Benjamin Franklin said in a letter to Jean-Baptiste Leroy in 1789 that one could only be certain of death and taxes in life. I’m sorry, but if any company had managed to viably produce automobiles for just about anybody during that time, Mr. Franklin would have known that enormous capital demand is a certain thing in the automobile industry.
I mean, Ford Motor Company (NYSE:F) couldn’t generate revenue of $155.6 billion without spending $143.2 billion in total expenses for the trailing-12-month (TTM) period. Another proof is General Motors Company (NYSE:GM), who had to spend $150.24 billion in total to generate $158.10 billion in revenue – also on a TTM basis.
By comparison, just because the business landscapes are different, Google’s parent company, Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), could generate $81.76 billion in revenue with total expenses of $60.36 billion on a TTM basis — and Google is still very much in a growth phase vs. F stock or GM.
Again, this comparison is to highlight just how capital intensive, the traditional automobile industry is.
So it’s not surprising to see Ford execs excited about the potential expansion of margins that the ride-sharing business promises. F stock CEO Mark Fields said at the company’s annual investor day in September that its new mobility business — an all-encompassing term for new transportation services, which includes ride sharing — could offer up to 20% in profit margins. Its TTM profit margin stands at 5.78%.
Perhaps more optimistically, Fields said Ford stock is well positioned to earn $3.7 trillion of the potential annual revenue of $5.4 trillion in the emerging mobility business.
F stock chairman Bill Ford echoed CEO Fields’ optimism on September 29, at a two-day World Mobility Leadership Forum, when he said Ford stock would become less capital intensive if it gets the new mobility business right. That is a big IF, though.
Taking these words at face value, one would simply hit the buy button on F stock. Because a 20% profit margin on $3.7 trillion is $740 billion — over $250 billion more than what the world’s biggest company by revenue, Wal-Mart Stores, Inc. (NYSE:WMT), generates in revenue.
I’ll briefly assess if investors should buy the words of F stock execs — and to what extent.
Are Ford’s Emerging Mobility Plans Well-Defined?
In March of this year, F stock officially made Smart Mobility a subsidiary company of Ford Motor Co. Smart Mobility is the result of an emerging mobility project that Ford began in January 2015. However, that’s about the biggest move F stock has made in emerging mobility.
With a business that is already generating over a billion dollars in revenue, Uber is obviously a leader in emerging mobility. Being in the market already means that Uber is better positioned to test new expansion opportunities. For instance, it recently announced that it would test self-driving car for ride hailing in Pittsburgh.
Moreover, Uber is expanding rapidly internationally. The implication of this is that there’s not much time for F stock to keep testing things if it wants to be relevant in the emerging mobility space.
The only other significant move Ford has made this year with respect to mobility is the $182.2 acquisition of software company Pivotal, which helped develop the FordPass app that helps drivers find parking spaces as well as helping drivers find their way to their destinations.
That’s quite disappointing because competitors including General Motors, Toyota Motor Corp (ADR) (NYSE:TM), Fiat Chrysler Automobiles NV (NYSE:FCAU) and Volkswagen AG (ADR) (NYSE:VLKAY) have been making more-defined moves toward emerging mobility. Most of these competitors identified the opportunities in emerging mobility after Ford had.
GM has invested half a billion in Lyft in addition to spending $1 billion to acquire autonomous driving startup Cruise Automation. Toyota also has a partnership deal with Uber. Another automotive industry outsider, Apple Inc. (NASDAQ:AAPL) has invested $1 billion in Didi Chuxing, a Chinese ride-hailing company.
The next best thing we’ve heard about F stock is its reported talks with Google regarding a potential partnership. It couldn’t reach an agreement at it.
Bottom Line for F Stock
Truth is, with F stock execs unwilling to divulge rich details on the company’s move in emerging mobility, there’s no crystal ball to tell how valid the words of Bill Ford and Mark Fields are regarding how profitable Ford stock would become in future due to the new mobility. In fact, going by the information we have, Ford is anywhere but at the top of the emerging mobility.
Investors should wait for richer and concrete details before becoming even slightly optimistic of Ford’s potential gigantic future margins.
Separately, though, the traditional Ford Company that we know is stable enough for investors to have their portfolio. After all, we’ve seen how it came out of the recession stronger.
As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.
