The New 2015 Ford F-150 Is a Game Changer, but Alcoa Is the Real Winner

Ford Motor's (NYSE: F  ) radically redesigned 2015 Ford F-150 pickup was the talk of the Detroit Auto Show last week. The F-150 is the best-selling vehicle in America, so every new version is bound to attract attention. However, this time Ford went for broke with a body that is 97% aluminum (the frame is still made of high-strength steel). This helped Ford cut the truck's weight by 700 pounds, boosting its fuel efficiency.

The 2015 Ford F-150 sheds 700 pounds by using an aluminum body (Photo: Ford)

Ford hopes that the new F-150's improvements in fuel efficiency and performance will help it gain share in the lucrative pickup market. Yet the real winner in this massive redesign may be aluminum giant Alcoa (NYSE: AA  ) . Alcoa will be one of Ford's top suppliers for the 2015 Ford F-150, and it will be a long-term beneficiary of growth in the auto industry's aluminum usage.

Retooling the business
Unlike most companies, Alcoa has had a rocky recovery since the Great Recession. Historically, the company has been heavily dependent on global aluminum prices. Unfortunately, after spiking from 2009 to early 2011, aluminum prices have dropped by a third, and Alcoa stock tumbled in sync with the aluminum spot price.

Aluminum LME Spot Price Chart

Alcoa vs. Aluminum LME Spot Price, data by YCharts

Today, Alcoa is investing heavily to diversify its business beyond aluminum mining, refining, and smelting into "value-add" businesses. In other words, it is looking to sell aluminum-based products rather than aluminum itself. CEO Klaus Kleinfeld recently noted that value-add businesses now make up 57% of Alcoa's revenue and 80% of its segment profit.

Alcoa plans to continue driving growth in the value-add businesses in order to boost profitability and limit its exposure to global aluminum prices. One of its biggest opportunities is the auto industry. Automakers expect to double their usage of aluminum by 2025, and Alcoa is investing $670 million in factories that will build aluminum parts for the auto industry.

A big trade-off
By using aluminum to cut the 2015 Ford F-150's weight by nearly 15%, Ford will be able to deliver a significant improvement in fuel economy. A general industry rule of thumb is that a 10% reduction in vehicle weight boosts fuel efficiency by 7%.

In addition, with a lighter truck, Ford will be able to offer buyers more hauling and towing capacity with smaller, more fuel-efficient engines. In fact, the biggest F-150 engine -- a 6.2-liter V8 -- isn't being offered on the 2015 Ford F-150 (at least for now).

Ford executives are hoping that superior fuel efficiency will help boost Ford's pickup market share through conquest sales. Nevertheless, the move to aluminum is quite risky. Aside from the potential hesitations of some buyers to buy an aluminum-body truck, the switch from steel to aluminum will add about $1000 in cost for the 2015 Ford F-150. Ford wants to keep the new F-150's price competitive, which means that it will have to "eat" much or all of this added cost.

The real winner
If Ford has to accept a lower margin on the new F-150 to maintain truck buyers' interest, it will need significant market share gains to move the profit needle. Yet while the new model could be a home run, there's also a real risk that the 2015 Ford F-150 launch will be underwhelming, as has been the case with General Motors' recent truck launch.

By contrast, Ford's F-150 redesign provides pure upside for Alcoa. The increased use of aluminum in the auto sector will (in a small way) reduce the global aluminum glut, helping to stabilize aluminum prices. Even more importantly, Alcoa's position as a key supplier for the 2015 Ford F-150 will allow it to grow its lucrative automotive "value-add" business regardless of the new model's profit margin for Ford.

Foolish bottom line
The 2015 Ford F-150 could represent a quantum leap within the pickup segment, offering best-in-class fuel economy by a wide margin without sacrificing performance. However, the cost side of the equation is a big question mark for Ford. The company has already tempered investors' profit expectations for 2014, and the new F-150 could potentially take a couple of years to really pay off in the form of higher market share.

As a result, aluminum supplier Alcoa may be the best investment play on the new F-150. Alcoa is one of Ford's key partners for the aluminum body, and this gives it almost guaranteed growth as Ford's new pickups go into production.

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Read/Post Comments (13) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 22, 2014, at 12:45 PM, Rockyvnvmc wrote:

    Aluminum, while not rusting like steel does, still corrodes, somewhat and is a softer metal, than steel is. It will be interesting...

    Although it's not lighter than mild steel, I would much prefer a Stainless Steel body (as in the DeLorean) instead of aluminum. It may weigh more than aluminum, but it's harder and would stand up better, over the long run. IMHO

  • Report this Comment On January 22, 2014, at 1:52 PM, btc909 wrote:

    This is going to be crazy expensive. Tack on that 2.7L "featured" motor and it'll be even more.

  • Report this Comment On January 22, 2014, at 2:32 PM, McSniperliger wrote:

    Aluminum is about 2 time the amount of mild steel. UPS, USPS, FedEx, etc have been using Aluminum for over 50 years and they have held up really well over the years.

    Stainless steel is very difficult to do body work on. DeLoreans if they were in a crash the panels were replaced. The goal is to get better fuel economy by 2025 where trucks HAVE to get 54.4 avg MPG.

  • Report this Comment On January 22, 2014, at 5:19 PM, CrazyDocAl wrote:

    It's going to be interesting. Ford has been quoted saying that they are hoping to get 3 mpg increase. That most likely means the buyer will see maybe 2 mpg. Several sources are expecting the base price to be around $30k, up $6k from 2014. If so that's a big jump.

    If the new Ford doesn't have a short ROI time period then the truck will be a bust. Ford's profit per truck will drop as they cut prices to compete. The estimated $10k profit per truck is driving the company right now, cut that in half without a doubling in sales will be seen as a loss.

  • Report this Comment On January 22, 2014, at 6:22 PM, luckyagain wrote:

    Since a large percentage of F150 hauls nothing heavier than the driver during his daily commute, getting better gas mileage will be a huge plus. I would expect that it would shift buyers away from mid-size sedans into the F150 instead. Not exactly what many people expect. After all if you can get about 30 mpg from a F150 and have a pickup too, that is a huge plus. I used my Ranger to commute to work for years and it would get about 25 mpg which was about the same as my car.

  • Report this Comment On January 23, 2014, at 8:10 AM, vsawmike wrote:

    Big rigs have been using all aluminum cabs for decades. Plus the aluminum is an alloy that is strong so it will not be softer to dents and dings like many uninformed think. Ford has done their research on this.

    Secondly the mileage will be more than 3mpg better. Look for improvements in engines along with the reduction in weight. Look for the 2016 and 2017 to get better as new ideas make their way into the production trucks. GM makes a good truck but it far from being the truck the F-150 is.

  • Report this Comment On January 23, 2014, at 11:25 AM, PS75425 wrote:

    when it gets 30 mpg ... give me a call ...otherwise I perceive too much fussing about a modest increase in MPG...

  • Report this Comment On January 23, 2014, at 11:39 AM, TMFGemHunter wrote:

    Thanks for the comments, everybody.

    The real MPG boost will be in the version with the smallest engine... not surprisingly. With a lighter truck, you can get similar performance with a smaller engine. That creates an additional mileage boost beyond keeping the same engine in a lighter truck.

    Adam

  • Report this Comment On January 23, 2014, at 4:15 PM, bossbill wrote:

    Not to worry.

    Ford has this figured out.

    Too much at stake here to gamble.

    F-150. Nothing succeeds like success.

  • Report this Comment On January 23, 2014, at 10:14 PM, Jodirte wrote:

    I believe Ford already stated the trucks will cost the same as the existing price range $23k-50k+. The trucks being a lot lighter and having a good variation of powertrains should be nice. Personally I think they have really pulled it together. My family has a Flex ecoboost and Dodge Ram Hemi and the ecoboost kills it across the board. Who would have thought you could buy a Ford that has more horsepower, torque and gets better fuel mileage then a Toyota or Nissan....Not knocking brands at all but Ford is doing so good things and I hope they keep it up.

  • Report this Comment On January 23, 2014, at 10:19 PM, Expert01565 wrote:

    First of all the Ram has the highest MPG in any pickup truck, According to MotorTrend and I believe Forbes, And 2nd, this will only get maybe up to 2MPG more..lol and since almost 40% of all ford trucks sold are fleet(Fact) which actually puts the Ford F-Series in 3rd place for consumer sales, Which would mean the Ram is the best selling Consumer Pickup) The Eco- Just recently took the top MPG which is the Ram!!

  • Report this Comment On January 25, 2014, at 2:06 PM, F150RULES wrote:

    STOP Whining Ram luver- Dodge has to throw tons of rebates and discounts at you so you will buy their truck (FACT) #1 selling vehicle in America FORD F-Series (FACT)

  • Report this Comment On January 25, 2014, at 2:06 PM, F150RULES wrote:

    Expert at What? everything I'm sure...

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