Amidst electric vehicle (EV) prices and charging infrastructure concerns, consumer interest in EVs has waned. As a result, hybrid vehicles have emerged as the favored choice, blending gasoline and electric power. Over the last five years, hybrid sales, including plug-ins, have experienced a remarkable surge. In 2023, Americans purchased a record 1.2 million EVs, marking a 46% annual increase, while hybrid sales soared by 65%. Hybrids, including plug-ins, accounted for approximately 10% of all new car sales in the U.S., outstripping pure electric vehicles with a 7.6% market share.
Furthermore, with the Biden administration fine-tuning auto emissions regulations to curb carbon emissions from passenger vehicles, manufacturers of plug-in hybrids and conventional gas-electric hybrids are poised to reap the benefits.
The Hybrid EV Market Landscape
The U.S. hybrid EV market is anticipated to witness robust growth, with a projected CAGR of 13.8% through 2032. This sets the stage for a closer examination of two automotive behemoths, Ford Motor Company (F) and Toyota Motor Corporation (TM), both aggressively vying for a larger slice of the expanding hybrid EV market.
Unveiling Ford Motor’s Performance
Headquartered in Michigan, Ford Motor Company (F), established in 1903, specializes in the design, production, and servicing of a diverse array of vehicles, ranging from trucks and commercial cars to SUVs and luxury cars under the Lincoln brand. The company boasts a current market capitalization of $51.89 billion.
Despite a 14.5% increase in Ford’s share value over the past 52 weeks, it trails behind the S&P 500 Index’s impressive 30.5% surge. Ford’s performance has been lackluster over the past decade, with a nearly 15% decline in share value. The suspension of dividend payments in 2020, reinstated in October 2021 at 10 cents per share, was followed by an incremental rise to a regular quarterly dividend of 15 cents per share. During the Q4 2023 earnings call, Ford also declared a special dividend of 18 cents per share.
With an annual dividend of $0.60 per share, Ford offers a robust 4.6% yield. A payout ratio of 61.4% indicates strong dividend coverage based on adjusted earnings. Trading at 6.85 times forward adjusted earnings and 0.29 times sales, Ford’s current valuation reflects a substantial discount compared to industry peers and its own five-year averages.
Ford’s Q4 Earnings Triumph
In the previous year, Ford sold 72,608 EVs, resulting in an EBIT loss of $4.7 billion in its “Model e” category. Each EV sold in 2023 incurred a staggering loss of $64,731. However, total Ford hybrid sales picked up pace towards the end of the year, culminating in record Q4 sales of 37,229 vehicles, representing a 55% upsurge.
The Q4 earnings report released in early February revealed a total loss of $526 million, primarily attributed to special charges related to employee pension programs and restructuring of overseas operations. Ford’s CFO, John Lawler, cited elevated labor costs stemming from an extended United Auto Workers (UAW) union strike as another factor impacting the company’s fourth-quarter profits.
Despite these challenges, Ford managed to surpass expectations with adjusted Q4 earnings of $0.29 and revenue of $43.21 billion, exceeding Wall Street estimates.
The Duel of Hybrid Auto Stocks: Ford vs. Toyota
The Tale of Ford’s Hybrid Sales Surge
In a recent conference call coinciding with the Q4 release, CEO Jim Farley expressed optimism stating, “Our global hybrid sales were up 20% last year, and we expect them to be up 40% this year.”
Ford Stock Analysis
The average analyst recommendation for Ford stock currently stands at a “Hold,” a decline from the “Moderate Buy” consensus three months prior. Of the 18 analysts covering Ford, five rate it as a “Strong Buy,” while two suggest a “Moderate Buy,” eight recommend a “Hold,” and three label it a “Strong Sell.” Ford’s average analyst price target is $13.70, indicating a potential 3.2% upside in the coming year. Bank of America analysts raised their Street-high price target to $21 post the Q4 earnings release, implying a possible 58.18% rally from current levels.
Toyota’s Dominance in the Hybrid Arena
Valued at a substantial $341.6 billion by market cap, Toyota Motor Corporation, established in 1933, leads the market in hybrids with around 40% market share in the U.S. Toyota shares have delivered an impressive 82.5% return over the past 52 weeks, outperforming the SPX. Over the last decade, the stock has yielded nearly 123%. Additionally, Toyota has been consistently paying dividends to shareholders for 37 years, offering an annualized dividend of $4.00 per share, equivalent to a 1.58% yield.
Toyota’s Growth Driven by Hybrid Dominance
Toyota, a pioneer in hybrid cars since the late 1990s, reported fiscal Q3 sales of $79.50 billion in early February, a 23% increase year-over-year, with net income rising by 86.5% annually to $9 billion. Notably, Q3 hybrid car sales surged by 47% annually to 951,000 units, constituting 32% of global retail sales. Toyota anticipates further growth in hybrid sales, with expectations to reach 5 million units by 2025, up from 3.4 million in 2023. Toyota’s forecast aligns with the belief that hybrids are a realistic solution for achieving carbon neutrality.
Ford vs. Toyota: The Verdict
Automakers like Toyota and Ford, with strong positions in the hybrid EV market, are well-positioned for long-term growth amidst increasing hybrid EV adoption. While Ford has a slight edge in the EV market, Toyota’s reputation for innovation and robust financial standing position it as a potential leader in the hybrid EV market. Coupled with Toyota’s consistent and reliable dividend payments, it presents itself as a more compelling choice for investors.