Here is a shocker for you. Ford Motor Company (NYSE:F) is now readier for the year 2022 than Tesla Inc (NASDAQ:TSLA).
That’s because Ford CEO Jim Hackett has shifted his strategy to deal with the reality Tesla made possible — a future of electric, self-driving cars that are sold as a service, not as products through a dealer.
This is the urban future. It’s not going to be for everyone, not in 2022. That’s why Hackett is still investing — heavily — in gasoline engines and power trains for pick-up trucks, and other heavy vehicles that often travel off-road (or whose owners think they do).
None of this is going to be reflected in the next Ford quarterly report. That is expected on Oct. 26, with analysts anticipating modest earnings of 31 cents per share (and hoping for 37 cents per share) on revenue of $33.63 billion.
The Change Is Gonna Come for Ford
You won’t see Hackett’s shifts in the 2017 numbers, either, nor the 2018 numbers. This is a long-term play, like the one Elon Musk made in 2012, when Tesla Motors was trading in the low 30s and no one believed it could even make one quality car.
You also won’t see Ford deliver a “10-bagger,” increasing its value by 10 times, which is what Tesla has done over the last five years. But Ford shareholders will profit, and they’ll have a flow of dividends to keep them warm while waiting.
This is what I was hoping for a few months ago when I suggested Ford as a good place to hide from the next market crash and recession, which I know has not come yet.
It’s Hackett’s vision of switching to electrics for city driving, simplifying the product line and preparing for autonomy, while investing more in the near-term in winners like pick-up trucks, that impresses me.
This is a vision that comes straight from Silicon Valley.
Instead of just replicating what Alphabet Inc. (NASDSAQ:GOOG, GOOGL) and others have done with autonomy, Hackett is thinking about the next step and he has tasked start-up Autonomic Inc. with coming up with it. Ford has an option to buy the company, but won’t exercise the option unless it sees a valid deliverable.
This is the way you play in the Valley — small teams, big visions, but spread your bets. Look over the next hill. As Bill Gates said, “people overestimate what they can do in one year and underestimate what they can do in 10 years.”
Wall Street, which can’t see 10 weeks ahead, let alone 10 years, is not going to validate this strategy until it delivers results.
Patience Grasshopper
Meanwhile, Hackett must just keep Ford on track, making and selling cars at a profit.
Ford does that.
The emphasis will be on profit. Ford delivered nearly $36 billion in sales for the third quarter last year, against the $33.63 billion expected this year. But it only made $957 million, or 24 cents per share, on those higher sales. Hackett is expected to deliver earnings of about $1.25 billion, or 31 cents per share, on the lower revenue. That’s what counts.
So long as Ford is out-earning the 15 cents per share dividend, which now yields 4.86%, and so long as analysts can speculate on a raise on that dividend rather than a cut, things should be fine. Ford stock will thus rise or fall, in the near term, based on the public’s appetite for income, which, with demographics what they are (Hackett and I are both 62), should be increasing.
Vince Martin is right. The recent rally in Ford won’t last. But defensive investors are more interested in floors than ceilings and, unlike many companies, Ford has one. It also has its eyes on what comes next, and that matters too.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in F.
