17 Dec Ford (F) (Update)

A report from BloombergNEF that came out earlier this year entitled “The Electric Vehicle Outlook 2020” aimed to predict how electrification, shared mobility and autonomous driving would impact road transport from now out to 2040. In it, it predicted that thanks to “increasingly stringent regulations” in Europe and China, amongst other things, there would be more than 500 different models of electric vehicles available globally by 2022.

The importance of the role of electric vehicles (EV’s) in the move to eliminate hazardous gas emissions and to ward off global warming are becoming more and more apparent. Almost every developed country its seems, excluding our own of course, have committed to net-zero emissions by 2050 or in China’s case 2060. Getting gas-guzzling vehicles off the road will be one of the most important elements to achieving this feat.

In 2015 only 450,000 EV’s were sold globally, but by last year this had increased to 2.1 million. It is expected that due to the global pandemic the numbers will fall again in 2020 to 1.7 million, though car sales of all types have taken a massive hit, down approximately 30% globally. By 2025 however, as battery prices fall, energy density improves and more charging infrastructure is built, the number of EV’s on our roads will increase to 8.5 million.

Currently, only 2.7% of cars sold to consumers are electric. By 2025 this is expected to jump to an impressive 10%. By the year 2040 however, it is expected that more than half of the vehicles sold will be electric. This will equate to approximately 31% of the worlds driving fleet in that time. It will take time, of course, for petrol-driven vehicles to die out completely. But the situation is clear. If you’re a carmaker you need to be moving towards the EV.

Initially, it will be government-led, as it has been up until now. But eventually, there will be a tipping point where it will be cheaper to produce and operate EVs over fossil fuel options. That time is rapidly approaching and the old school car makers are scrambling to get a foot in the door before it is too late.

I’ve been a massive Tesla fan over the last decade. Their cars are cool and sexy (have you noticed the Tesla model names are S,3,X,Y?), and while expensive they have been considered the Apple of the automotive industry. They have also been pioneers in the battery storage area and will no doubt continue to lead the way. But this is not a stock report on Tesla. While they have previously been a great buy I can’t see the value in them at the current price. Everything is going to need to go perfectly for them to achieve these types of numbers.

Back in February, we advised that Tesla was a little on the expensive side and you should look to buy it around the $500 mark. If you did that in early March you would have seen the share price clear $2,200 by August before a 5-1 stock split. The share price is now at $633 at last check. that would be equivalent to more than $3165 a share when we bought it in March. A nice 500% gain in less than a year. A great run but I can’t justify holding it any more.

All of the legacy carmakers are gunning for it. They’ve realised that EV’s are the future and Tesla is about to have a whole lot of competition to contend with. This was always going to happen. Tesla were first movers in the sector, which gives them a nice little advantage and some street cred as being the pioneers. However, now the rest of the car brands will be attempting to muscle in on the Elon Musk-led upstart. They have some of the most recognisable brand names globally, and their pockets are deep.

An article on CNBC this morning caught my interest. Ford, arguably the most well-known car brand across the globe is bringing out its first Electric Vehicle – the Mustang Mach-E crossover. It’s the start of Ford’s $11 billion investment plan in electric vehicles through to 2022. Not surprisingly it is starting with electrifying two of its most iconic brands the Mustang and the F-150 which will be released early in 2021. It’s an important statement to the rest of the industry, and to Wall Street, that they are serious about making an impact in the EV world.

Global Director of electric vehicles at Ford, Darren Palmer, stated that Ford isn’t trying to steal Tesla’s business (although I suspect he is being diplomatic), instead he says of the Mach-E – “The typical buyer is the 99% of people who don’t buy EVs today. Our job at Ford, what we do, is bring cars to the majority. And so this one is to bring people into electric cars and show them what they can do”.

For the Ford traditionalists who are concerned about the performance of an EV, there is no need to worry. The Mustang Mach-E goes from 0-60 miles per hour in just on 3 seconds with an estimated 459 horsepower and 612-foot pounds of torque. This is equal to the petrol-guzzling Mustang Shelby Turbo, and faster than a Porsche Macan Turbo. That’s not bad for something that you plug into a wall socket at night to charge.

So far 2020 has been a tough year for the car industry – although Ford has gone better than most. In the latest quarter car sales were down 37.5% to 48,424 units, however, car sales only make up a small percentage of total sales. Truck sales actually rose by 0.6% to 311,751 units, while SUV sales were down 0.7% to 191,803 units. Overall sales were only down 4.9%. Considering factories were closed for a few months earlier in the year it was an impressive effort.

Previous to this Ford had struggled into 2019. A move into China stalled as the Chinese bought fewer cars and their own car brands improved to make them more attractive to drivers. Globally, Ford had brought in new models of its F-150 and Explorer and Escape models in 2015 and rivals were bringing out newer and flashier models. It meant that Ford had to reduce prices and offer discounts to sell more cars. However, with new models coming out in 2019 and 2020 Ford was positioned to thrive this year. The pandemic has put that all on delay.

However, the shutdowns have caused a smaller amount of damage than was predicted up until now. Ford jumped around 6% after its last earnings release, beating expectations on both the top and bottom. Profit and revenue were higher than the same period last year, while margins were up to 9.7%, 490 basis points above the year before. The guidance for the final quarter suggested Ford would lose only $500 million for the entirety of 2020. CEO Jim Ford said at the time “When you look at our results, they reflect the benefit of our decision two years ago to allocate capital to our strongest franchise, namely: pickups, a whole range of utilities across the world, commercial vehicles and iconic passenger vehicles”.

We initially put out a buy on Ford at the start of May to take advantage of what we thought was an oversold stock. So far this has proven to be the case with the share price rising from $5 at the time to over $9 at the latest check. That’s an 80% gain in just over 8 months. The old adage of buying when everyone else is selling has certainly proved to be true so far in 2020.

With a vaccine approved and the vaccination of citizens around the globe imminent, Ford will have fresh new cars ready to sell and an EV range planned through until 2022. 2021 and onwards is set up to be a good one for Ford, assuming we don’t have any little unforeseen pandemics in the offing. There looks to be more room for growth still to come.

Year to date the stock is down just 0.1% overall, although they did cancel their dividend which helped them save around $2.45 billion. However, I expect it will be reimplemented in the near future and give a nice little leg up to the share price. It’s not going to shoot the lights out as Tesla did of course. But I think it will be a solid little earner over the next decade or so. It’s one to keep and hold. You could also, of course, buy some Tesla puts if you are bold enough.