With a projected market for electric and autonomous vehicles of $ 1.5 trillion, Ford is well positioned to capture a significant portion of the global market.
Grow your business,
Not your inbox
Stay up to date and subscribe to our daily newsletter now!
5 min read
This story originally appeared on MarketBeat
After 20 years of not moving fast enough, Ford Motor (NYSE: F) stock appears to be bouncing back. While it's far from its split-adjusted high of $ 31.42 as of April 2001, it has moved up in eight of the last 10 months due to the better outlook for the old-school automaker.
With the advent of electric vehicles and a boisterous CEO, Tesla is understandably getting a lot of the market's attention. But in terms of which stock price is likely to double first from here, Ford might have the inside trail.
How did Ford Stock perform in 2020?
Ford is on a restructuring plan that began in 2018. He is supposed to reverse the company's sad financial performance. The multi-faceted plan includes reinventing the automobile business, creating new "must-have" vehicles, and company-wide modernization.
COVID-19 was instrumental in driving this transformation as new car sales fell sharply across the industry. Ford's revenue declined 18.5% to $ 127 billion last year, and earnings per share (EPS) of $ 0.41 were dramatically below the 2019 figure of $ 1.19. Much of the loss was due to a $ 1.3 billion shortfall in the mobility division that hit the company's recent foray into self-driving vehicles. A huge interest expense of $ 1.6 billion also weighed heavily and exacerbated the decline in vehicle sales.
Looking at Ford's performance in 2021, the outlook is much better. Management sees a significant improvement in operating profit from $ 2.8 billion to $ 8 billion to $ 9 billion. The turnaround is likely due not only to the lack of COVID-19 shutdowns, but also to the improvement in industry trends in new vehicle sales. The reception of car buyers for Ford's latest product launches – Bronco Sport, Mustang Mach-E and the new F-150 – will have a significant impact on 2021 results.
However, to meet its profit targets, Ford must address the current semiconductor shortages plaguing global automakers. This situation threatens to reduce Ford's production volume at least in the first half of the year.
Where is Ford Stock headed in 2021?
It's not often that a company is forced to disrupt its own business in order to move forward, but that's exactly the case with Ford. As part of its strategic plan, it has explicitly stated the need to "disturb ourselves".
As more countries set targets for low or no carbon emissions, the auto industry is clearly moving beyond its traditional roots. Recognizing that electric vehicles are the future, Ford plans to rev up its own electric vehicles. The goal is to not just be a tagalong, but to lead the electrification revolution in the areas where it is strongest – pickups, utilities, and commercial vehicles.
Last year, Ford invested around $ 7 billion in electrification to grow its investment to around $ 22 billion by 2025. While Tesla, Nio, and others have a noticeable lead in the electric car space, Ford's greatest chance of success lies in the van and truck market. It was the first company to announce plans to produce an all-electric delivery van called the E-Transit, in addition to plans to develop an all-electric version of its popular F-150 pickup truck.
Ford is also stepping into the autonomous vehicle (AV) game to find a second major growth engine to complement its core gas and hybrid businesses. The company also hopes that the introduction of new connected services will lead to some growth. If so, it would make a nice, annuity-like source of income that investors would find attractive and would help offset some of the cyclicality in the auto business.
Is The Time To Buy Ford Stock?
While Ford is late for the EV and AV parties, they are better late than never. With the electric vehicle and autonomous vehicle market forecast to reach $ 800 billion and $ 700 billion respectively by 2027, Ford still has plenty of opportunities to capture a significant portion of a $ 1.5 trillion global market.
Although the path to growth is clear, Ford's financial picture remains bleak. Of course, the company had to invest in these new growth areas to stay relevant in the fast-moving auto industry – and that has resulted in an increase in its already high debt level. At the end of 2020, it had a debt burden of $ 24 billion that needs to be addressed over time.
Indeed, it will take time for Ford's core business to return to pre-pandemic levels, not to mention its investments in EV and AV bearing fruit. Investors who step in now would do so with the understanding that restructuring still has a long way to go. With that leap in confidence here, given the $ 1.5 market opportunity, it can deliver significant long-term capital appreciation for the driver-seat investor as Ford stock rebounds.
Will Ford or Tesla stocks be the first to double from their current levels? In that race between David and Goliath, Ford's later start against Tesla's atmospheric rise could actually take the checkered flag.