Dive Brief:

• Chip shortages, rising costs and stubborn supply chain challenges contributed to lukewarm quarterly results for automakers — many of which reported record profits during the pandemic — as material and production issues persist.
• Lingering semi-conductor shortages saw Japanese automaker Toyota on Tuesday reduce its vehicle production forecast down to 9.2 million from 9.7 million for the full fiscal year through March.
• Meanwhile, Volkswagen Group executives also warned that supply chain issues are likely to become a permanent challenge during the automakers earnings call Oct. 28, with CEO Oliver Blume warning such challenges will become “the rule, not the exception.”

Dive Insight:

Like Toyota, Volkswagen reduced its delivery expectations and is now anticipating it will deliver roughly the same number of cars as it produced in 2021, as it faces shortages of key materials such as chips and semi-conductors as well as other logistical challenges. 

Volkswagen CFO Arno Antlitz said the European automaker’s benefited from an improved supply of semi-conductors for the quarter ending Sept. 30 even as it is being impacted by “higher impact from material costs, including energy costs.”

“Disruptions in supply chains prevail, but are carefully managed,” Antlitz said.

Similar supply chain and cost challenges impacted American automaker Ford, which ended its fiscal third quarter with a 40,000-strong inventory of vehicles on wheels. Ford reported a third quarter net loss of $827 million even as revenue jumped 10% year-over-year to $39.4 billion. 

However, the company adjusted its full-year guidance downward to $11.5 billion, on the lower end of its previous $11.5 billion to $12.5 prior guidance. This would still be a 15% increase from the prior year, Ford CFO John Lawler said on the company’s earnings call.

Lawler pointed to the strong dollar and its impact on foreign currencies as well as issues with the supply chain mix as factors behind the adjusted guidance, noting the automaker had conducted a “deep dive” into reviews of its supply base and “what we’re finding is that there’s a number of non-chip suppliers that are struggling to ramp production as the chip crisis eases. And it’s not easing tremendously, it’s easing slightly,” he said.

Both supply chain challenges and the strong dollar contributed to a 25% drop in profit for Toyota, which reported $3.7 billion USD in profits for the quarter ended Sept. 30.

Toyota executives pointed to a rapidly changing business environment — including shifting foreign exchange rates, material prices and increasing interest rates — among other factors that impacted their quarterly results.

Argo AI project shuttered 

Separately there was some tough news for with the fully-autonomous driving startup Argo AI. Ford and Volkswagen, two of the main investors for the project, announced its closure. 

The startup will be absorbed into both backers with employees set to receive severance packages, according to an Oct. 26 report by TechCrunch.

Ford made the “strategic decision to shift our capital spending” away from the fully-autonomous startup in order to focus on its L2 and L3 technologies — advanced driver-assisted systems which are not fully autonomous —Lawler said during the company’s earnings call. 

Achieving profitability with Argo requires both the technology advancements and the capital invested, Lawler said, but it would also require scaling across the country.

“We saw that five years plus the horizon being that far out before you could actually get to something that started to generate a meaningful business,” Lawler said. “And we see a much greater opportunity to impact more customers immediately with the L2, L3 technology and impact our business in a positive way in the more near-term time frame.”

The company reported that it took a $2.7 billion pre-tax impairment on the investment during the third quarter.