain cautious and monitor Ford's progress closely. As the world transitions to a future that's EV-centric with driverless cars, Ford faces significant challenges in maintaining its competitiveness and profitability.