ii view: Ford is doing a Tesla

Investors cheer surprise profit, surging share price and massive investment in electric and self-drive vehicles.

Fourth-quarter results to 31 December

Group president Jim Farley said:

“The transformation of Ford is happening and so is our leadership of the EV revolution and development of autonomous driving. We’re now allocating a combined $29 billion in capital and tremendous talent to these two areas, and bringing customers high-volume, connected electric SUVs, commercial vans and pickup trucks.”

ii round-up:

US motoring giant Ford (NYSE:F) upped its battle with rival Tesla (NASDAQ:TSLA) and other manufacturers, announcing plans to invest $29 billion in both electric and autonomous vehicles in these latest quarterly results.

The Michigan state headquartered company plans to inject $22 billion into electric vehicles and $7 billion into autonomous, or self-drive vehicles as it plans for a rapidly changing landscape. The news came as it begins deliveries of its first mass market electric Mustang Mach-E SUV and new F-150 pick-up truck. 

Like Tesla, Ford shares have rocketed lately. They're higher in US trading following the results, leaving them up by around a third over the last year. They've up nearly tripled since the March 2020 low, although they're virtually unchanged over the last five years. Shares for major European rival Volkswagen (XETRA:VOW) are down by just under 5% over the last year by up over 50% over the last five years. Shares for Tesla are up over 400% in just the last year alone.

Ford’s $29 billion investment already included a previously announced figure of around $7 billion. Results for the final quarter proved somewhat mixed, with the fall in revenues or sales marginally disappointing analysts but the earnings outcome surprising to the upside. 

The adjusted profit margin for the quarter rose to 4.8% from 1.2% in the fourth quarter of 2019, aided by a $1.1 billion of annual structural cost savings for its European operations and a one-fifth cut in the region’s workforce.   

North American revenue fell by 13% as it continued to reconfigure its vehicle line-up but rose by nearly a third in China. 

For the full-year 2020, it made an adjusted profit $2.8 billion, down $3.6 billion on 2019 as it continued to swallow global restructuring charges and hits from the pandemic. Revenue for the year fell by nearly a fifth to $127 billion. Accompany management forecasts predicted adjusted earnings of between $8 billion to $9 billion for 2021. 

ii view:

For the automobile industry, environmental and climate change concerns have rapidly moved front and centre in strategic thinking and new model planning. The world of self-drive, or autonomous vehicles has also come into sharp focus over the last year or so. For many, the question is whether the possible winners of this innovation will be software companies like Alphabet (NASDAQ:GOOGL) with its vehicle Waymo business. Or an automobile business such as Tesla, whose leader Elon Musk believes much of the company’s recently added market value is down to its potential regarding autonomous vehicles. 

For Ford and its investors, the company has been arguably paying the price for sitting on its once formers strengths and not embracing change. The pandemic has added to its challenges but also forced the pace of change. A 2020 decision to suspend the dividend payment, given productions halts, may now be assisting it to invest for required change. An estimated price-to-net asset value of under two compared to Tesla’s 100-plus could indicate value. In all, while Ford still has much to do, a strong brand and decades of experience arguably leave it very much in the running. 

Positives

• Action to restructure the business taken
• Nearly $31 billion of cash held

Negatives

• Industry wide microchip delays could hinder 2021 profit forecast
• Dividend payment suspended

The average rating of stock market analysts:

Hold