In the electric vehicle (EV) industry, the already-stiff competition is intensifying even further as legacy automakers ramp up their efforts to challenge Tesla’s (TSLA) long-standing dominance. Among these, Ford Motor Company (F) is making significant strides, reporting strong Q2 EV sales that have positioned it as the second-largest EV manufacturer in the United States, just behind Tesla.
With a “Moderate Buy” rating on its stock, analysts are cautiously optimistic on Ford. Moreover, the automaker offers a solid dividend yield of 4.65%, adding an attractive income component for investors. Ford’s presence in the EV market is not just about numbers; it’s a testament to the company’s strategic focus and innovation.
In this article, we delve into the factors driving Ford’s EV sales performance, analyze its financials, valuation, and sentiment in the options market, and explore whether this ‘Big 3’ auto stock has the potential to threaten Tesla’s supremacy in the EV market.
About Ford Motor Stock
Founded in 1903 by industry trailblazer Henry Ford, Ford Motor Company (F) is one of Detroit's iconic “Big Three.” It is a multinational automaker specializing in the design, manufacturing, marketing, and servicing of a diverse range of automobiles, commercial vehicles, and automotive parts. The company’s market cap currently stands at $52.57 billion.
Shares of Ford Motor have risen by about 8% on a year-to-date basis, trailing behind the S&P 500 Index’s ($SPX) gain of 18.1% over the same period.
Recent News for F Stock
On July 6, Barron’s issued a favorable commentary on Ford Motor in its latest edition, arguing that despite significant underperformance this year, the Dearborn, Michigan-based automaker is poised to narrow the gap with its hometown rival, General Motors (GM).
“Underperformance by one of America’s two largest automakers relative to the other doesn’t happen very often,” stated Barron’s, highlighting that while their financial profiles are not significantly different, investors have yet to fully acknowledge this.
However, for one underperformer to bridge the gap, “there just needs to be a catalyst,” the publication stated, explaining that capital discipline would be crucial to that transformation.
Ford Motor EV Sales Surge in Q2
On June 3, Ford released its Q2 sales figures. The 1% year-over-year increase was driven mainly by higher truck sales, notably the F-Series. However, despite broader challenges in the electric vehicle segment over the past year, the company’s total EV sales surged 61% year-over-year to 23,957 units in the second quarter, and have risen 72% for the year. On this basis, Ford now ranks as the second best-selling brand of electric vehicles in the U.S., following Tesla.
Notably, sales of the F-150 Lightning saw a significant increase, jumping 77% year-over-year to 7,902 units. Also, Mustang Mach-E sales increased by 46% year-over-year and 58% in the first half of the year, with 54% of buyers being new to the Ford brand. In addition, hybrid sales rose 56% year-over-year, reaching a total of 53,822 units.
“Hybrid and electric vehicles are driving growth,” said Ford Blue president Andrew Frick.
Commercial sales also showed strength last quarter, with E-Transit electric van sales surging 96%, marking the best quarter since its debut in 2022 and solidifying the E-Transit as the top-selling electric van in the U.S. Furthermore, three out of every four E-Transit buyers are repeat customers.
Despite the increase in unit sales, I believe a significant portion of this growth stems from the considerable reduction in selling prices, reflecting ongoing competitive pressures within the EV segment. Management noted during their Q1 earnings call that they had reduced prices on their EVs by 20%, with the Mach-E model specifically seeing a 17% markdown.
Also during the Q1 earnings call, Ford CFO John Lawler highlighted that its total EV market share increased by 3.4 percentage points to 7.5%, with the Mach-E ranking as the second best-selling e-SUV, trailing only Tesla’s Model Y. At the same time, its “Model e” division sold approximately 10,000 EVs in the first quarter, incurring a loss of $132,000 per vehicle, totaling $1.3 billion in losses.
Revenue plummeted by more than 80% year-over-year to $115 million due to decreased wholesale volumes and industry-wide pricing pressures. Management forecasts a $5 billion EBIT loss for this segment in FY2024, driven by persistent pricing pressures and investments in new vehicles. These losses are impacting Ford's overall profitability. While the rest of the company maintained flat profits compared to the same period last year, the losses from Model e caused a 20% decline in overall earnings in the first quarter, amounting to $1.3 billion.
As a result, Ford is implementing measures to mitigate losses from the EV segment, such as reassessing its EV battery strategy and postponing the launch of its second generation of EVs until it achieves breakeven in its current first-generation EV production. Against this backdrop, it’s challenging to envision how the company’s profitability will compete in the EV space against dedicated EV manufacturers like Tesla. Tesla continues to invest in developing the next generation of EVs, remains profitable, and operates its own charging network.
Despite strong Q2 EV sales, it appears that the company’s EV market share is poised to decline in the coming quarters, as leading EV manufacturers such as Tesla and BYD (BYDDY) solidify their market dominance, further diminishing the market share of traditional automakers.
How Did Ford Motor Perform in Q1?
On April 24, Ford Motor reported stronger-than-anticipated Q1 results, with the company’s commercial division’s strength compensating for losses in electric vehicles. Its revenue grew 3.2% year-over-year to $42.78 billion in the first quarter, beating the Wall Street consensus by $1.31 billion.
In Q1, revenue from the commercial division surged 36% year-over-year to $18 billion, while EBIT more than doubled to $3.0 billion, driven by increased production of Super Duty trucks. At the same time, sales from the Ford Blue segment declined by 13% year-over-year to $21.8 billion, generating a profit of $905 million, whereas the electric vehicle unit, Ford Model e, recorded a loss of $1.32 billion. Additionally, the Ford Credit segment generated Q1 earnings before taxes of $326 million, driven primarily by increased financing margins and favorable volume and mix. Ford’s first-quarter adjusted EPS was reported at $0.49, topping the consensus by $0.05.
The company’s operating cash flow for the period totaled $1.4 billion, down from $2.8 billion in the same quarter a year ago, while adjusted free cash flow amounted to a use of $500 million. These figures were impacted by working capital effects related to approximately 60,000 vehicles held in inventory at the end of the first quarter, which are anticipated to be shipped in Q2. CFO Lawler stated that the company’s balance sheet remains “rock solid,” with $25 billion in cash and nearly $43 billion in liquidity as of the end of the quarter.
For fiscal 2024, management maintained its EBIT guidance, expecting the company to achieve results toward the upper end of a $10 billion to $12 billion range. At the same time, free cash flow is expected to range between $6.5 billion and $7.5 billion, marking an upward revision from the initial projection of $6 billion to $7 billion. Additionally, capital expenditures are projected to range between $8 billion and $9 billion, a refinement from the original forecast of $8 billion to $9.5 billion, demonstrating the company’s focus on capital discipline and efficiency.
Analysts tracking Ford Motor anticipate that the company’s earnings will stay relatively unchanged year-over-year at $2.02 per share in fiscal 2024. At the same time, analysts on Wall Street project Ford’s revenue to increase by 5.26% year-over-year to $174.62 billion in FY2024.
F Stock Valuation and Dividend Yield
Ford and other automakers generally trade with subdued price-to-earnings ratios. However, the company’s current forward earnings multiple of 6.39x is historically low - its five-year average P/E stands at 8.11x, whereas the sector median hovers around 15x. Ford’s robust free cash flow and discounted forward price-to-sales ratio also back the valuation thesis. The price/sales sits at a mere 0.29x, below both its five-year average of 0.33x and the sector median of 0.87x.
On June 3, Ford Motor paid its shareholders a quarterly dividend of $0.15 per share. The company offers an annualized dividend of $0.60 per share, translating into a dividend yield of 4.65%, which notably surpasses the sector’s median of 2.40%. The automaker also maintains a relatively modest payout ratio of 31.75%, indicating that its dividend is likely sustainable.
Options Market Sentiment on Ford Motor Stock
Examining the September 20, 2024, option chain, there is a bid/ask spread of $0.85/$0.90 for the $12.82 CALL option and $0.52/$0.55 for the $12.82 PUT option. Keep in mind that this is the options strike closest to the current stock price. We can gauge the expected price movement by using the midpoint prices of these options:
0.54 (12.82 put) + 0.88 (12.82 call) = 1.42/13.17 = 10.8%
Based on current prices, the options market indicates that F stock could potentially increase or decrease by around 11% by September options expiration from the $12.82 strike price, utilizing the long straddle strategy. That would place the stock in a trading range of about $11.72 to $14.62.
Moreover, there are approximately 2.4 times more open calls than open puts at the $12.82 strike price, with 32,780 open calls versus 13,692 open puts. This indicates a bullish sentiment in the options market, and suggests a higher likelihood of the stock increasing.
What Do Analysts Expect For F Stock?
Ford stock has a consensus “Moderate Buy” rating on Wall Street. Out of the 17 analysts covering the stock, seven recommend a “Strong Buy,” eight advise a “Hold,” and the remaining two analysts give a “Strong Sell” rating. The average analyst price target of $14.07 indicates a potential upside of about 7% from current price levels.
The Bottom Line on F Stock
While I don’t think Ford can challenge Tesla’s dominance in EVs, its robust balance sheet, appealing dividend yield, historically low P/E ratio, and bullish sentiment in the options market position Ford stock as a compelling investment opportunity on its own merits.
On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
