ii view: Ford targets Tesla but shares just crashed

Like rivals, supply chain challenges remain, but the future is now electric. Buy, sell or hold?

Fourth-quarter results to 31 December 

• Revenue up 5% to $37.7 billion
• Net income or profit of $12.3 billion, up from a loss of $2.8 billion
• Quarterly dividend of 10 cents per share, unchanged from Q3

ii round-up:

Auto maker Ford (NYSE:F) reported fourth-quarter earnings below Wall Street estimates as ongoing component supply challenges hindered both production and sales. 

Adjusted earnings per share of 26 cents missed analyst estimates of over 40 cents with sales of $37.7 billion shy of estimates nearer to $41 billion. 

Ford shares fell by over 10% in US trading having gained by more than 60% over the last year. Shares for Tesla (NASDAQ:TSLA) and European rival Volkswagen (XETRA:VOW) have both gained around 5% in that time. The S&P 500 is up by a little over 15%.

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Accompanying outlook comments from Ford point to continued variability in supplies of key components through 2022. Although management did also flag an expected 10-15% increase in full-year 2022 vehicle volume to dealers, a number which is closely correlated with production. 

The Dearborn, Michigan headquartered company plans to double its worldwide electric vehicle (EV) manufacturing capacity to at least 600,000 units by 2023. Fully electric vehicles it hope will account for at least 40% of its product mix come 2030.  

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Ford was the number two seller of electric vehicles in the US over 2021, behind Elon Musk led rival Tesla. Ford continues to harbour plans to eventually become number one. 

Customers have already ordered or reserved more than 275,000 all-electric Mustang Mach-E SUVs, F-150 Lightning pickups, and E-Transit commercial vehicles.

A dividend of 10 US cents was previously declared for the quarter. 

ii view:

Ford designs, manufactures, markets and services a full line of connected, increasingly electrified passenger and commercial vehicles. It employs over 180,000 people worldwide. Most of its sales at around three-fifths are made in its home nation of the USA. The UK, Germany and Canada also provide major markets, generating sales of between 4.5% to 7%. It also owns a share stake in newly floated electric auto maker Rivian Automotive (NASDAQ:RIVN). 

For investors, the company previously appeared to be paying the price for sitting on its once former glories and not embracing change. The pandemic has added to its challenges, forcing it to previously suspend the dividend. Costs, as with industry more broadly, are rising, and supply chain challenges including those for auto microchips remain ongoing. 

But Ford is now pursuing a plan for growth and value creation, combining existing strengths and new capabilities. The dividend payment has now been resumed, if only small, while an estimated price-to-net asset value of around three times compares to Tesla’s at over 35 times. A drop in share price should not have surprised given the rapid ascent since the Covid crash to a 20-year high. For now, and while some caution looks sensible given current headwinds, a strong brand and decades of experience arguably leave this auto maker very much in the industry race longer term. 

Positives

• Action to restructure the business taken
• Investing in electric vehicle products

Negatives

• Ongoing industry wide microchip delays
• Rising inflation could pressure material costs and wages

The average rating of stock market analysts:

Strong hold