Ford's Super Duty launch will come with a hefty price tag, but it'll be worth it long term. Image source: Ford Motor Company.
Investors understand that the automotive industry is both cyclical and capital intensive. Both of those facts practically guarantees that, inevitably, there will be bumps in the road from time to time. Just take a look at General Motors, Detroit's largest automaker, as it continues to deal with the aftershocks of its massive ignition switch recall. Peer Ford Motor Company (F -3.01%), while managing to avoid a massive recall in recent history, has also had a bumpy ride thanks to an extensive overhaul of its product portfolio.
The good news is that Ford is currently putting the finishing touches on some of its major product overhauls during the third quarter, and after that, it should be relatively smooth sailing for a couple of years.
A trip down memory lane
For those of you who need a slight refresher of how big a deal the all-new 2015 F-150 was, take a look at the graph that showed how it disrupted Ford's historical cadence of pre-tax results.
Image source: Ford Motor Company's Investor Presentation 2015.
Because Ford had to retool plants and adjust for the aluminum body panels, it was a slow ramp-up to optimal production, which delayed the company's typical surge in second-quarter results. Another bump in the road is coming this quarter as Ford's costs to overhaul the highly profitable Super Duty will come at a significant price tag.
Image source: Ford Motor Company's 2016 second-quarter presentation.
The good news is...
Fortunately for investors growing tired of bumps in the pre-tax profit road, after the Super Duty, Ford will enjoy a rather smooth ride for a year or two as it reaps the rewards from one of its busiest and most hectic product portfolio refreshes in memory. Ford will only update about 25% of its vehicle portfolio for the model years 2017 and 2018. It should be fairly steady sailing while investors and Wall Street digest what peak auto sales in the U.S. really looks like.
After a quieter 2017 and 2018, Ford plans to update 61% of its lineup in 2019 and 2020, according to Automotive News citing a report from Bank of America Merrill Lynch.
What's next?
Some of the big nameplates getting some attention when Ford's portfolio update begins again will be the Ranger midsize pickup, which Ford hopes will challenge GM's recent reentry into the segment. Following the Ranger by a year or two will be the Bronco's return, which could help take some of Jeep's thunder.
Investors will also be hearing much more about Ford's plans for electric vehicles and hybrids after announcing its plans to spend $4.5 billion to introduce 13 electrified vehicles by the end of 2020. Also, expect a ton of information regarding the automaker's plans to develop autonomous vehicles and smart mobility projects -- think of innovative businesses like Uber.
Ultimately, this relatively calm period after the Super Duty launch will give Ford a chance to prove it can produce profits (especially without a number of costly launches), manage inventories, and hold incentives in check before it begins another round of vehicle refreshes. What investors will want to watch is if Ford can optimize its profits during this period without sacrificing too much market share. As the industry approaches the peak of the cycle, the next few years are shaping up to be one interesting road trip for the auto industry and its investors.
