Investors are starting to believe in Ford Motor (NYSE:F) again. Since the start of the year, Ford stock is up almost 30%. Shares closed out a week of gains on Feb. 5 at $11.51, giving F stock a market capitalization of $45.8 billion.
Not bad for a week that included the car maker reporting a full-year loss of $1.27 billion, 32 cents per share, on revenue of $127 billion.
Ford’s Feb. 4 earnings release downplayed the numbers. Instead, it headlined a planned $29 billion investment in electric and automated vehicles. Since its pandemic low below $5 a share, Ford has more than doubled its market cap, but still sells for less than 40% of last year’s sales.
The earnings package was very much akin to what investors typically get from Tesla (NASDAQ:TSLA) — putting a statement of cash flows ahead of the earnings numbers, and featuring pictures of its expanded South African truck plant.
Tech Tie-ups, EV Progress Buoy Ford Stock
Ford’s stock has been buoyed this year by the Mustang Mach-E, an electric SUV designed to compete with the Tesla Model Y. The Mustang is not only drawing strong reviews, but it’s eligible for a $7,500 tax credit that has expired on the Tesla, meaning it’s 20% cheaper.
New CEO Jim Farley, who replaced Jim Haslett in October, also announced a six-year deal with Alphabet (NASDAQ:GOOGL) to put its Android Auto software into Ford vehicles starting in 2023. Earlier Ford cars used Microsoft (NASDAQ:MSFT) software. Ford has also used Amazon’s (NASDAQ:AMZN) AWS cloud and even Blackberry (NYSE:BB) QNX software in the last decade.
The deal looks bigger for Google Cloud than for Ford. Ford says it is creating a new group called Team UpShift that will use Google Cloud to streamline Ford operations. Missing in the Ford-Google show is any mention of Waymo, Google’s autonomous car project.
Analysts Still Wary
Since the start of the year, shares of both General Motors (NYSE:GM) and Ford have been outperforming those of Tesla. It’s easy to do since they’re starting from a smaller base. The 30% gain in Ford stock represents less than $15 billion in new market cap, while the 20% gain in Tesla is worth over $150 billion in market cap.
Despite its low value, Ford is still not getting much love from analysts. Just 4 of 11 Ford analysts are saying you should buy it. Their average 12-month price target is less than 5% down from its current price. Analysts are starting to believe in both the electric and autonomous revolutions, but they remain wary of Ford’s competitiveness.
However, Ford’s coming $29 billion investment is part of a five-year plan that looks affordable. The company had $25 billion in cash on its books at the end of 2020 and $24 billion in operating cash flow during the year. The company has almost $110 billion in long-term debt, but $88 billion represents auto loans made through Ford Credit. Only $22 billion accrues to auto operations.
The Bottom Line on Ford Stock
Ford’s story hasn’t really changed since the days of Haslett. The plan still is to turn Ford into something like Tesla, using profits from its gas-powered pickup trucks.
The riskiest part of that plan is still ahead. Electrics remain the shiny object of the future, while most people still buy gas-powered vehicles. There’s still the tipping point to be managed, where buyers see gas-powered cars as having a limited shelf life and profits from them disappear. Ford will still have enormous capital tied-up in its gas-powered car line when that happens.
That means Ford will never really be Tesla, despite its pretensions. It’s not the financial debt that should worry buyers of Ford stock. It’s the technology debt that still isn’t acknowledged and remains to be written off.
At the time of publication, Dana Blankenhorn directly owned shares in AMZN and MSFT.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at email@example.com, tweet him at @danablankenhorn, or subscribe to his Substack newsletter.