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Is Ford (F) the Perfect Stock to Ride the EV Wave?

The future of mobility is undoubtedly electric. With tremendous potential, the electric vehicle (EV) market growth is one of the most fascinating stories being told over the last several years. Per Fortune Business Insights, the global EV market is estimated to reach around $1,318 billion by 2028 from $287 billion in 2020, seeing a CAGR of 24.3% during the 2021–2028 time frame. It goes without saying that investors get a massive opportunity to reap tremendous gains from the industry’s growth trajectory.

The undisputed leader in the realm, Tesla TSLA, has already established its EV operations well and is seen as the crown jewel. It is the first stock that pops in our mind when we think of EVs. But amid the growing popularity of green vehicles, legacy automakers are increasingly pulling out all the stops toward an electrified future. One such company is Ford F. This US auto biggie is diving headfirst into electrification with enormous investment plans, which bode well.

Delving Into Ford’s Electrification Strides

Robust BEV Line-up: Ford is hitting all the right notes toward an electrified future and is well positioned to gain a competitive edge in the EV space with its offerings, namely Mustang Mach-E, E-Transit and F-150 Lightning. Mustang Mach-E, giving tough competition to Tesla, — was F’s first EV offering. Ford commenced deliveries of Mustang Mach-E in late 2020 and the vehicle received a great response from customers. It is already the second best-selling electric SUV in the United States and is boosting Ford’s sales. Shipments of F's E-Transit van began in January 2022 and the all-electric F-150 e-pickup hit the market in spring 2022. E-Transit and F-150 Lightning have become the best-selling e-van and e-pickup in America. F remains actively focused on scaling the output of its electric models. It is worth noting that the automaker is America’s No. 2 EV brand, just behind the EV poster child, TSLA.

Impressive Targets: Ford’s aggressive EV push, with planned spending of around $50 billion by 2026 and a target production of 600,000 EVs by the end of next year and more than 2 million EVs by 2026 end (representing 49% CAGR during the 2023-2026 forecast period), augur well for long-term growth. By 2030, F expects EVs to account for 50% of its global sales to cement its position on the red-hot EV landscape.

Ford Model e Business: In one of the boldest steps taken under the leadership of CEO Jim Farley, Ford’s ambitious rejig plan to split its EV business into a separate unit within the company will unlock growth opportunities. Per the reorganization, Ford will have two distinct businesses, namely Ford Model e and Ford Blue. While Ford Blue will focus on the firm’s legacy gas-powered business, Ford Model e will focus on EVs, advanced technologies and several related aspects to support the electrification plans. The unit will be engaged in developing EV platforms, software platforms, batteries, inverters, e-motors, charging capabilities et al. to scale up the production of electric-powered vehicles. Farley would double up as president of the Ford Model e unit.

Boosting the Battery Game: With batteries serving as the secret sauce for EVs, Ford is fast enhancing investments in battery production. F is building twin battery plants in central Kentucky and a technologically-advanced mega campus (for vehicle and battery designing) in Tennessee.  Ford partnered with SK Innovation and the firms will jointly invest $11.4 billion (with Ford’s share being $7 billion) in the same. The investment is part of the Ford+ turnaround plan to make the automaker’s operations more profitable and create a niche in the trending sectors, such as autonomous, electric and connected vehicles. Operations at the twin lithium-ion battery plants in Kentucky are expected to commence in 2025 and supply Ford’s North American assembly plants with locally-assembled batteries to power the next-generation electric Ford and Lincoln vehicles. F deepens focus on strengthening its EV supply chain with progress in procuring raw materials and battery capacity required to scale up the green vehicle production.

A Solid EV Player

Given its electrification prowess, Ford surely seems one of the best choices for EV exposure. Ford estimates that its EV production CAGR for the 2021-2026 period will be more than 90%. Farley believes that F’s anticipated growth rate for EVs through 2026 is more than twice the global industry growth forecast. If this even comes close to fruition, F will certainly be capturing much more market share as sales would seemingly soar considering the EV market prospects.

Ford 33% Down YTD: Buy, Sell or Hold?

Ford’s shareholders have been on a roller-coaster ride this year, and just as the deepest plunges are the most unnerving, the stock’s year-to-date performance — down 32.9% — has made its fans jittery.

So, should investors buy Ford’s shares now? Following a massive price decline, shares are currently on sale. F’s P/E ratio of 7.65 is way lower than the industry’s 28.4. It is also much lower than its five-year high of 81.99 and near-the-median 7.52.

Well, its strong vehicle mix, bold e-mobility push, rejig efforts in South America and North-America market strength are likely to drive growth. We also like Ford’s strong financials providing a solid foundation for investment in Ford+ priorities. F exited the third quarter with cash and liquidity of around 32 billion and 49 billion, respectively.

It’s worth paying attention to Ford’s investor-friendly moves. F reinstated its dividends in fourth-quarter 2021 after suspending the payments for more than a year and a half because of COVID-related disruptions. Riding on its financial strength, F raised its third-quarter dividend to 15 cents per share.Investors do get a juicy dividend with an yield of 4.5% for their patience.

Having said that, escalating commodity costs and chip crunch are playing near-term banes. Ford anticipates headwinds from commodity prices and other inflationary costs to the tune of $9 billion for 2022. The Zacks Consensus Estimate for F’s 2022 EPS has been revised 5 cents downward over the past 30 days to $1.96.

After considering Ford’s strong long-term potential and near-term concerns, it’s probably a wise idea to take a wait-and-see approach to Ford and hold the shares for now. F carries a Zacks Rank #3 (Hold), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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