Ford (NYSE:F) is not having a good year. Ravaged by the effects of the novel coronavirus pandemic, competition nipping at its heels, the Detroit automaker is in trouble. Shares in Ford have been on a downward slope for the past six years. Covid-19 escalated that to a dramatic plunge in F stock.
Since bottoming out in March, the company’s stock has been in recovery mode, but that was derailed this week when fears of a second Covid-19 wave spooked the market.
Now trading just above $6, Ford might look tempting. After all, this is a chance to invest in a storied American company for about one third of what it would have cost just six years ago. It has huge new releases waiting in the wings, most importantly an all-electric F-150 pickup. The company could emerge from the pandemic like a Phoenix.
Don’t count on that narrative. F stock gets an F rating in Navellier’s portfolio grader. Here’s why.
Betting on the Pickup Truck
The importance of the F-150 pickup truck to Ford can’t be underestimated. First released in 1948, the truck has been the best-selling pickup in America for the past 40 years. It’s been the best-selling vehicle in the U.S. for more than 30 years.
The F-150 accounts for one third of Ford’s total sales volume. In 2018, the pickup had an average sales price of $47,000, making it a critical revenue driver and key to the company’s profits.
The F-150 is facing a crisis. It’s always had competitors from the other big American automakers, along with a few of the Japanese car companies. But Ford is now facing an existential threat. Tesla (NASDAQ:TSLA) is coming after after the F-150 with its Cybertruck.
Tesla’s offering is scheduled to go into production late next year, with a starting price of $39,900.
The “cool” factor of a Tesla is a big threat to Ford. Especially if customers can buy a Cybertruck for less than the average sale price of an F-150. So is the prospect of an electric pickup truck that costs a fraction of the price of a gasoline model to drive — even in these days of cheap gas. Since many F-150 buyers are using their truck as a daily-driver, not work, they won’t care if the Cybertruck may not have quite the same “workhorse” credibility.
Threats on the Electric Front
Ford has an answer in the all-electric F-150. However, that launch is a full two years away, if the latest rumors of a delayed launch are correct. When it does arrive, it won’t just be facing the Tesla Cybertruck. There will also be a new electric Hummer pickup from General Motors (NYSE:GM).
In addition, two high profile electric car startups are focusing on that lucrative North American pickup truck market. The R1T from Rivian goes into production in 2021. And earlier this year, Nikola (NASDAQ:NKLA) entered the race with its Badger pickup.
In other words, the one product that Ford and investors are looking to as the future – an all-electric F150 pickup – is going to have to fight an unprecedented level of competition. In an electric future, the F-150’s status as the dominant pickup truck – and driver of F stock – is anything but certain.
Ford’s Debt is Rated as Junk
You can learn a lot about a company from its debt. Not just how much it owes creditors – although that is important – but also how ratings agencies view that debt. Their rating impacts the interest rates the company pays. The rating is also a potential red flag for would-be investors. If the credit rating agency is worried about a company’s ability to service its debts, do you really want to invest your money in shares?
In the case of Ford, the red flag is flying. At the end of March, Standard & Poor’s Financial Services downgraded Ford’s debt. The shift from BBB- to BB+ puts Ford’s debt into “junk” status. At the time, S&P noted that a combination of cash burn and an expected downturn in light vehicle sales gave a 50% chance that credit rating would be lowered even further with 90 days.
We’re just weeks away from that 90-day window and no word from S&P on following through with an additional downgrade. I wouldn’t exactly celebrate that as positive news, though.
Bottom Line on F Stock
Ford, and its hopeful investors are pinning a lot on the release of the electric F-150 pickup truck.
Before we even get there, the company has to make it through the coronavirus crisis. Discounts and waived payments have gotten it through the first round. But what happens if the economy enters an extended recession? It’s going to get a heck of a lot harder to move those $47,000 F-150s.
F stock has crawled its way out of the $4.01 pit it was in on March 23. But at $6.13, it’s still down 35% in 2020. And it started the year down 40% over the past five years. Ford may have sentimental value, and you can root for it as an American innovator, but it’s simply too risky to invest in.
Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.