Ford Motor Company’s (NYSE: F) stock has tested the patience of long-term investors. A $100 investment in the automaker a decade ago would have grown to only $128 today, dividends included. In stark comparison, the S&P 500 Index would have yielded $339, leaving Ford’s performance trailing far behind. Tesla’s dazzling success further accentuates Ford’s stock stagnation, leaving it idling in neutral.
Can Ford’s audacious foray into electric vehicles spark a much-needed revival, or is it time for investors to explore new horizons? Let’s delve deeper to uncover what the next chapter may hold for this automotive stalwart.
Reviewing the Past Bull Thesis
In the not-so-distant past, Ford’s bull case was straightforward. The traditional automaker was poised to shed its sluggish gas-powered segment in favor of a swift pivot to electric vehicles, leveraging iconic brands like Mustang and F-150 to command a larger EV market slice.
Investors believed that EVs inherently boasted superior profit margins compared to internal combustion engines, a belief reinforced by Tesla’s meteoric rise. Tesla’s operating margins overshadowed Ford’s since 2020, reflecting in a sizable disparity in valuation, with Tesla’s P/E multiple towering at 70 against Ford’s humble 6.2.
The grand vision was that Ford’s aggressive EV drive, backed by a robust supply chain and extensive dealership network, would unlock substantial value.
Navigating the Electric Dream’s Decline
With 72,608 all-electric vehicles sold in 2023, Ford ranks among America’s top EV manufacturers. However, the foundational assumptions supporting Ford’s EV transformation are starting to crumble.
The landscape is changing with mounting EV competition. Even industry leader Tesla is feeling the squeeze, witnessing a sharp decline in operating margins from 11.4% to a mere 5.5% in the first quarter.
Ford faces even graver challenges. The Model E division (focusing on consumer EVs) reported an 84% revenue dip to $100 million following a 20% sales volume decline, signaling a significant price erosion. According to CNN, Model E hemorrhaged $132,000 per car sold, with the segment projected to lose a staggering $5 billion in 2024.
Image source: Getty Images.
Amid this turmoil, Ford’s business-centric EV models like E-Transit vans are alleviating the strain from the Model E debacle. With mounting focus on optics and political incentives nudging firms and governmental bodies towards greener supply chains, Ford’s E-Transit van order of 9,250 from the U.S. Postal Service signals a potential silver lining.
Crystal Ball Gazing: Ford’s Next Five Years
Sadly, electric vehicles seem unlikely to be the elixir propelling Ford’s stock to loftier heights. Rather than bolstering margins, the EV push appears to exert additional strain on the bottom line, leaving lesser spoils for investors. This trajectory shows no signs of a significant turnaround in the next half-decade.
Ford tries to sweeten the deal with a hefty 4.85% dividend yield, surpassing the S&P 500’s meager 1.35%. Yet, income-focused investors might find more attractive options in government bonds sporting a 4.4% yield with reduced risk.
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Will Ebiefung contributes without holding positions in any mentioned stocks. The Motley Fool backs and suggests Tesla stocks. The Motley Fool adheres to a strict disclosure policy.