If you’re a Ford Motor Company (NYSE:F) shareholder and are frustrated that Ford stock is down nearly 40% from its 2014 peak, you’re not alone. The Board of Directors, CEO Mark Fields and even some analysts have grown weary of the fact that F stock has been such a poor performer of late … despite the fact that last year was the second-most profitable year the company has ever seen.
The crux of the problem? Investors just don’t see enough hope for a bright future.
Those doubters should know that the company is actually doing quite a bit to reshape the company for maximum relevancy in the foreseeable future. On the other hand, all those owners of Ford stock who have their doubts may ultimately be right.
Though we’d seen glimpses of it several times in the recent past, Ford’s strategic plans were laid out in some detail at last week’s annual meeting of Ford stock holders. Chief among those efforts are the cultivation of more electric vehicles, autonomous driving and ride-sharing solutions; the first two will clearly take aim as a fast-growing Tesla Inc (NASDAQ:TSLA).
The effort goes well beyond the development of new technologies, however. It’s also getting back to basics, working on selling more cars — and more of its profitable trucks in particular — and at the same time developing new vehicles that don’t exist today.
Case in point: China.
While China has always been a key market for Ford Motor as well as rival General Motors Company (NYSE:GM), it has never been a terribly profitable market for either company. Chinese consumers prefer smaller and more fuel-efficient vehicles, which are significantly less profitable than the gas-guzzling beasts many U.S. drivers love.
That may be about to change, however. Last month, at the Shanghai International Automobile Industry Exhibition, it was clear most of the major U.S. auto manufacturers are pushing to sell more large pickup trucks in the country, where only 2% of its automobile market is made up of large-truck sales.
At the same time Ford plans on ramping up truck sales in China, it aims to introduce (or re-introduce) new concepts that should appeal to shifting domestic tastes. The two biggies? Ford will be introducing a smaller crossover vehicle called the EcoSport to the U.S. market, and it’s bringing back the small pickup truck called the Ranger. The latter went away for a while, and the former is already a success in foreign markets.
Be that as it may, the initiatives aren’t apt to do enough to help rekindle a struggling Ford stock soon enough.
F Stock Not Perfectly Positioned
Give Mark Fields credit for at least one thing … he’s trying new things rather than doubling down on the aging plans he inherited. “New” doesn’t guarantee success though, and little of what Ford is doing will likely bear fruit soon enough to sate current or potential F shareholders.
Take, for instance, its plans to beef up truck sales in China now that U.S. sales of its pickup trucks appear to be topping out. It’s an untapped market to be sure, but the vehicle Ford was touting at last month’s industry exhibition was the F-150 Raptor, which comes with a sticker price in excess of $70,000.
In China, pickup trucks are widely regarded as a utility vehicles for farmers, who can own a new pickup for less than $8,000. The higher-end market is still mostly unaccustomed to pickup trucks being used as a passenger vehicle.
The gambit may not pay off, especially in light of the fact that car sales tumbled in China last month just as much as sales of cars in the U.S. did. That could mark the start of a bigger-picture slide.
At the same time, while the pending U.S. debut of the EcoSport and reintroduction of the Ranger are exciting, they’re also not going happen right away. The EcoSport’s U.S. launch won’t happen until early 2018, and the Ranger won’t be back on car lots until 2019. The ballyhooed revival of the Bronco won’t happen until 2020. Ford stock could easily languish in the meantime, and there’s no particular assurance those new vehicles (and others) will actually grow sales again. They may only cannibalize Ford’s existing sales. Never even mind the fact that “peak auto” increasingly looks like it has already happened.
In the meantime, there’s also going to be a wait until Ford’s EV and autonomous driving ambitions bear fruit. And if there’s one thing we’ve seen since 2014, it’s that investors are impatient when it comes to Ford, rarely giving the company the benefit of the doubt.
Bottom Line for Ford Stock
Don’t get the wrong idea. Ford as a company is doing well, and even if the headwind it’s running into ends up being as brisk as it seems like it will be, Ford will be fine.
On the flipside, Ford stock has already been proven to be a non-performer even when the company is doing incredibly well. Just think how disappointing the stock’s performance will be when the company is forced to retreat.
There will come a time when the secular and cyclical headwinds have run their course and F stock is well positioned for bullish progress. As it stands right now though, that upside isn’t on the radar.
As of the time of this writing, James Brumley held a long position in F stock.