Ford’s Bold Moves Stir Controversy

When Henry Ford’s first Model T rolled off the line in 1908, it ushered in a new era for humanity.

Over a century later, Ford Motor Company (F) withstood two world wars, The Great Depression, multiple recessions, and pandemics.

Hopping on the EV trend, Ford plans to go all-electric and be carbon-neutral by 2035.

To that end, the company realigned its global business to meet its ambitious goals.

Yet, its EV segment hasn’t turned a profit, leaving many to wonder when it will.

More importantly, can its supply chain produce enough batteries to power its next generation of cars?

Financial pros hadn’t spent much time searching for Ford’s ticker until it reported earnings a few weeks ago.

Interest shot up in percentage terms more in a single day than when Tesla reported results.

So, if they’re interested in what’s going on, we’re interested in what’s going on.

Ford’s Business

Ford’s new automotive alignment focuses on its three key segments:

• Ford Blue: Iconic gas and hybrid passion products like F-150, Bronco, and Mustang (IE hybrids and gas cars).
• Ford Model e: Designing and scaling breakthrough, connected EVs, and all of Ford’s electric architecture and embedded software (EV only cars).
• Ford Pro: Integrated vehicle hardware, software, service, charging, and financing solutions that increase commercial customer productivity (Commercial products and services).

  When Henry Ford’s first Model T rolled off the line in 1908, it ushered in a new era for humanity.

  Over a century later, Ford Motor Company (F) withstood two world wars, The Great Depression, multiple recessions, and pandemics.

  Hopping on the EV trend, Ford plans to go all-electric and be carbon-neutral by 2035.

  To that end, the company realigned its global business to meet its ambitious goals.

  Yet, its EV segment hasn’t turned a profit, leaving many to wonder when it will.

  More importantly, can its supply chain produce enough batteries to power its next generation of cars?

  Financial pros hadn’t spent much time searching for Ford’s ticker until it reported earnings a few weeks ago.

  Interest shot up in percentage terms more in a single day than when Tesla reported results.

  So, if they’re interested in what’s going on, we’re interested in what’s going on.

  Ford’s Business

  Ford’s new automotive alignment focuses on its three key segments:

• Ford Blue: Iconic gas and hybrid passion products like F-150, Bronco, and Mustang (IE hybrids and gas cars).
• Ford Model e: Designing and scaling breakthrough, connected EVs, and all of Ford’s electric architecture and embedded software (EV only cars).
• Ford Pro: Integrated vehicle hardware, software, service, charging, and financing solutions that increase commercial customer productivity (Commercial products and services).

Source: For Investor Relations Q1 2023

Its other two segments include Ford Next, the former mobility segment focused on AI and autonomous driving, and Ford Credit which is its loan and financing arm.

In the latest quarterly report, Ford forecasted sales roughly flat YoY and 1/3rd less free cash flow as it spends heavily on its transformation.

In July 2022, the company announced it procured 70% of its battery supply to meet its 600,000 annual EV run rate by the end of 2023 and 2,000,000 run rate by 2026.

Beyond that, it’s still a crapshoot.

Financials

Source: Stock Analysis

Ford expects margins to compress for the next year or so as it migrates from primarily gas vehicles to electric.

Ramp-up costs are keeping a lid on EV margins, leading to overstated loss estimates per EV as high as $20,000.

The question is, when will Ford manage to turn a profit? It took a lot for Tesla, and Ford hasn’t been at the forefront of manufacturing innovation for quite some time.

Valuation

Source: Seeking Alpha

Consequently, Ford’s P/E trailing results and forward estimates aren’t great.
General Motors (GM) is much cheaper, though is expected to take longer to roll out its EV line.

Tesla (TSLA), the high-growth leader, is struggling with many of the same inflationary pressures and demand constraints the others face.

Growth

Source: Seeking Alpha

Neither Ford nor GM is expected to grow much next year. Yet, if Ferrari (RACE) is any indication of high-end demand, no one should have too much of a problem with their pricier units.

Profitability

Source: Seeking Alpha

Currently, Ford’s profitability is one of the worst. Yet, it’s never really enjoyed fantastic gross margins anywhere close to Tesla, and it’s been years since Ford came close to GM.

Overall, the profitability isn’t great.

Our Opinion 6/10

Ford is a bet on the future, not the now.

Its transformation will take years. A lot can go wrong between now and then.

We don’t expect any meaningful movement in the stock through the end of the year.

The stock does get cheap, around $10, so if you’re looking to take a position, that’s a decent spot.

Otherwise, we’d wait for more clarity.

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