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Earnings Results: Ford reins in hopes for self-driving cars as Argo AI shuts down

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After betting big on self-driving cars — including $1 billion on soon-to-be shuttered startup Argo AI — Ford Motor Co. is softening its expectations on vehicles that don’t require drivers.

Ford
F,
-0.08%

executives on Wednesday said they were winding down their investment in Argo, which confirmed an earlier report of its plans to shut down, saying there were too many challenges to running a profitable network of fully self-driving vehicles anytime soon. That resulted in a $2.7 billion impairment on the startup, disclosed when Ford reported third-quarter results earlier in the day.

“We still believe in Level 4 autonomy, that it will have a big impact on our business of moving people,” Ford CEO Jim Farley said on the company’s earnings call, referring to cars that are autonomous enough not to need handling from a driver. “We’ve learned, though, in our partnership with Argo, and after our own internal investments, that we will have a very long road.”

“It’s estimated that more than $100 billion has been invested in the promise of Level 4 autonomy,” he continued. “And yet no one has defined a profitable business model at scale.”

Executives described hurdles with building out technology and auto fleets, as well as the vast infrastructure of non-technological services, to turn a profit on self-driving cars. And they said the talents of the staff they have today would be better spent on less-sophisticated driver-assistance systems.

Argo AI told MarketWatch that some of its 2,000 employees would be able to continue working on the vehicle technology with Ford and Volkswagen AG. Volkswagen
VOW,
-0.73%

was Argo’s other big backer.

“In the third quarter, Ford made a strategic decision to shift its capital spending from the L4 advanced driver-assistance systems being developed by Argo AI to internally developed L2+/L3 technology,” executives said in Ford’s earnings release. “Earlier, Argo AI had been unable to attract new investors.”

The remarks came as the auto industry deals with more immediate concerns about both production and demand, as ongoing supply-chain contortions lead to parts shortages and higher prices. Some signs have emerged that those supply-chain hitches have eased. But higher prices risk spooking potential car buyers.

During the call on Wednesday, executives said they’d seen a slight downtick in commodity prices. But Farley painted a mixed portrait of pricing and demand trends.

Demand for commercial vehicles and electric vehicles was “through the roof,” he said. But he noted a “slight uptick” from the prior quarter on 84-month customer financing, as customers stretch out car payments. And he said some of Ford’s rivals had boosted spending on incentives.

Meanwhile, Ford’s third-quarter results beat analysts’ estimates, though the auto maker forecast full-year adjusted profit at the low end of its expectations.

Ford reported a net loss of $800 million for the third quarter, or 21 cents a share, contrasting with a $1.8 billion profit, or 45 cents a share, in the prior-year period. The auto maker’s sales were $39.4 billion, compared with $35.7 billion in the quarter last year.

Adjusted for gains and losses on pensions, investments and costs related to things like staff and dealerships, Ford earned 30 cents a share, compared with 51 cents a year ago.

Analysts polled by FactSet expected adjusted earnings of 27 cents a share, on sales of $37.46 billion.

Executives said they expected full-year earnings before interest and taxes to be about $11.5 billion. In September, the company said it expected that figure to land within a range of $11.5 billion to $12.5 billion.

Ford also raised its full-year outlook for adjusted free-cash flow to $9.5 billion to $10 billion. It ended the third quarter with operating cash flow of $3.8 billion, and adjusted free-cash flow of $3.6 billion.

Shares fell 1% after hours.

Ford in September warned that tighter supplies of auto parts would leave it with 40,000 to 45,000 unfinished vehicles sitting in its inventories at the end of the third quarter, with “inflation-related supplier costs” running about $1 billion higher than expected. But the company, at that time, stuck with its full-year adjusted-profit outlook.

Ford, as with other auto makers, is putting more effort behind developing electric cars and trucks, including an electric version of its popular F-150. But it is laying off thousands as part of a split into two businesses — one devoted to electric vehicles, called Ford Model e, and one devoted internal combustion engines, called Ford Blue.

A day earlier, rival General Motors Co.noted signs of its supply chains loosening up.

On Tuesday, executives at General Motors
GM,
+2.30%

noted easing in its supply chain and production improvements despite a difficult economic backdrop. GM stuck with its full-year outlook, cited strong demand, and said the company had landed some supply agreements and was working with chip makers to loosen up the flow of car parts and components.

Shares of GM fell 0.2% on Wednesday.

The auto market has been roiled by a semiconductor shortage that gummed up production and drove up the price of new cars, and then used ones, as new vehicles got too expensive for buyers. Used car prices have trended lower since. UBS analysts have said that an auto undersupply could balloon into an oversupply, as higher prices threaten to suppress consumer shopping and raise concerns of a recession.

Edmunds last month said it expected new-vehicle sales in the U.S. to fall 0.9% in the third quarter when compared with the period in 2021. The auto-data provider said auto inventories have expanded, as chip supply chains open up.

Ford stock is down 38% so far this year. By comparison, the S&P 500 index
SPX,
-0.74%

is down 20% over that time.

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