Why is Ford Stock So Cheap?

Consider Ford's losses on EVs as spending instead.

Andrew Willis 31 March, 2023 | 7:11AM
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Andrew Willis: After reading headlines of Ford (F) losing a couple of billion on its electric vehicle business following its recent earnings release, it’s important for investors to put the “losses” in context.

Ford is investing fifty billion in electric vehicles – more than its market cap today – over the new few years as it aims to have fifty percent of its production electric by the end of the decade. Sector strategist David Whiston likes the EV investments but notes it will take a few years to bear fruit. For long-term investors that can wait it out, Ford expects deliveries to top two million by 2026 – although Tesla (TSLA) is aiming to do about that this year.

To support the EV transition, Ford is also focusing on popular gas-powered models which reported big profits recently as well – so there’s something here for short-term investors as well.

For Morningstar, I’m Andrew Willis.

 

bulls Bulls Say

  • Ford's turnaround will take lots of time due to many restructuring projects around the world, but so far, the international business seems to be getting better.
  • Ford is focusing its investments where it gets the best return, which is why mostly exiting North American car segments and production in South America is the right move, in our opinion.
  • Ford has tried to remove some administrative layers, and we like CEO Farley's aggressive moves into electric vehicles, something the company was slow to do in the past.

bears Bears Say

  • The auto industry is very cyclical, and until recently, Detroit automakers had been losing significant U.S. market share to foreign automakers for years.
  • Long-term profitability could be hindered by unions, which traditionally have wanted their share of the pie. The nonunionized import automakers in the U.S. do not have this problem.
  • Ford's stock can sell off heavily on macroeconomic fears, even if the company itself is doing well. Furthermore, it takes significant investment to fund growth in the auto industry, which limits potential margin expansion.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Ford Motor Co11.85 USD1.20Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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