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Ford Stock: The Electric Boom Could Easily Go Bust

Ford Motor (NYSE:F) stock is up 105% in the last year, moving from $7 to its current price of more than $14.

Ford (F) logo badge on grill of car
Source: JuliusKielaitis / Shutterstock.com

It has been powered by the continuing success of its trucks, on big expectations for electric cars, and the political support of the new administration. CEO Jim Farley insists the shares have more room to grow.

They should. Even with their recent run-up, Ford has a market cap of just $56.5 billion, and a price-earnings ratio under 17. Tesla (NASDAQ:TSLA) is worth over 10 times more, even while Ford’s sales are still 3 times higher than Tesla’s.

Catalysts Converging

There are three catalysts for Ford’s head of steam.

First, business is better. During the second quarter, ending in June, Ford earned $561 million, 14 cents per share, on revenue of $26.75 billion. Sales were up 38% from a year earlier, although profits were down on higher costs.

Second is the turn to electrics. Ford bragged in the second quarter release about its Mustang Mach-E and F-150 Lightning electrics, built around bodies that had been popular with gas-powered cars. The Lightning already has 120,000 reservations.

Third is the support of the Biden administration. The president himself test-drove the Lightning in May. He has proposed extra tax credits for electrics made in the U.S., by union labor, with U.S.-made batteries. The goal is for half of U.S. cars to be electric in 2030, with at least half made here.

Politics Diverging

Whether Ford will give Biden everything he wants is open to question. Ford is investing heavily, just not in the way Biden might want.

The company recently announced it is building four new plants to support electrification, all in southern states averse to unions. Farley said the sites were chosen because they’re “greenfield,” meaning there will be no clean-up costs from older plants. They’re also much larger than Ford’s 20th century plants, like River Rouge.

Politicians in Kentucky and west Tennessee are already savoring the expected growth. The announcements gave Ford stock a 3% boost in a week where the average S&P 500 stock lost 3%.

The United Auto Workers union will try to organize the plants, saying Ford has a “moral obligation” to support them. Whether it can succeed in the anti-union area is uncertain.

Tesla CEO Elon Musk, who is notoriously anti-union, has complained that Biden is “biased” toward Ford, which employs union labor. Tesla shares dropped $20 each in the days after the Ford announcement.

Analysts Are Cautious

So far analysts are cautious about the Ford plan. Tipranks only counts nine Ford analysts, and while five say buy, at least one says sell. CNN counts 20 Ford analysts, also with one bear.

Bulls like Mike Ward of Benchmark say Ford stock could advance 40% in the next year. Bears say the stock price has risen too far and too fast.

The Bottom Line For F Stock

I invested in F stock during the reign of Farley’s predecessor, Jim Hackett. I lost money.

The big bet on electrics, however, based on cars that are already good sellers, has me interested again.

The problem is that the world of electric cars may look nothing like today’s world. Electric cars have few moving parts. Motors can be of any size. There are no transmissions. People will be able to scale their need for mobility. It’s unclear whether future transportation will be sold as a product or a service. Cars sit in garages most of the time, and electrics can run all day.

No car company, not even Tesla, has yet to grapple with this potential reality, that we could go electric without a car in the driveway. That makes me skeptical of Ford. The electric boom could easily bust.

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.


Article printed from InvestorPlace Media, https://investorplace.com/2021/10/f-stock-the-electric-boom-easily-go-bust-ford/.

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