The Decline of Stock Fortunes Past
Long-term investors in Ford Motor Company’s (NYSE: F) stock have endured lackluster returns. A $100 investment a decade ago has only grown to $128 today, dividends included. In stark contrast, the S&P 500 Index would have turned the same $100 into $339. The explosive growth of Tesla, leaving some investors in luxury, while Ford’s stock seemed frozen in place.
Ruminating on the Old Optimism
Not long ago, Ford’s bull thesis was straightforward – shedding traditional gas-powered vehicles for a focus on electric vehicles (EVs), leveraging successful brands like the Mustang and F-150. The promise of EVs surpassing internal combustion engines in profit margins lured investors, driven by Tesla’s staggering operating margins and high valuation multiples. Ford’s embrace of EV technology appeared poised to unlock substantial value, taking advantage of its extensive supply chain and dealership network.
The Dimming Electric Dream
Despite selling over 72,000 EVs in 2023, Ford is confronted with intensifying competition in the EV arena. Even Tesla, a pioneer in the industry, saw its operating margins tumble from 11.4% to a mere 5.5% in the initial quarter. Ford’s Model E segment faced severe setbacks, with a drastic 84% revenue decline to $100 million after a 20% drop in sales volume, signaling fierce price erosion. Reportedly, each car sold in the Model E segment incurred losses of $132,000, with projected full-year losses of $5 billion in 2024.
Image source: Getty Images.
Facing these challenges, Ford’s enterprise-focused EV models like the E-Transit vans step in to mitigate Model E’s underperformance. With optics and political incentives driving companies to embrace green solutions, such as the recent U.S. Postal Service order of 9,250 Ford E-Transit vans, these commercial EVs could become vital for Ford’s future EV operations.
Forecasting Ford’s Path Ahead
Despite hopes that EVs would catapult Ford’s valuation upwards, the reality may be harsher. Rather than enhancing margins, the EV transition threatens to further strain Ford’s finances. An uncertain path lies ahead, where electric vehicles may not be the beacon of hope investors had envisioned. In contrast, Ford’s dividend, currently yielding 4.85%, offers some solace to investors seeking income; however, investing in lower-risk government bonds with a comparable yield could prove more prudent.
