Ford Motor Company’s (NYSE: F) stock has been unimpressive for long-term investors. If you had invested $100 in the automaker a decade ago, today you’d be staring at a total return of a mere $128 (dividends included). In sharp contrast, the S&P 500 Index would have multiplied your investment to $339. And don’t even mention the rocketing success of Tesla, which has minted millionaires while Ford’s stock seemed stranded in neutral.
Will Ford’s bold electric ambitions kickstart a revival, or is it time for investors to weigh their anchor? Let’s delve deep to forecast what lies ahead for this iconic company.
The Former Bull Thesis
Some years back, Ford’s bullish thesis was crystal clear. The traditional automaker would swiftly ditch its sluggish gas-powered business to pivot decisively to electric vehicles (EVs), leveraging its iconic brands like the Mustang and F-150 to swiftly grab market share.
Investors bet that EVs would inherently yield superior profit margins compared to internal combustion engine vehicles, and rightfully so. Since 2020, Tesla’s operational margins have eclipsed Ford’s, giving it a loftier valuation. Tesla’s shares still command a forward price-to-earnings (P/E) multiple of 70, in contrast to Ford’s 6.2.
The scenario painted was that Ford’s bold leap into new technology could unlock significant value, particularly when coupled with its robust supply chain and widespread dealership network.
The Dimming Electric Dream
With sales of 72,608 all-electric vehicles in 2023, Ford stands as one of America’s major EV manufacturers. Yet, the foundational assumptions that rationalized the company’s ambitious transformation are beginning to unravel.
To compound Ford’s woes, its Model E division (focused on consumer EVs) witnessed an 84% revenue drop to $100 million following a 20% plunge in sales volume, indicative of a drastic pricing decline.
Image source: Getty Images.
Per CNN, Model E bled $132,000 for each of the approximately 10,000 cars sold in that period, with management anticipating a $5 billion loss for the segment in full-year 2024.
The silver lining emerges as Ford’s business-focused EV models (like the E-Transit vans) are offsetting the Model E’s woes. In the upcoming years, this segment is poised to become a pivotal component of Ford’s EV portfolio as corporate optics and political rewards drive companies and governmental bodies to eco-friendly their supply chains. Notably, the U.S. Postal Service has ordered 9,250 E-Transit vans from Ford to be delivered this year.
The Next Five Years for Ford
Alas, electric vehicles may not be the panacea to catapult Ford’s stock to greater heights. Rather than amplifying margins, the new venture appears more inclined to exert additional strain on the company’s financials, leaving less in the coffers for investors. And this trajectory seems unlikely to veer off course over the ensuing half-decade.
Ford attempts to compensate for its languid stock performance with a dividend currently yielding 4.85%. However, investors seeking income-centric investments may find safer havens in government bonds, with the five-year Treasury bond yielding 4.4% and bearing lesser risk.
Is Investing $1,000 in Ford Motor Company Right Now a Wise Move?
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Will Ebiefung holds no position in any mentioned stocks. The Motley Fool backs and suggests Tesla. The Motley Fool upholds a disclosure policy.
