Ford Motor Co. (F 3.89%) has not been the life of the electric vehicle party so far. But the auto manufacturer is making a major investment in hybrid and electric vehicles, and it has some unique advantages on the competition.
Ford currently has about 10 percent of EV sales in the U.S. -- trailing Tesla, General Motors, and Nissan but coming in ahead of Toyota, Chrysler, and Kia. It isn't the worst, but it certainly isn't the best.
However, CEO Jim Hackett, who took over for Mark Fields in 2017, has embarked upon a restructuring initiative that includes a plan to invest $11 billion in electric and hybrid vehicles. Ford plans to develop 40 electric and hybrid models by 2022 -- including 16 that are purely electric. That would be a big step up from the three hybrid models it has now (not counting the Ford Focus Electric, which it discontinued in 2018 -- and which no one really misses).
The investment coincides with massive cutbacks in staff and expenses, as Hackett has a five-year plan to reduce costs by $14 billion. The company is clearly pivoting toward an EV future, as are other car makers. But Ford has made some strategic moves that could help it gain market share.
A name brand, and a few other options
Hackett's plan calls for coming out with an electric version of the F-150 truck, the best-selling vehicle in America. Ford has not yet set a release date for the electric F-150, but company officials estimate that it will be out in 2021. It would be one of the first electric trucks on the market. Smaller rivals Tesla, Bollinger, and Rivian Automotive (more on Rivian in a bit) are also working on developing EV trucks. But even if they do beat Ford to market, none would have the name recognition of the F-150. As the best-selling truck in America for 40 plus years straight, the F-150's electric EV version would have a built-in advantage in brand power.
Rivian, a boutique electric car manufacturer based in Michigan, isn't entirely a competitor. Ford is investing $500 million in the company, becoming a minority owner, to develop new electric vehicles -- although not the F-150. Rivian builds vehicles with an innovative skateboard chassis, which, if you stripped it down, looks like it's actually built on a skateboard. The chassis incorporates the suspension, braking systems, batteries, and motor, and Ford expects it to save on costs. Rivian chose to partner with Ford over GM, which is a major coup for Ford.
Ford also struck a deal with Volkswagen to use the German auto maker's electric vehicle architecture -- its modular electric toolkit -- to build more than 600,000 electric vehicles to sell in Europe starting in 2023. (Ford is also working with Volkswagen to develop self-driving cars through a partnership with Argo AI.)
The Volkswagen and Rivian deals lay the groundwork for Ford to boost its EV production beyond the 40 models it's discussed so far. Among the major car companies, Volkswagen is making the biggest push into this space, with plans to invest $40 million USD in electric vehicles and develop 50 electric-only models by 2025. That will be an important relationship that could expand over time. But Ford could end up better-positioned than many of its competitors, as Toyota plans to come out with 10 electric models, Kia is eyeing 38 "green car" models, GM is planning 20 electric models, and Nissan is looking at producing 12. The current market leader, Tesla, will obviously be a force, too.
No electric slide
It's clear that Hackett is all in on EVs as a key part of the company's restructuring plan. "We stand at the precipice of biggest shift in transportation since [the one] Henry Ford initiated over 116 years ago," Hackett said in announcing the Volkswagen partnership. "Our industry and the world is being upended by technology and innovation."
It's not going to be an overnight success for Ford. The restructuring that's letting Ford embark on its EV plan was also the reason that Moody's recently downgraded Ford's credit rating to Ba1, or junk bond status. However, the company expects its adjusted earnings before interest and taxes this year to come in between $7 billion and $7.5 billion, compared to $7 billion in 2018. Earnings per share is expected to be in the $1.20 to $1.35 range, versus $1.30 last year. There will be some growing pains, but the company has a good foundation with a strong balance sheet and good liquidity. Adjusted free cash flow for the first half of the year was up 80% over the same period a year ago. Liquidity was at $37 billion after the second quarter, well above the $30 billion target. So Ford should have adequate capital to invest in its lineup of EVs.
The automotive landscape is definitely shifting, but I think Ford is making the right moves to stay in front of those changes through its strategic partnerships and plans for electric and hybrid trucks, starting with the best-selling F-150. Ford may have fallen behind its competitors in recent years, but it seems driven to lead in this new era for auto manufacturers. While there remains much uncertainty, Ford appears to be on the right road.