Ford Motor Company has faced a series of challenges, from production inefficiencies and rising warranty expenses to significant costs associated with developing its electric vehicle (EV) lineup. However, the iconic American manufacturer possesses strengths that may surprise many investors.
Amid the struggles of its traditional divisions, particularly Ford Blue, and extensive losses from model-e, which concentrates on EVs, the company’s Ford Pro commercial sector is gaining traction. Notably, Ford Pro reported an impressive $5.5 billion in earnings before interest and taxes (EBIT) during the first half of 2024. In contrast, Ford Blue generated only $2 billion, while Ford’s model-e division faced a hefty loss of approximately $2.46 billion.
An intriguing development emerged recently from Goldman Sachs, which chose to upgrade both Ford and General Motors’ stock ratings despite reducing ratings for numerous other automotive companies. This decision underscores the acknowledgment of Ford Pro’s rapid expansion and profitability. Moreover, Goldman Sachs revealed that Ford is experiencing a robust 35% to 40% annual growth in software subscriptions, a trend expected to continue with the introduction of new fleet services. By 2025, Ford aims to generate $1 billion in software revenue.
Looking ahead, the landscape at Ford is shifting rapidly. After disappointing financial results in early 2024, the automaker is scaling back its EV investment by $12 billion and is reconsidering its approach to future EV models, including the F-150 Lightning and a planned three-row electric SUV, while exploring hybrid options as an alternative.
Perhaps the most exciting prospect for Ford and its shareholders is the development of a low-cost platform aimed at producing an affordable EV with a target price of around $25,000. The initial vehicle anticipated from this platform is expected to be a midsize pickup truck. If Ford successfully launches this competitively priced EV and achieves even a modest profit, it could significantly boost sales and help mitigate the financial pressures from its current EV ventures.
When analyzing Ford’s stock, it appears attractively priced, with a price-to-earnings (P/E) ratio of just 11 and a compelling dividend yield of 5.6%. The current narrative around challenges like warranty costs and production inefficiencies seems to have already impacted the stock price, potentially setting the stage for a rebound. As Ford maneuvers through the growing pains of its model-e division, the company is well-positioned for a turnaround, offering investors a chance to capitalize on its evolving financial landscape.
With so much at play for Ford, it may be an opportune moment for investors to reassess their positions. The automotive industry is in a state of transformation, with traditional automakers like Ford making strategic moves to adapt. This shifting paradigm presents opportunities for those looking to invest in a brand that continues to innovate and position itself for profitability in the competitive EV market.
Ultimately, Ford’s story is not just about weathering storms; it’s about leveraging its strengths and adaptability. As the company navigates the complexities of modern-day automotive demands, it holds the potential to emerge stronger than before, making it a compelling choice for investors seeking exposure to the evolving landscape of the automotive industry.