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
Aggressive EV targets. The latest EV tax incentives passed by the US Government to encourage EV adoption coupled with California banning new gasoline car sales by 2035 are expected to accelerate the pace of EV industry development. Against this backdrop, Ford is in the process of expanding its EV capacity as well as securing sufficient battery supplies to support an aggressive target of achieving a 600k run rate by end-2023 and 2m units by 2026. While the company has lined up the launch of the Mach-E and F150 Lighting in the next two years, the high run rates imply that a faster rollout of its E-models is required to achieve these EV targets.
Profitability being challenged on rising EV cost and normalisation of product prices. Although the company has set a high EV penetration rate going forward, it could also face pressure on its product margins, especially with EV-related raw material inflation still at high levels. Ford might be unable to raise vehicle prices very much given the macro slowdown risk, especially with interest rates in the US rising. As a result, FY22F is probably the best year for the company in terms of profit generation and FY23-24F net earnings growth is projected to slow down.
Track record of fluctuating earnings. Due to the pandemic, its FY20 gross profit and adjusted EBIT were in the red. But with the stabilisation of the global auto industry the following year, combined with its ability to raise vehicle prices (attributable to strong demand and tight supply), Ford reported a major rebound in revenue and earnings in FY21. Generally, Ford's earnings trend has been relatively volatile, which we attribute to a lack of strategy to tackle the rising competition in the respective markets.
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. Besides, elevated EV-related input costs could drag product margin expansion and the company might be unable to pass on the higher production costs to end consumers. The company has warned its 3Q results could suffer an additional US$1bn in extra input costs due to commodity inflation.
Given its unnexciting earnings, I will be careful in investing in This for the time being.
DYODD
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Hopefully the tax incentives are 50 percent of the cost.
Yes