What happened

Ford Motor Company (F -0.18%) stock plunged 14.5% this week at its lowest point in trading, according to data provided by S&P Global Market Intelligence. Even in a choppy market, shares of the legacy auto maker were holding up surprisingly well this week until Thursday when they crash landed.

There are multiple factors behind Ford stock’s steep fall these days, four of which stand out: macroeconomic concerns, a large recall, a hot-selling electric vehicle (EV) hitting a roadblock, and a sharp dip in sales in Ford’s second-largest market.

So what

With the Federal Reserve hiking interest rates by a whopping 0.75 percentage points this week after inflation in May topped 40-year highs, may believe a recession is imminent and that’s putting auto stocks out of favor with investors. A high inflation and interest rate environment doesn’t bode well for auto stocks as debt becomes costlier and sales slow down as auto loans become pricier. To make matters worse, gasoline prices in the U.S. have skyrocketed. Chances are, more consumers will think twice before buying a conventional car now.

While that pretty much sums up Ford’s challenges in the U.S., Europe isn’t faring any better. Data released on June 16 by the European Automobile Manufacturers’ Association reveals an 11.2% drop in overall registrations of passenger cars in the region in May. Car registrations have now declined for 10 straight months in Europe.

Ford's all-electric F-150 Lightning pickup trucks.

Image source: Ford.

Europe is Ford’s second most important market. Ford’s wholesales, which primarily consist of vehicles sold to dealers, declined 13% in Europe in 2021, primarily because of production hiccups amid a shortage in semiconductor chips. The overall car market data from May now suggests Europe could continue to weigh on Ford’s sales and operating income.

The biggest setback for Ford, though, could be its EV segment. Make no mistake: Ford’s EV sales are exploding and they shot up 222% in May. The problem is raw material costs have crept up even faster, so much so that at a conference this week, Ford’s CFO John Lawler said high commodity costs have “wiped out” profits of the Mustang Mach-E.

The Mach-E is also the same EV that Ford ordered its dealers to stop selling this week on overheating concerns, according to CNBC. Ford is recalling nearly 49,000 Mach-Es, and there’s no update yet about when the company will resume sales of the crossover.

This is a major blow as the Mach-E is also Ford’s hottest EV on sale right now, with its sales zooming 166% year over year in May.

Ford’s woes, unfortunately, don’t end there. As if mounting costs and a Mach-E sales break weren’t enough, Ford is also recalling another 2.9 million vehicles for a gear problem. Vehicles involved are the Escape, the C-Max, the Fusion, and the Transit Connect.

Now what

That’s a lot of negative news to digest within a week.

Yet, Ford being Ford, you can trust management to handle the recalls prudently. That’ll still come at a cost, though, and any added pressure on costs when prices of raw material are already on the rise isn’t welcome news.

But Ford has a solid order book that includes more than 200,000 reservations for much-awaited F-150 Lightning pickup trucks, the all-electric version of the F-150 pickup that’s been America’s best-selling truck for more than four decades now. Ford only started selling the F-150 Lightning in May, and if the U.S. can duck a recession, just this pickup could set the already-cheap Ford stock up for a fresh bull run.

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