Ford Motor Company (NYSE:F) had its annual Investor Day on Wednesday, and the big news was its decision to move all small-car production to Mexico over the next two years. The natural reaction was political, but the reaction to Ford stock should be small.
Small cars are not where the action is in today’s car market. SUVs and pickups are where the action is. Ford is continuing to make those products in the U.S.
The Mexico move also was telegraphed last year, during negotiations with the United Auto Workers union, which has said it does not expect its membership to decline as they continue to churn out the high-profit product.
Ford stock did not react to any of this, and remains moribund. At $12.15 per share, F sports a meager price-to-earnings multiple of 5.4 and a market cap of $47 billion. That’s less than twice the market cap of Tesla Motors Inc (NASDAQ:TSLA), which could produce just 100,000 cars in a year at its present run-rate.
Ford makes that many vehicles in less than two weeks.
What Is An “American Car?”
If you demand a car that is assembled in America by American workers, consider a foreign nameplate.
Toyota Motor Corp (ADR) (NYSE:TM), Honda Motor Co Ltd (ADR) (NYSE:HMC) and Nissan Motor Co. Ltd. (OTCMKTS:NSANY). Volkswagen AG (OTCMKTS:VLKAY) and BMW. Hyundai and Kia. What do these nameplates have in common?
They’re all assembled in the U.S.
The assembly of a car is just the last step in a global supply chain that makes it hard to know where anything really comes from. Important parts are often made in the country of origin, then exported to assembly plants, but the key to getting the 2009 Detroit bailout passed was how dependent foreign makers had become on American parts to keep their assembly plants going.
During this decade, the parts makers have dramatically outperformed the companies they supply. Delphi Automotive PLC (NYSE:DLPH) returned to the public markets in 2011. Since then, the stock has more than tripled.
Ford Stock: Follow the Value
Critics of Ford’s move misunderstand the role of a car company in today’s world. The big money is in design and distribution, not manufacturing at all. Car companies are evolving to be more like Apple Inc. (NASDAQ:AAPL).
Key jobs stay in the nameplate’s country of origin. These jobs lie in managing global supply chains, global distribution chains and assembling as close to their markets as possible. Increasingly these are computer programming jobs.
Ford itself is not moving to Mexico any more than Apple is moving to China. It’s exporting the lower-value work and keeping the high-value work for itself.
What Ford stock holders should be focused on are the company’s moves toward creating autonomous vehicles and how that brings even-more of a car’s value-add into electronics and software, which is written in the U.S.
The other question is whether Ford can capture its sales channel, as it moves from car sales to car rentals and fleet management. Uber has already put a stake into that ground by demonstrating self-driving cars in Pittsburgh.
Ironically, the cars it demonstrated were Fords.
The Bottom Line
Car assembly is just the center of a process that includes supply chains and distribution channels. As cars become autonomous there are enormous opportunities that investors currently don’t think Detroit is going to capitalize on.
Investors today are far more willing to put their car investments into Silicon Valley, into Tesla and Uber, even into Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Apple, than into Ford or General Motors Company (NYSE:GM).
I sense they have the balance wrong, and that the future of Ford stock is great.
Dana Blankenhorn is a financial journalist who dabbles in fiction, his latest being The Reluctant Detective Travels in Time. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he was long AAPL and GOOGL.
