Why is Ford Stock (Still) so Cheap?

The strike is bad, especially at the Kentucky plant, but sales and deliveries continue for these models.

Andrew Willis 20 October, 2023 | 3:37AM
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Key Takeaways for Ford Motor Stock:

  • The impact of the UAW strike will not help Q4 results at Ford F, as the Detroit Three, including GM GM and Stellantis STLA all entered September with 40% less inventory.
  • Sales continue at Ford, especially in electric vehicles with Mustang Mach-E deliveries up 42.5% and E-Transit van sales up 89.8%.  
  • The highly anticipated Ford F-150 electric pickup has had a delayed start with quality issues and a plant shutdown to triple the annual production rate to 150,000 units.
  • The strike is now targeting the Ford's Kentucky plant which produces pickup trucks and SUVs, and is a severe wound for the company - however Ford said it may not be able to give further wage increases without affecting its ability to reinvest in the business. We see the key as to who gives in first decided by whether the automakers are willing to take on debt to wait out the union’s strike fund.

 

Andrew Willis: The UAW strike and fears of a recession are valid reasons to be bearish about Ford stock (F). But what if there was a way for the company through both headwinds?

While the strike didn’t target all assembly lines, those that remained open started to benefit from Ford’s massive investments in electric vehicles – with Mustang Mach-E deliveries up 42.5%, and sales continuing, especially on the commercial side, with the E-Transit van up 89.8% last quarter. And, in a downturn, the company should be able to benefit from the ability to pivot and concentrate its production lines as consumer demand changes.

Ford Stock Could Surge on F-150 Lightning

There will be challenges ahead for Ford stock, but investors may be underestimating its ability to adapt. Also, sector strategist David Whiston notes that Ford has been held back with the electric version of the best-selling F-150, while they pinpoint quality problems, and voluntarily stopped work for 6 weeks. That said, the plant should now be producing 150,000 F-150 Lightnings a year, or triple the production it did when it closed – as long as the plant stays open.

For Morningstar, I’m Andrew Willis.

bulls Ford 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 Ford 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 Co11.68 USD1.04Rating

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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