Detroit 3 earnings show a mix of strength and uncertainty in the economy

The Detroit 3's continued recovery from global supply chain shortages led to improved first-quarter financial results, but that recovery could be threatened amid an uncertain economic outlook.

A week after General Motors raised guidance after posting net income of $2.4 billion on 11 percent more revenue, Ford Motor Co. reported $1.8 billion in net income and a 20 percent revenue increase, while Stellantis announced a 14 percent revenue increase. All three companies cited stronger sales backed by a healthier mix and improved pricing.

Still, investors voiced concern after Ford declined to raise its full-year guidance. CFO John Lawler called the macroeconomic environment in the second half of the year "opaque at best" with challenges that include rising incentives, smaller-than-expected relief in commodity prices and a potential financial hit from new UAW contracts and signing bonuses.

"We see more downside from pricing and higher UAW labor costs," Wells Fargo analyst Colin Langan wrote in an investor note titled, "Is it all downhill from here?"

Langan said he expects Ford's full-year earnings to fall short of its guidance and of its 2022 results.

GM and Stellantis made similar comments about the potential for a tougher pricing environment as the year goes on, even if the situation now is helping to pad the bottom line.

"Demand is holding up well notwithstanding lots of macro volatility," Stellantis CFO Richard Palmer said on a media call.

Overall, the Detroit 3 appear to finally be overcoming supply chain challenges, including a lack of semiconductors.

Ford last week cited a 9 percent increase in vehicle shipments as a key driver of its increased income, revenue and profit margins.

"This quarter was much smoother," Lawler said, comparing the results with the fourth quarter of 2022, when the company blamed execution failures for leaving $2 billion in profits on the table. Lawler said then that half of the unrealized profits that quarter stemmed from missed volume targets because of parts shortages.

Meanwhile at Stellantis, consolidated shipments rose 7 percent in the quarter to 1.48 million vehicles, helping drive the 14 percent increase in revenue. Its North America shipments rose 6 percent in the first quarter as all Dodge and Chrysler models achieved increases from the year-earlier period, and Jeep Compass shipments more than doubled. That led to $25 billion net revenue in North America.

"A better fulfillment of semiconductor orders is slowly but surely improving our capacity to produce vehicles," Palmer said.

Stellantis said its inventory had risen to 1.3 million new vehicles at the end of March, reflecting a return to more normal levels.

The recovery continued in April. Although Stellantis and GM only report sales quarterly, Ford said U.S. deliveries rose 3.8 percent, its fifth consecutive monthly increase.

Most of Ford's success in the quarter was attributable to the strength of its traditional internal combustion business, known as Ford Blue.

Overall, Ford's adjusted earnings before interest and taxes rose 45 percent to $3.4 billion. A majority of that — $2.6 billion — came from Ford Blue.

The company stands to continue benefiting from its combustion business this year as it prepares to launch a redesigned line of Super Duty pickups as well as a next-generation Mustang.

Ford made $1.36 billion on its commercial business, Ford Pro, and lost $722 million on its electric vehicle business, which it calls Model e.

Ford expects losses from EVs to increase nearly 50 percent to $3 billion this year, while Ford Blue makes about $7 billion and Ford Pro produces about $6 billion in earnings.

Ford said it still expects to nearly break even on EVs by the end of this year, en route to 8 percent margins by late 2026.

While Ford's stock fell slightly the day after earnings on concerns over the rest of the year, some analysts said CEO Jim Farley and his team are setting up the company for future success.

"Ford is aggressively repositioning its business model by leveraging the combined strength of its Ford Blue and Ford Pro businesses to fund its faster-growing Model e business along with vital connected technology," John Murphy, an analyst with Bank of America Merrill Lynch, said in an investor note. "We believe the company has a long way to go, but combined with a strong near-term product cadence (especially Super Duty) we expect management will make great strides."

Executives from Stellantis and Ford last week said they would be more disciplined on pricing as the year continues.

"For North America, I think [it's] very important that we maintain our price positions," Palmer said. "Our products and our brands in our view are extremely competitive and warrant the price positions that we have earned over the last two years or so, and actually longer."

Palmer added that sales in the region are trending up month over month.

"The big challenge clearly is to continue to reduce our cost positions from the high levels they finished up at the end of last year," he said. "We're making progress on our product cost and our transformation cost. The production environment is more stable, and that's helping us to be more efficient."

Ford's facing a slightly different pricing issue.

The automaker last week cut the price of its Mustang Mach-E crossover for the second time in four months even as Farley warns of an EV price war and the dangers one would present.

"You do not want to commoditize your product," Farley said last week during a presentation at a Wall Street Journal conference. "The more you cut the prices, the resale value for the people who bought at the higher prices are awful. And those people never forget it."

Ford's reductions come as rival Tesla Inc. frequently adjusts prices on its products. After multiple cuts this year, it raised prices slightly last week. Ford, so far, is the only company to follow Tesla in slashing prices as it attempts to cut into the company's large EV sales lead.

"We'll follow because they're such a dominant player, and we get cross-shopped with Model Y a lot," Farley said. "But there's a limit in how far we'll go."