It’s time to communicate about vehicles!
The transition to electric cars is not going as smoothly as expected when the transition to net 0 accelerated after the pandemic.
For example, in November, The Verge focused on the weakening EV trend despite skyrocketing EV sales, a wider variety of EV models to choose from, and infrastructure.
the edge
The challenge goes beyond early adopters.
We are now at a level where it is difficult to grow in a market that desperately demands mass adoption to increase margins and justify investments.
I quote it below:
“EV adoption is looking to move into its next phase, which requires a lot more mass-market interest, and that larger cohort wants to sell EVs because they’re not as excited or willing as early adopters,” he said.
It’s going to be a lot harder for dealers: converting a total cohort of more concerned and price-sensitive buyers to an entirely new technology. Buying an electric vehicle involves larger screens, fake grilles, or light bars; It’s a whole new lifestyle, filled with diversity considerations, load anxieties, and appliance installations. – The edge
This was demonstrated through a Twitter/X account called Car Dealership Guy, run by an industry expert, who pointed out that EVs don’t even sell after a steep discount.
Electric vehicle prices are falling, but they may not be falling enough. With discounts of up to 50% in some cases, EVs are by far the most productive “offer” on the market. But the source of stock days is still high. If sales don’t recover even after such large discounts, most automakers (and dealers) will suffer even bigger losses. Via Twitter/X
This is all news for an automaker that I’ve talked about many times in the past. A car manufacturer that has opted for the electric car without neglecting its old activity.
That company is Ford Motor Company (NYSE: F).
My most recent article about the company, written on April 3, 2023, when I chose the name “Don’t buy Ford, buy Lear. “
Since then, Ford’s percentage value has fallen 2%. The percentage value of Lear (LEA) increased by 4%.
At the time, I argued that buying from suppliers was (often) a better solution than buying from automakers.
Although I probably wouldn’t like to think about this, this article is dedicated to Ford, who made the right decision by sticking to his old business.
Now, it could reap the rewards, as the EV trend has gone off the rails, allowing Ford to overtake North American EV giant Tesla (TSLA) in more than 40 editions over the past three years.
That being said, let’s get into the details!
On March 18, Bloomberg reported something very compelling in an article titled “Old-Guard Car Stocks Are Back in Fashion as EV Revolution Falters. “
According to the article, classic automakers such as General Motors (GM), Ford, and Stellantis (STLA) are gaining traction as the profitability of gas and hybrids remains strong.
Basically, investors appreciate the steady benefits of the internal combustion engine, which is also less complicated than electric vehicles, as those engines only need incremental innovation.
As can be seen below, money flow estimates have been revised upwards in recent months for those producers. In Tesla’s case, the opposite happened.
Bloomberg
In the classic segment, Ford stands out.
According to the article:
Jonas chose Ford as his most sensible pick among U. S. auto stocks, saying that after years of big spending on electric cars and autonomous vehicles, those corporations are now focused on returning cash to shareholders.
“In a world of capital scarcity and shifting strategic priorities, capital potency and return on money will be key in determining the functionality of stock value by 2024,” Bloomberg wrote.
In other words, only Ford and its main competitors have more consistent margins, but they also derive advantages from their ability to praise investors.
After all, while Ford has invested in electric mobility through the F-150 Lightning and other models, it has remained unwavering with Ford Blue, which is its historic business. This business segment includes the rugged Mustang, which can supposedly be propelled to more than 800 horsepower with a $10,000 upgrade.
Ford Engine Company
Additionally, at the recent Wolfe Research Global 2024 Auto and Auto Tech conference, the company indicated that it is focusing on hybrids and plug-in hybrids, which will allow it to leverage existing strengths during an eventual transition.
This is what Japanese manufacturers have been doing for a long time. Companies like Toyota Motor(TM) often opt for hybrids or commit to fully embracing electric mobility.
U. S. hybrid sales rose 50% in the first two months of the year. This outpaced EV sales, which grew 13% in both expansion and volume. Hybrids left dealerships in an average of 25 days, about three times faster than electric cars and twice as fast as gasoline cars, according to studies by Edmunds.
About one-fifth of Ford’s flagship model, the F-150, is now hybrid. The total number of F-150 hybrids is expected to double!
What’s more, about a portion of its Maverick models are sold with a hybrid system.
It now has the best seller in the United States.
Ford Engine Company
Last year, total hybrid sales increased by as much as 20%. This year, the expansion is expected to double to 40%.
It’s no surprise, then, that Ford says the hybrid vehicle market remains strong, driven by developing environmental awareness, regulatory pressures and advances in hybrid technology.
He also sees a burden that consumers understand.
[. . . ] Consumers can do the math on the hybrid. We see it every day at Ford. We’re now No. 3 and probably No. 2 this year when it comes to hybrids in the U. S. U. S. And consumers don’t want to replace their hybrid habits, and can quickly calculate the power of fuel economy.
[. . . ] And in terms of our long-term business plan, we’ve been assuming since the middle of last year that we had to sell an electric vehicle at a hybrid price. It doesn’t get more effective for consumers than that. $3,000 for It’s $5,000 and I think that’s the right way to approach it.
[. . . ] We want to think about that. I probably wouldn’t launch any vehicles if I can’t make money from it. In the first 12 months, this required a lot of changes. – Wolfe Lecture
While Ford is still innovating in the EV space, it is a major player in the hybrid segment, benefiting from a broad existing platform, large visitor base, and value advantages over companies that are more aggressively engaged in EVs.
I like the company’s point of view of promoting experimental cars but sticking to what works (making money).
During its 4Q23 earnings call, the company indicated that its upcoming Gen 2 products will be successful within 12 months of launch.
This is all news for shareholders.
Last year, the company paid a quarterly dividend of $0. 15 per percent, in addition to a special dividend of $0. 18 per percent.
It now has a dividend yield of 4. 9%.
The dividend resolution raises the payout rate to around 50% in 2023. This is in line with the company’s purpose of consistently returning 40% to 50% of loose money to shareholders.
During the 2024-2026 period, the company is expected to generate approximately $6. 1 billion in average available cash per year, representing 12. 7% of its current market capitalization.
Half of that is 6. 4%.
This is wonderful news for your dividend: potential recessions or other headwinds.
It’s also a good omen that Ford is rarely going to experiment with electric vehicles (anymore). The company is very transparent about its plans and is in a position to make high dividend payments.
The company, which has an investment-grade credit score of BBB-, also has a valuation.
While the company’s earnings are expected to consistently see significant growth, with analysts expecting an average EPS of $1. 83 over the 2024-2026 period, inventory is trading at a mixed P/E ratio of just 6. 1x EPS. its long-term normalized P/E ratio of 8. 6x.
This implies a fair price target of $15. 50, which is 28% above the existing value.
Note that those figures are in the table below.
QUICK CHARTS
While I agree with cautious EPS growth expectations, given that peak rates and persistent inflation are a terrible combination for consumers, I think Ford is trading below its fair price, especially if investors are transferring more cash from natural electric vehicle stocks to corporations like Ford. .
The existing consensus price target is $13. 50, which is below my fair estimate of $15. 50.
All in all, while I can’t say it’s an ideal environment to buy automakers, I like the long-term risk/reward ratio for Ford as it focuses on making money in the traditional and hybrid space.
The industry is also benefiting from tailwinds as the EV trend fades.
In addition, the control must take the dividend factor seriously, which bodes well for (special) dividends.
At a time when the EV revolution is facing headwinds, classic automakers like Ford are gaining ground.
By prioritizing its legacy business and investing in hybrids, Ford is becoming a smart choice for investors.
With strong profitability and return on shareholder money, Ford’s consistent functionality and commitment to dividends make it an interesting option in a rapidly changing automotive market.
As the EV trend loses momentum, Ford’s strategic position positions it for long-term success, offering investors a promising risk/reward proposition.
Proceeds:
Cons:
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This article written by
Leo Nelissen is an analyst who focuses on major economic developments, such as supply chains, infrastructure, and commodities. He is an iREIT® contributor at Alpha.
As a member of the iREIT® team at Alpha, Leo aims to provide in-depth research and actionable investment insights, with a particular focus on dividend expansion opportunities. Learn more.
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