To The Moon

$Ford(F)$ $S&P 500(.SPX)$  $DJIA(.DJI)$ $NASDAQ(.IXIC)$  

An automobile company that designs, manufactures, markets, and services a full line of electrified passenger and commercial vehicles, such as Ford trucks, utility vehicles, vans, and cars, and Lincoln luxury vehicles. Ford Motor Company's segments include automotive (developing, manufacturing, distributing, and servicing Ford and Lincoln vehicles, parts, and accessories), mobility (autonomous vehicles and related businesses, equity ownership in Argo AI, and other mobility businesses and investments) and Ford Credit (vehicle-related financing and leasing; offers a range of automotive financing products through automotive dealers worldwide).

Investment Overview

Resilient business model on unique “Freedom of Choice” product lineup and differentiated customer base. Ford's latest “Freedom of Choice” campaign unveiled in 1Q24 offers a wide range of gas, hybrid and electric products for both commercial and retail customers. Ford's campaign has reaped advantages as seen by its hybrid sales hitting a new record in 1Q24 amid a shift in consumers' preferences from EVs towards hybrids. Ford's ~80% customer exposure to corporates/governments further contributes to the resiliency of its business model, with a B2B business model reaping benefits of stickier demand amid weakening B2C consumer demand, as witnessed by the strong 1Q24 performance by Ford Pro segment (commercial vehicle sales). We believe Ford is well positioned to tide through the challenging auto and EV market, with Pro segment positioned as a cash cow, hybrid sales as an emerging growth lever, and Ford putting in place greater capital discipline amid slowing EV demand.

1Q24 results a strong beat. Ford saw a strong 20% earnings beat in 1Q24. Although 1Q24 revenue and deliveries were in-line with expectations, Ford's earnings beat was contributed by 1) firm ASPs at US$38k (+2% qoq, +3% yoy), and 2) stronger-than-expected adjusted EBIT margins at 6.5% (above consensus 5.6%, +4.2% qoq, -1.7% yoy). Pro segment (commercial vehicles sales which contributes >75% of Ford's group EBIT) showed impressive adjusted EBIT margins of 16.7%, exceeding consensus estimates of 12.6% and +5% higher qoq/yoy, placing 1Q24's margins the highest margins seen in two years. Ford's strong Pro results reflected higher production of Super Duty trucks, greater adoption by corporates (e.g., United States Postal Service, Ecolab) and positive traction in software sales (~13% contribution to segment EBIT with gross margins of 40-50%). Separately, Ford's Blue segment witnessed notable growth in hybrid sales on track with +40% yoy growth. Though, a challenging EV environment persists, as witnessed from impacted 1Q24 Model E sales of 10k units (-70% qoq) and continued EBIT loss of -US$1.3bn (in line with previous quarters at c.US$1.0-1.5bn losses).

Turning more positive for 2024. Post 1Q24 results, management has left 2024 guidance unchanged, but has guided for adjusted EBIT to come at the upper end of US$10-12bn, coming above consensus' current estimates at c. US$10bn. Further, management has cut 2024 capex spending amid the slowing EV market and has raised FCF outlook, signalling greater capital discipline. We expect positive share price reaction as the street revise up their estimates. Positive momentum remains in-tact on the back of (i) product ramp up (especially Super Duty), (ii) positive outlook for hybrid demand, (iii) continued material cost reduction efforts of US$2bn and more.

Any hiccups in the execution of its EV strategy and major slowdown in demand for its vehicles could post a downside earnings risk to the company. Headwinds related to EV sales and continued EV losses remain as an overhang on investor sentiment and valuations.

@MillionaireTiger @Daily_Discussion @TigerEvents @TigerStars 

DYODD