Updated: Jun 2
"Ford has committed $29 Billion to Electric Vehicles (EV) and Self-Driving, forged a strategic partnership with Google to improve infotainment experience and continued aggressive cost-cutting, so should you buy the stock of this iconic brand? "
By: Allan R. Kirby
Summary of Ford Motor Company (F)
Market Cap: $46.6 Billion
*Ford suspended its dividend in March 2020 amid uncertainty about the COVID-19 pandemic.
Looking to buy Ford Motors (F)?
Ford is a manufacture, distributor, and seller of automobiles who has been struggling to adjust to the changes in consumer demand and has fallen behind competitors such as Tesla; who has overtaken the EV markets with incredible success. Ford was simply not prepared for the new realities of automotive demand, which has resulted in significant stock underperformance and a failure to impress Wall Street year after year. However, after several CEO changes, it appears the markets are warming up to Ford's most recent CEO James Farley and the direction he is taking the company.
CEO Farley has been aggressively streamlining operations and refocusing on key growth areas like autonomous and electric technologies as well as commercial vehicles. So far he has wasted no time, For example, he recently announced a decision to cease its manufacturing operations in Brazil after operating there for more than a century. Ford will shut down two plants immediately, while a third one will close by the end of 2021. Ford will continue to serve the Brazilian market but with cars sourced from other countries. This was a bold move that is tough for the workers but good for the company to finally make the right moves to cut costs and streamline operations. Farley also signed a strategic partnership that will dramatically improve the users' infotainment experience and move to the google cloud, more on that later.
"Ford is looking more attractive for younger investors focusing on ESG when making their investment decisions."
Latest Earnings Results
The following provides highlights of the last earning release:
Unadjusted EPS: A loss of 70 cents a share.
Adjusted EPS: 34 cents versus an expected loss of 7 cents
Revenue: $33.2 billion versus $33.89 billion expected.
New Investments: Announced $29 billion in EV funding, specifically, Ford will spend $22 billion on EVs and $7 billion on autonomy.
Outlook for this fiscal year: Ford expects to earn $8 billion to $9 billion in adjusted pre-tax profits for 2021. They also expect to generate $3.5 billion to $4.5 billion in adjusted free cash flow.
Global shortage in semiconductor chips could lower Ford’s earnings by $1 billion to $2.5 billion this year.
The Ford and Google agreement
The agreement with Google is a step in the right direction because Fords' dashboard infotainment experience was not as robust when comparing to the likes of Tesla. As mentioned by Farley on CNBC, “We were spending hundreds and hundreds and hundreds of millions every year, keeping up with basically a generic experience that was not competitive to your cellphone.” The deal will provide users a unique digital experience built on top of the Android operating system, with Google apps and services built-in, which will include google maps and voice technology. I think Ford hits the mark with this because the agreement will help enable third-party developers to build apps that provide a more-personalized ownership experience while driving. Trying to do this inhouse was just never going to work. But that is not all, Ford will use the Google Cloud as its preferred cloud provider to leverage Google’s world-class expertise in data, artificial intelligence (AI), and machine learning. This is a six-year partnership that will begin in 2023 and covers both Ford and Lincoln.
“One of the most important parts of our strategy is to partner,” Farley told CNBC. “That means that we have to get out of the business of doing generic things that we do not add value, like navigation systems and a lot of the in-car entertainment experience.” Source
The Mustang Mach-E is Ford’s first electric vehicle designed and built to be a true EV. It has gotten great reviews from EV enthusiasts and vehicle reviewers alike. In fact, it appears Ford can show that their Mach-E can compete with the likes of Tesla, specifically the Model Y. This is a sharp-looking first all-electric crossover vehicle produced by Ford. The Mach-E will start at $43,995, with the Premium trim package available at an added cost. Admittingly this is just a start and Ford has a long way to go, but it's a good start, but it's clear CEO Jim Farley is aware of this. During this past earnings release Farley states that "We are accelerating all our plans – breaking constraints, increasing battery capacity, improving costs and getting more electric vehicles into our product cycle plan," this is key, more EV vehicle production is needed and Ford understands this.
“We’re not going to cede the future to anyone” when it comes to electric vehicles, Ford CEO Jim Farley told CNBC.
ESG note: Until recently I have never considered investing in North American automakers such as Ford and GM. These are legacy manufacturers that build, distribute and sell gasoline-powered vehicles. But the theme has changed significantly; with Ford looking to invest $29 Billion in EV while GM is planning to invest $27 billion between 2020 and 2025, in EV and AV products. This to me changes the narrative on legacy carmakers. Ford is behind but I believe they will be able to catch up. Additionally, an Environmental friendly Biden government is in office and looking to electrifying the federal vehicle fleet which is another tailwind that could benefit Ford.
There is a lot to like with Ford and it appears they are on the right path to success. By focusing on EV and autonomous driving, improving the customers' experience with infotainment, and a drive to become a highly profitable ESG company, this could be a good investment. Recently Ford was upgraded to buy at Argus with a $14 price target. The upgrade appears to show that some Wall Street analysts are also changing their minds on the company as well.
Read More: 3 Top Electric Vehicle (EV) ETFs to buy!
The reality is this is still a company in transition and vehicle demand may continue to slow as more people work from home and commute less. However, Ford is trying to create a clear path to adjust to changing consumer demand as well as looking to build long-term value for investors. This could be a stock to add to your portfolio, so do your research and see if Ford is a stock to invest in.
Disclosure: mysmallbank.com nor the author received any compensation from the mentioned security for this article. The article is our opinion only and is written to help readers learn more about the stock mentioned in this article. Consider this as basic information only and utilize professional services and additional sources before making an investment decision.