ii view: Ford scraps dividend after skidding into the red

Overtaken by Tesla and battling climate change, Ford now expects losses due to Covid-19.

Preliminary first-quarter results

• Expects loss of $600 million, down from a profit of $2.4 billion 
• Holding cash of $30 billion
• Previously suspended dividend payment

Chief finance officer Tim Stone said:

“We continue to opportunistically assess all funding options to further strengthen our balance sheet and increase liquidity to optimize our financial flexibility. We also are identifying additional operating actions to enhance our cash position.”

ii round-up:

Giant American vehicle manufacturer Ford (NYSE:F) on Monday announced that it expects to post a quarterly loss of $600 million as a result of Covid-19 and plant shutdowns. 

Sales to dealerships fell by 21% year-over-year with the first-quarter loss contrasting to a profit of $2.4 billion this time last year. 

Ford shares dropped by around 5% in early US trading.

In March, Ford withdrew full-year 2020 financial guidance, suspended its dividend payment and withdrew banking facility funds. 

As of the 9 April it had cash of $30 billion sat on its balance sheet. 

Management noted that “we believe we have sufficient cash today to get us through at least the end of the third quarter with no incremental vehicle production and wholesales or financing actions.”

Ford shares are down over 40% year-to-date, similar to rivals General Motors (NYSE:GM) and Fiat Chrysler (MTA:FCA) but in sharp contrast to a more than 50% gain for electric car maker Tesla (NASDAQ:TSLA). Telsa’s stock market value of $120 billion now compares to Ford’s $20.6 billion.

Ford closed factories across North America and Europe in March. It is now working on plans in conjunction with unions, dealerships and suppliers to possibly begin a phased opening of plants in the second quarter. 

Only its joint venture plants in China, where Covid-19 appears to be receding, are still producing

ii view:

For the automobile industry, environmental and climate change concerns have rapidly moved front and centre in strategic thinking and new model planning. Government plans to reduce fossil fuel emissions have being growing globally. For Ford, this has led to a major restructuring of its operations away from diesel models and towards electric and hybrid production.

Clearly, Covid-19 is another hurdle Ford and its more traditional manufacturing rivals such as Volkswagen (XETRA:VOW) can do without. Ford shares are down just over 60% during the last 10 years. 

For investors, changes in the business model are long overdue. Tightening government legislation and the success of Tesla are now impossible to ignore. But the suspension of the dividend payment as it looks to conserve cash is a major blow – removing a yield of over 6% and a key attraction for those investors patient enough to wait for it to overhaul its model line-up. 

Positives

• Action to restructure the business is being taken
• Launching new models in China over the next three years – many will be electric

Negatives

• Air quality concerns and taxation changes have led to falls in diesel sales across the industry
• The dividend payment is now suspended

The average rating of stock market analysts:

Hold