Ford (NYSE:F) gave investors a peek into the abyss on April 13. The company issued a preliminary look at their first-quarter sales numbers. The news was bad and F stock has been falling ever since. According to Ford, sales will be down 16%. This reflects a 21% drop in wholesale vehicle shipments, which is steeper than earlier projections implied. The company projects a $600 million pre-tax adjusted loss.
Looking at the numbers on a more granular level, Ford reported stable sales in January and February. It wasn’t until March that they fell off a cliff. Still, Ford should post around $34 billion in revenue which would be a slight beat of analysts’ expectations.
And on a surface level, the news wasn’t surprising. When news of the pandemic began to surface, the outlook for global automakers looked shaky. According to the research firm IHS Markit, the industry stood to see sales plunge 12% on a year-over-year basis. That would be 50% more than the 8% decline it reached over two years during the great recession.
The real problem for Ford is what does the future look like once the immediate crisis ends? And for investors who are thinking of buying F stock at rock bottom prices, that future looks cloudy.
F Stock Is Not Going to Zero
Ford maxed out its credit lines as they were shutting down production. The company has also suspended its dividend. The combined efforts put about $30 billion of cash on the company’s balance sheet. It would seem the company is well supplied through the summer.
“We continue to opportunistically assess all funding options to further strengthen our balance sheet and increase liquidity to optimize our financial flexibility,” CFO Tim Stone said. “We believe we have sufficient cash today to get us through at least the end of the third quarter with no incremental vehicle production and wholesales or financing actions.”
And let’s be real. If the current mitigation policies last into fall, there will be larger problems for the economy, not just for Ford. To sum up its present situation, Ford stock may drop if the economy does not reopen as quickly as might be hoped. But the company does not appear headed for bankruptcy anytime soon.
However, when the company starts making cars again, its sales may be in need of a jump start.
It’s Not a Great Strategy, But It’s All They Have
As I wrote earlier this month, it’s frequently reported that Ford did not receive a bailout during the 2008 financial crisis. Technically, that’s true, but the company did receive a $5.9 billion loan from the federal government as part of a special low-cost loan program.
Semantics aside, the gist of the program was to promote the development of advanced technology. For Ford, this meant producing electric vehicles in the United States. There is no doubt that Ford was committed to a path of electrification before the financial crisis. However, where some companies are looking toward fully electric vehicles, Ford is staking its future on a combination of hybrids and fully electric vehicles.
You say “pot-ay-to.” I say “po-tah-tow.” The reality is that America was not all that close to being a fully electric country before the pandemic. And with oil prices below 2008 levels and gas prices at levels we haven’t seen since the 1980s, it’s unlikely that Ford’s immediate future looks bright.
Plus, for many Americans, a return to work will mean repairing frayed budgets. A new car, particularly one that tends to be more expensive than one with a traditional combustion engine, will be out of the price range of many.
The Bottom Line for Ford
Ford is one of the great American stories. And it is likely to survive the current problems brought on by the novel coronavirus. However, it’s not the present that should worry investors. It’s the future. Simply put, Ford is committed to making cars that reflect a very different reality than the one that most Americans currently live in.
Until that fundamental reality changes, F stock is not an investment at any price.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing Chris Markoch did not hold a position in any of the aforementioned securities.
