Over the next two years, Ford (NYSE:F) will be in a do-or-die situation. During this period, the company will be aggressively launching new models with a focus on electric vehicles. The stock has remained sideways for the last year as market participants wait to see the impact of the company’s transformation.
I am more bullish than bearish on F stock and I believe that the company will survive and grow.
However, it is worth mentioning that Ford will release third-quarter sales numbers Oct. 2. It makes sense to stay on the sidelines as weaker-than-expected numbers can cause a knee-jerk reaction.
Trucks and SUV Focus Will Deliver Positive Results
For the second quarter, trucks and SUVs totaled 83% of sales in the United States. In particular, sales of pickup trucks increased by 7% in Q2 after sales growth of 5% in Q1. The second quarter was the company’s best performance in the pickup truck segment since 2004. While sales of SUVs declined on a year-over-year basis, Lincoln SUVs registered 8.3% sales growth year-to-date.
The company’s focus on trucks and SUVs will translate into healthy sales volumes in the United States. Of course, there are economic headwinds that will impact sales in the near term.
However, trucks and SUVs will be long-term growth drivers. John Paul MacDuffie, Marina Whitman and Erik Gordon — faculty from the University of Pennsylvania’s Wharton School and the University of Michigan — discuss this issue in an episode of the “Knowledge@Wharton” podcast.
“The auto industry in general has been responding to increasing consumer preferences for crossover utility vehicles and trucks, and falling demand for sedans … In October, almost 65% of new vehicles sold in the U.S. were trucks or SUVs, a dramatic shift from trends five years ago when cars accounted for 50% of vehicles sold …”
While the article is from 2018’s fourth quarter, the trend remains the same. Ford will benefit from the change in consumer preference.
Mustang-Inspired EV Will Be in Focus
There is a buzz that Ford will be unveiling a Mustang-inspired electric vehicle in November. The markets will await the initial consumer response and Ford stock will react.
The SUV is likely to have a driving range of 300 miles on a single charge, and I do believe that the EV is likely to get a positive reaction from the markets. It is worth noting that Tesla (NASDAQ:TSLA) is the only car maker selling EVs with a range of more than 300 miles. Ford will not be far behind with its first model.
Another reason is that the electric SUV might have an attractive pricing. The speculation is that the starting price will be $40,000. Tesla reported an average selling price of $50,000 for Model 3.
With strong competition and a relatively weak economic environment, pricing will matter. And Ford will attract buyers if the pricing is attractive. It makes sense to have a competitive price to gain market share and Ford has the financial flexibility to afford some cash burn.
The company’s big push to launch more than 10 EV models in China over the next three years is also likely to deliver returns.
Joint Venture in India
Ford has announced a joint venture in India with Mahindra (OTCMKTS:MAHMF), and the latter will hold a 51% stake. I believe it’s a good move for the long term. Ford has previously struggled in India so a joint venture makes sense.
The key positive is that Mahindra has a robust sales and distribution network. With new mid-size SUVs, the joint venture is likely to work relatively well for Ford.
Of course, India’s automobile market has also witnessed a slump in the recent past. However, the country of 1.3 billion people has impending growth potential and Ford and Mahindra’s joint venture should make inroads in terms of market share growth.
Bottom Line on Ford Stock
The F stock price has been sideways, amidst volatility, in the last year. While markets wait for the next trigger, I believe that Ford stock is worth considering at current levels. However, it would make sense to accumulate gradually rather than to take a big plunge.
The company’s aggressive plan to roll out new models in 2020 and 2021 is likely to deliver positive returns. Ford is betting big on China’s EV industry, and I expect revenue growth as 10-12 electric vehicle models are launched in the next 24 months.
Overall, the markets seem jittery. But I am more bullish than bearish on Ford stock below $10.
As of this writing, Faisal Humayun did not hold a position in any of the aforementioned securities.
