The short interest in Ford (F) stock has risen from 3.08% of its outstanding shares on July 1 to the current level of 3.14%. Usually, a rise in a stock’s short interest indicates an increase in the bearish sentiment for the stock. During the same period, Ford stock has fallen 10.4%.
The short interest in the stock has risen due to its lower-than-expected second-quarter earnings, the fear of a recession in the US, and the ongoing trade tension between the US and China.
Earnings miss impacted the short interest
Ford’s EPS at $0.28 missed analysts’ estimate of $0.31. The company’s revenues at $38.9 billion were almost flat YoY (year-over-year). The company’s revenues rose in North America and China but declined in other regions. Ford’s wholesale volumes fell 9% YoY due to lower volumes across all of the regions except for Europe. The company’s market share fell 0.5% YoY in the second quarter due to a fall in the market shares in all of the areas except MEA. The company’s weak performance could have raised the short interest in the stock.
Fiat Chrysler’s (FCAU) earnings fell short of analysts’ estimate. Tesla (TSLA) missed its second-quarter earnings. However, Ferrari (RACE) posted a strong set of second-quarter numbers. General Motors’ (GM) earnings beat analysts’ forecast.
Recession fears might have raised Ford’s short interest
In August, fears of an economic recession in the US strengthened when the bond market yield curve inverted. The ten-year Treasury note rate fell below the two-year rate, which pushed the 30-year Treasury bond rate to record lows and pointed at an upcoming recession.
A recession isn’t good news for Ford. Notably, a recession could impact the company’s sales in the region. North America is Ford’s largest market. In the second quarter, the North American markets added $24.0 billion to Ford’s automotive revenues of $35.8 billion. The region’s EBIT of $1.7 billion was the main contributor to the company’s overall EBIT.
Ford is in the process of restructuring its North American product portfolio. The company plans to replace almost 75% of its product mix in the region. Ford has shifted its focus to SUVs and trucks from traditional sedans. The plans could be impacted by a recession in the area. As a result, the short interest in Ford has risen in the quarter.
US-China trade war impacted Ford
The trade tension between the US and China intensified in August. Both of the countries announced tariffs, counter-tariffs, and duties on each other. China planned to resume a 25% tariff on US cars and a 5% tariff on auto parts and components on December 15.
The trade war isn’t good news for Ford. The trade war could impact the demand for the company’s products in China. China is an important market for Ford. In the second quarter, Ford’s China revenues rose 48% YoY due to a 7% YoY rise in Lincoln sales. Also, in the quarter, the new Territory SUV was the best-selling Ford SUV in China. The SUV had sales of 13,403 units. However, the company posted an EBIT loss of $155 million in the region.
Although Ford is making a loss in Chinese markets, it’s working aggressively to turnaround the situation. In April, Ford announced “Ford China 2.0,” which is its restructuring plan in the country. The project lays out a plan to transform Ford’s position in China by reorganizing the business and focusing on the core market segment. Ford intends to launch more than 30 new customized Ford and Lincoln vehicles in China in the next three years. However, the plans could be impacted by rising trade tension between the two countries.
Trade war impacts peers
General Motors is already impacted by China’s economic slowdown. In the second quarter, lower earnings from China dragged the international segment’s operating profits to -$48 million.
Tesla, which is building a manufacturing facility in China, could be impacted the least by the trade tension after it starts production. Tesla plans to launch the local production of Model 3 in China by the end of the year.