ii view: Ford embarrassed by Tesla

Ford shares are being lapped by Telsa. The former is taking action, but investors will need patience. 

Fourth-quarter results to 31 December 2020

• Revenue down 5% to $39.7 billion
• Net income falls to a loss of $1.7 billion from loss of $100 million
• Earnings Per Share (EPS) loss of 42 cents, down from a loss of 3 cents
• Adjusted EPS excluding one-time charges down 60% to 12 cents

Guidance:

• Adjusted earnings (EBIT) to be down more than $1.1 billion from Q1 2019
• Too early to estimate implications of the coronavirus outbreak
• Expects full-year adjusted earnings (EBIT) of $5.6 billion to $6.6 billion

Chief executive Jim Hackett said:

“We made great strategic progress this past year with a fundamental redesign of Ford that is setting us up to compete and win in this emerging era of Smart Vehicles for a Smart World – with great products, services and long-term value.

“Financially, the company’s 2019 performance was short of our original expectations, mostly because our operational execution – which we usually do very well – wasn’t nearly good enough. We recognise, take accountability for and have made changes because of this.”

ii round-up:

Vehicle maker Ford Motor (NYSE:F) posted a loss of $1.7 billion due to higher pension contributions and increased North American warranty and labour costs in these quarterly results. 

Earnings per share fell below analyst estimates while full-year 2020 profit guidance of as little as $5.6 billion would be painfully below the $6.4 billion made during 2019. 

Ford shares skidded nearly 10% lower in after-hours US trading, underlining the contrast with electric car maker Tesla (NASDAQ:TSLA), whose shares are already up over 110% in 2020 so far. European car giant Volkswagen (XETRA:VOW) is down nearly 6% this year. 

A hit to European diesel sales from heightened emissions concerns, cooling Chinese consumer demand and its relatively slow adoption of electric vehicles, have seen Ford undertaking an $11 billion restructuring plan. It spent $3.2 billion on restructuring and job losses in 2019.   

Fourth-quarter China vehicle deliveries fell by nearly 15% to 146,473. Management is still assessing the possible impact of the coronavirus on performance. Ford is planning to launch more than 30 new models in what is its second-biggest market over the next three years. A third will be electric.

ii view:

For the automobile industry, environmental and climate change concerns have rapidly moved front and centre in strategic thinking and new model planning. Government plans to reduce fossil fuel emissions have being growing globally. For Ford, this has led to a major restructuring of its operations away from diesel models and towards electric and hybrid production.

For investors, changes in the business model are long overdue. Tightening government legislation and the success of Tesla are now difficult to ignore - Tesla now has a stock market value more than four times that of Ford. 

A historic and forward dividend yield of over 6% (not guaranteed) and covered twice by earnings should help investors remain patient. But rapid industry change and a previous downgrading of Ford’s credit rating to junk status by Moody’s cannot be forgotten. 

Positives

• Action to restructure the business is being taken
• Launching new models in China over the next three years – many will be electric
• Attractive dividend payment (not guaranteed)

Negatives

• Air quality concerns and taxation changes have led to falls in diesel sales across the industry
• Undertaking negotiations with worker unions
• Credit rating previously downgrade by Moody’s to junk status

The average rating of stock market analysts:

Strong hold