Ford (NYSE:F) has recently restructured its company and started setting goals for its EV (electric vehicle) in the next several years. If its plans materialize, then F stock could move substantially higher. Ford plans on producing 2 million EVs by the end of 2026. Moreover, it expects half of its global volume to be EVs by 2030.
Ford says it has sold 13,772 “electrified” units in 2022 (as of March). This is after it sold over 27,000 of its Mustang Mach-E vehicles in 2021. It has yet to start delivering its electric F-150 Lightning pickup trucks, which should happen soon.
However, the company recently said that it plans on doubling its BEV capacity in Europe to 600,000 by 2026. Compare this with Tesla (NASDAQ:TSLA), which made over 930,000 units in 2021, including more than 305,000 in Q4 alone. With its two new plants now online, Tesla will be able to more than double production.
So, Ford plans on catching up with Tesla’s present capacity within four years. Both would have 2 million or more in production capacity for electric vehicles.
Comparing Ford and Tesla
Right now Tesla has a market valuation of over $1.08 trillion. But Ford is at $61.85 billion. So Tesla’s market value is 17.5 times the size of Ford. But Ford is 5.7% of the size of Tesla.
Keep in mind that Ford made almost 4 million cars and trucks. The market clearly does not value its ICE (internal combustion engine) production very much.
And there are good reasons it shouldn’t. Tesla made $5.5 billion in GAAP net income and $5 billion of free cash flow (FCF) in 2021. But Ford, which made 4 times the number of cars of trucks, made net income of $17.9 million, but only $4.59 billion in adjusted free cash flow. That was less FCF than Tesla with a quarter of Ford’s production.
In other words, Tesla made $6,091 in FCF per EV car it produced. But Ford made just $1,164 per vehicle it produced. That’s why the market values EV production much more than ICE production.
Where This Leaves F Stock
Let’s assume that Ford makes 2 million EVs by 2026. Actually, even if it made 1 million by 2026, it could potentially have a 1 trillion market cap. This assumes that the market values it the same as Tesla.
The potential return for investors is quite high. Over the next four and three-quarter years, F stock could rise 17.5 times. On a compounded basis that works out to a potential annual return of 82.68% each year.
In fact, let’s say the market value increases just 10 times over the next four years. (This could easily happen once the market sees that Ford is serious about getting into EV production and it executes its plans). That implies that Ford stock will rise 77.83% each year on a compounded basis for the next four years.
That is a huge potential upside for F stock investors.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
