Ford Motor Company’s (NYSE: F) stock has been rather lackluster for investors with a long-term view. A $100 investment made a decade ago would have yielded a meager $128 today, dividends included. In stark contrast, the S&P 500 Index would have turned the same amount into $339. And then there’s Tesla, the electric vehicle trailblazer that has minted millionaires while Ford’s stock stagnated.
Amidst this backdrop, the question looms large – can Ford’s bold pivot towards electric vehicles finally jolt its stock price into action, or is it time for investors to abandon ship? Let’s delve deeper into what the next five years could hold for this iconic automaker.
The Age-Old Bull Argument
Just a few years back, Ford’s bullish narrative was crystal clear. The traditional automaker would swiftly shed its sluggish, gas-powered past to embrace electric vehicles, leveraging its iconic brands like the Mustang and F-150 to seize a significant share of the market.
Investors bought into the idea that EVs inherently promised fatter profit margins compared to their internal combustion counterparts, a belief reinforced by Tesla’s soaring operating margins since 2020, painting a stark contrast with Ford’s modest figures. With a price-to-earnings (P/E) multiple of 70 for Tesla versus Ford’s 6.2, Ford’s aggressive leap into new technology seemed poised to unlock substantial value, bolstered by its robust supply chain and extensive dealership network.
The Electric Dream Begins to Diminish
While Ford stands as one of America’s largest EV manufacturers, having sold 72,608 all-electric vehicles in 2023, the foundational assumptions underpinning its ambitious electric shift are unraveling. The competitive landscape is intensifying, even for Tesla, as evident from its dwindling operating margin, plummeting from 11.4% to a mere 5.5% in the first quarter.
Ford’s woes run deeper. Sales volume in its Model E segment, focusing on consumer EVs, plunged by 20%, leading to an alarming 84% decline in revenue, indicative of drastic pricing cuts. According to CNN, Model E incurred losses averaging $132,000 per unit in the period, with management anticipating a whopping $5 billion deficit for this segment by year-end 2024.
Image source: Getty Images.
However, Ford finds solace in its enterprise-centric EV models like the E-Transit vans, which are compensating for the Model E downturn. The foreseeable future suggests these models will become pivotal within Ford’s EV portfolio, with increasing relevance as businesses and governmental bodies are nudged towards eco-friendly practices. Notably, the U.S. Postal Service placed an order for 9,250 E-Transit vans to be delivered this year.
Navigating the Road Ahead for Ford
Unfortunately, electric vehicles don’t appear to be the magic potion that propels Ford’s stock to loftier valuations. Rather than uplift profit margins, this new venture seems poised to exert further downward pressure on the company’s financial health, leaving scant resources for investors. The landscape ahead seems daunting for Ford.
Ford attempts to compensate for its lackluster stock performance through a dividend yield of 4.85% – significantly higher than the S&P 500 average of 1.35%. However, for income-oriented investors, safer bets like government bonds yielding 4.4% over five years beckon with far lesser risk.
Is Investing in Ford Motor Company Prudent at This Juncture?
To make an informed decision on investing in Ford Motor Company, ponder over this:
The Motley Fool Stock Advisor team recently identified what they deem as the 10 best stocks for potential superior returns, with Ford Motor Company conspicuously absent from the list. The chosen 10 stocks hold the promise of significant returns in the foreseeable future.
Reflect on Nvidia’s inclusion in a similar list back in April 2005 – a $1,000 investment then would now fetch $635,982. Food for thought, isn’t it?
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Will Ebiefung has no stake in any of the stocks mentioned. The Motley Fool holds positions in and endorses Tesla. The Motley Fool abides by a disclosure policy.