Stocks, and stock valuations, of traditional auto makers are languishing. Investors just aren’t sure they can make it an all, or mostly, electric world.
Ford Motor
will try to convince investors otherwise on Monday.
The auto maker, which celebrates its 120th birthday in June, hosts its 2023 “Capital Markets Day” in Dearborn, Mich.
Ford
(ticker: F) is calling the event “Delivering Ford+.”
Ford+
The plus strategy encompasses a lot of things. Essentially, it’s about preparing the company for the future—and making sure it will be around for the coming 120 years.
CEO Jim Farley really started the next phase of Ford’s future in early 2022 when he reorganized the company into new business units: one dedicated to traditional cars, called Ford Blue, another to commercial business, called Ford Pro and one dedicated to EVs, called Model e.
One consequence of the reorganization is investors see financial results for each division. The change isn’t all about numbers, though. “We have a much smaller Model e team,” says Lisa Drake, Ford’s vice president of industrialization for its Model e division.
Smaller size enables the Model e team go faster and break rules in the car business “which really aren’t rules,” adds Drake. “I call them urban myths inside of Ford, things that we’ve convinced ourselves [of].” That can include the way cars are designed or how fast it takes to bring a new model to market.
Ford+ is also about digitizing the car, adding software on both EVs and traditional vehicles. The best example might be Ford’s Blue Cruise hands free driver assistance software, but software controls a lot in modern cars including suspension and braking, among other things.
The car “is the next big device to be digitized, says Farley, adding that putting software in vehicles is as big a change and profit opportunity for the industry as EVs.
Profit
Just now much money is an important question for investors. Ford’s traditional and Pro business generated 10%-plus in operating profit margins in the first quarter, earning a combined $4 billion in operating profit. Ford Model e lost $700 million in Q1 and is expected to lose $3 billion in 2023.
Ford, obviously, needs to improve Model e operating profit and has plans to do so. The company is targeting 8% Model e operating profit margins in 2026. Some of that comes from scale—makings more cars out of the same number of plants. If all goes to plan, Ford might sell about one million EVs in 2026. Some comes from design, too.
The next generation of Ford EVs are “more massively simplified,” says Farley. “The second cycle is going to help [profitability] a lot.”
Gen 2
Ford has taken to calling its second cycle of EVs, the ones coming after the Mach-E, E-Transit van and F-150 lightning, its second generation of vehicles.
“Design simplicity helps from a material cost perspective,” says Drake, reflecting on what’s coming with Gen 2 products. “The cockpits are much more digital.” From a manufacturing perspective, Gen 2 vehicles will use less labor and be assembled more efficiently, she says.
The Stock
Any updates about new EV design or cost can move Ford stock in the coming days. The success of the Ford + strategy will determine how the stock performs in coming years.
Farley, is bullish on the future. “This is like investing in
Apple
or
Samsung
in ’06, before that transition of smartphones,” he says. Their job “is to be one of the early winners.”
Coming into Monday trading, Ford stock is flat so far this year and down about 7% over the past 12 months, leaving shares trading at less than 7 times estimated 2024 earnings. The
S&P 500
is up roughly 10% this year and up about 5% over the past 12 months. The S&P trades for a little more than 17 times estimated 2024 earnings.
Rising interest rates has hurt vehicle affordability and sapped some investor enthusiasm for the sector. Other car stocks have struggled as well. Shares of
General Motors
(GM) and
Tesla
(TSLA) are down about 9% and 20% over the past 12 months, respectively.
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