Is Ford Capable of Generating Millionaire-Making Investments?
Ford Motor Company (F: 1.39%) is a storied name in the automotive sector, known for its resilience even during economic downturns. Unlike some prominent American peers, it managed to avoid bankruptcy during the 2008-09 Great Recession. But is this automaker's stock likely to create a millionaire out of an investor?
While there's always potential, a more realistic perspective is recommended.
What Business Does Ford Entangle Itself In?
Ford is one of the globe's largest automotive companies, boasting a market cap of roughly $40 billion. In 2024, it sold over 2 million vehicles, with a rapid surge in electric (EV) and hybrid vehicle sales. Notably, its sales are heavily skewed towards trucks and SUVs, accounting for 56% and 42% of sales, respectively. Traditional cars (such as sedans) now make up a small portion of the overall business.
In 2024, EV sales increased 38% year over year, while traditional vehicle sales stagnated with a mere 0.2% growth. The entire 4.2% growth can be attributed to the shift towards EVs.
This transition isn't all sunshine and roses, though. EVs accounted for less than 15% of Ford's overall vehicle sales. Navigating this transformation requires a delicate balancing act as Ford treads the line between traditional and future technology.
Ford Strikes Profit, but Its EVs Fail to Lead the Diadem
Ford segregates its business into three segments: Ford Blue for combustion engines, Ford Model E for EVs, and Ford Pro for business sales.
By the end of 2024, Ford Blue and Ford Pro had generated an impressive EBIT of $3.7 billion and $7.4 billion, respectively. Ford Model E, on the other hand, reported a negative EBIT of $3.7 billion, essentially matching the profitability of the combustion engine business. This division's small contribution to total sales intensifies the business's difficulties in transitioning to new technology.
Millionaire-Maker Stock Requirements
To achieve millionaire status with Ford stock, the company must successfully navigate the transition from combustion engines to EVs (or at least find a balance that allows for long-term prosperity) in a market marked by fierce competitors such as Tesla, a leader in EVs.
An Additional Ford Rudder to Consider
Ford belongs to the highly cyclical consumer discretionary sector, which is influenced by economic conditions. Given the high cost of vehicles, sales tend to dwindle during periods of economic weakness. This doesn't bode well for conservative investors and may even give pause to more aggressive types, considering the various moving parts in play today.
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Ford opts for a multifaceted approach to transition from combustion engines to EVs, tackling both opportunities and challenges headed its way. Key components of this strategy include:
- Investment in EV Manufacturing: Ford pumps $189 million into the Halewood Plant, a significant expansion resulting in an increase of 70% in EV component production capabilities. This enables the plant to manufacture electric drive units for the Puma Gen-E and E-Transit Custom.
- Workforce Development and Sustainability: Ford prioritizes training its workforce to equip them for the new EV power unit roles at Halewood. The company also pursues carbon-neutrality goals by 2035, installing solar panels and upgrading diesel-powered locomotives to electric ones.
- Confronting Chalenges: The significant investments required for the transition have exceeded expectations, resulting in financial strains for the EV division. In response, Ford has scrapped plans for a three-row electric SUV due to unprofitability and refocused on hybrids and extended-range electric vehicles (EREVs).
- EREVs as a Strategy: EREVs merge electric and internal combustion engine technology. Ford believes EREVs may address profit issues in large electric SUVs and trucks, popular in markets like China. The company plans to introduce EREV versions of its SUVs, crossovers, and Super Duty pickups.
- Competition and Market Position: Ford stands to compete with Tesla by offering affordable EV options through its Skunkworks project. By focusing on hybrids and EREVs, Ford aims to leverage its profitable traditional vehicle segments to mitigate EV production-related financial risks.
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- Investors considering Ford as a million-maker opportunity should closely monitor the company's strategy to transition from combustion engines to electric vehicles, particularly given the strong competition from companies like Tesla.
- Despite the challenges in making EVs profitable, Ford has taken several steps to navigate the transition, such as investing in EV manufacturing, workforce development, and exploring hybrid and extended-range electric vehicles.
- Ford's reliance on profitable segments like trucks and SUVs, along with the cyclical nature of its sector, adds an element of risk for investors, especially during economic downturns.
- Successfully balancing risk and opportunity in Ford's transition to electric vehicles could potentially help the company thrive in this evolving market, regardless of what the future holds.
