Ford (F -3.92%) recently held its 2021 Capital Markets Day, outlining its Ford+ strategy for the future of the business, including details on its electric vehicle plans. In this episode of Industry Focus: Energy, Motley Fool senior auto analyst John Rosevear joins host Nick Sciple to break down what he learned at Ford's event and what it could mean for the electric vehicle industry. 

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This video was recorded on May 27, 2021.

Nick Sciple: Welcome to Industry Focus. I'm Nick Sciple. Yesterday, Ford Motor Company held its 2021 Capital Markets Day, outlining its strategy in electric vehicles for the next decade. Motley Fool's Senior Auto Analyst, John Rosevear, joins the show today to break it all down. John, how is it going?

John Rosevear: It is going great, Nick. I'm glad to be here. Some exciting Ford news to talk about if Ford is the news that excites you.

Sciple: Yeah. Well, you've been following Ford for a long time, I'm sure you've seen a number of these events. This feels like it was a big one yesterday, laying out EV strategy. How does it stack up against previous events that you've watched or attended?

Rosevear: It's on the top five, probably. I mean, I've been covering Ford for The Fool for about 11 years now. There was another event much like this in 2017 or 2018 where they said, "Okay, we are moving into electric vehicles, we are moving into autonomous." Now, this is really everything they haven't said since then, and they're making a big commitment, and there's a lot to go over here for Ford investors or for people who are considering becoming Ford investors, and this might be a good time to be considering that. There's a lot to talk about, they're really different from the way things have been done at Ford for the last couple of years. They really showed us a lot of their cards yesterday, and it's good stuff.

Sciple: Yes. We'll get into some of that. Clearly, the market is excited about this news, so the stock was up over 8% yesterday, I checked. This morning, it was up another 7%. What's getting the market so excited, John? What were these big headline announcements?

Rosevear: There's a couple of pieces of it. The first is the electric vehicle piece which everybody was anticipating. Ford said, they didn't come out like GM did and said, "We're hoping to sell all electric vehicles by 2035," but they did say, "We expect 40% of our global vehicle volume to be all electric. Not hybrid or anything else, no hedging. They're all battery electric by 2030." They have raised their planned spending on electric vehicles and related technologies to over $30 billion by mid-decade, which is up from $22 billion, which was the last number they gave us several months ago, which was up from $12 billion, which was the number they gave us at that presentation a couple of years ago. There are, again, a lot of pieces of this, a lot of new models coming. 

Also, they're developing their own proprietary batteries, a couple of different types of batteries and a couple of different types of architectures which is different from what we've heard from some other companies like GM is one battery, one architecture, Ford is separating out architectures for big trucks and big SUVs versus crossovers and cars. Also, batteries which might best be thought of as retail versus fleet. They're doing a lower-cost battery that holds up to fleet duty cycles better as well as premium retail batteries for people who want the longer range and so forth. It's an interesting strategy. It's typically Ford and that they've put a lot of thought into the actual needs of their commercial customers for sure, and there's a lot more to talk about that too. But those are the big pieces. Most of the third big piece is that they are, as we move into this electric connected era, really putting a corporate frame around their commercial vehicle business. It's not a spinoff but it's a business within the business. They named the CEO, Ted Cannis, who's a rising star at Ford, a very high energy guy. We'll talk about him in a bit. For all of the trucks and delivery vans and other things that they sell, the commercial and government fleets, and they think that's a business where they can really grow the top and bottom line over the next four or five years.

Sciple: Yes. We'll get into the Ford pro stuff here in a minute. Lots of exciting things on electric vehicles. I want to start out with Ford+. Ford is calling their new strategy Ford+, bringing out some more of these services, analytics type things. To me, you hear Disney+ out there, Apple+ out there, getting more involved in the services. How do you compare and contrast Ford+ [laughs] with what we're seeing from all the other "+" companies out there?

Rosevear: Let's back out. How does Ford make money today? For the most part, they sell you a car tracker and SUV, and they wish you luck and say goodbye, and maybe you come back to the dealer for service if you have a clunk in the suspension or whatever. But mostly, you just go drive your car. Ford hopes you come back in three, four, five, seven years to get another one, but that's about it. The thing about EVs and not just EVs but this new architecture they're putting in vehicles that aren't all just EVs, also like the new Ford F-150 has it, even the internal combustion versions, it's a much more sophisticated electrical computing architecture is the way to think about it. Instead of having all these little processors around the vehicles like automakers have done for years, they have basically one big computer, and it's wired in. The computer can connect wirelessly, not just for connectivity but also over the year updates, subscription services, and so forth. 

In addition, the communication goes two ways, Ford can, to some extent, diagnose vehicle problems using this system now remotely, which opens up a whole another door for them. Broadly, what they want to do is basically have a constant contact relationship with the customer going forward. They're going to have a million of these vehicles with this new architecture on the road by the end of this year, 33 million by 2028. This opens doors for app-based services where you can schedule service within the app, you can find out what's going on with your car with an app, you can upgrade features, you can buy the highway driving system that's coming or add it on, and so forth. This is going with another model where they want dealers moving. For small repairs, the dealer comes to you, you schedule it and they come do it in your driveway. It's all this kind of stuff. Their target about having third-party app developers perhaps in this, they've got Google functionality, they've got Amazon Alexa functionality, they've got Apple Cart Play functionality. All in this, it's heavily Google [Alphabet], but it's also heavily Ford. They have a robust software team now and they are doing a lot of this work. 

Part of the "+," to go back to the question, is that they don't just sell you the car, they sell you all these services and so forth that maybe you subscribe to along the way, they stay in contact with you along the way, which not only creates revenue streams for them over the life of the car but also makes it more likely assuming their services are good and Ford treats you well, that you will come back and buy another one when it's time to buy. It helps to lock in customer loyalty they hope. They're talking about moving away from building sale to enduring customer relationships, and this is not just on the retail side, but also on the commercial fleet side. They're offering all new software packages that have functionality that maybe has been out of the price range of small and medium-sized fleet operators, people with 10,000 trucks can buy these huge logistics packages. They are building some of this into the vehicle and selling it as an ongoing upgrade. Take all that together and those ongoing revenue streams, that's the plus, that's the software and services on top of the hardware, so it's like Apple+. [laughs] It is not completely different from Apple Plus to answer your question.

Sciple: We're taking these existing hardware-based revenue streams and attaching services over the top trying to deepen the relationship, so maybe you're interacting with that app on a regular basis versus you coming to the dealership once every three to five years or what have you. You mentioned Ford Pro and that strategy. Where this really starts to see, I think, is in that commercial vehicles strategy and Ford Pro, the services they can offer to some of those customers. What is Ford laying out there and what's the thesis behind that part of the business?

Rosevear: Their thesis, first of all, is that they are the market leader in commercial vehicles by which we mean the pick-ups, transit vans, the small vans, and so forth. In some countries, it's Rangers, not F-Series. They are the market leader in that business in North America and in Europe, and they have a good presence in China. They are not the market leader in China, but they have a good presence, a growing presence. This is good profitable business that they want to defend from the likes, not so much of Tesla, but from companies like maybe Lordstown or start-up building a commercial pickup truck or workhorse group building a commercial electric delivery van. They want to come out and say, "Hey, we're the market leader, you should be doing business with us." Fleets that have heavily installed Ford vehicles, they may own 15, they may own 100, they may own 500, they may own 5,000. Ford says their fleet customers tend to replace 10%-15% of the fleet per year. They want to make it super easy for them to come to Ford and buy the electric, and it emerges and meshes seamlessly with their existing internal combustion Fords in terms of operations, in terms of software, in terms of service, in terms of who you call when there's a problem, all of that. They think that's a big opportunity for them and that as they add this additional software, fleet logistics, fleet management, charging services, and so forth, is that they can make a significant gain in revenue and profit from their existing commercial fleet business while defending it from new entrants. It's both sides of that.

Sciple: I think one of the interesting things you talked about is some of these older automakers and Tesla going away from the dealership model. I think in this incidence in this commercial fleet side of the business, that's where the dealership really can provide a significant advantage for Ford relative to some other folks out there, just because you can't have these vehicles not being serviced very quickly and back on the market. How do you think Ford's advantage there plugs into where they can build out this Pro business?

Rosevear: It's absolutely here. As the Ford people stay over and over uptime, it's everything. If the vehicle it's not running, it's not earning money today, and if you're a smaller mid-sized business, one vehicle is down as [...]. Its dealers, it's all Ford itself. It's also what they call outfitters. When you see a Ford-based truck come from the Ford company and it's got work boxes on the back if they come to put it in your windshield in and a special rack to hold windshields on the back but it's a Ford-based chassis. That's part of what they're protecting too. The new electric F-150, they can take all of the existing parts since Ford says they have the same attachment points as the existing internal combustion models, so all of that equipment will transfer over. It can be unbolted and bolted right back on the new electric vehicle. That's important. But to the dealer relationships, that's also super important. Getting these vehicles serviced quickly, using apps, using software to diagnose problems in the vehicle, maybe while it's still not running its daily route and say, they're showing a sensor problem, you can get through the route and get back to base, but we'll need somebody to come over and look at it tonight or something, and they can set that up on the fly as they're going. Maybe the driver reports a problem and maybe it's just an alert that comes up in the dispatcher's software, "Truck 32 needs a service visit quick," and you can set that up on the fly. There may even be a way where that sort of pings the dealer or two and says, "You may get a call on this." 

There is a lot of this sort of thing that Ford is already shipping and that they are going to significantly upgrade. Again, this is recurring revenue. They are not a ground-breaker in this space because this software exists, but as they point out, it's mostly used by large fleet operators. Ford says, "That's fine when we sell Ford to large fleet operators that will work with that software, it's not a problem," but they have a big opportunity. They think with the smaller and mid-sized fleets, a lot of their commercial customers who don't have access to those big software packages if they can just get it one-by-one as they buy the new trucks and for a modest fee that's affordable to them and scaled to their business. They think that's a big opportunity for them because there isn't really anybody in that space who can do it the way they can.

Sciple: You mentioned the new electric truck that Ford revealed, the F-150 Lightning, that's gotten a ton of headlines in the past few weeks. Of course, the F-Series is the highest-selling vehicle in North America. How does the F-150 Lightning plug into the strategy and what do you think about the potential for that vehicle more broadly?

Rosevear: Well, I think the potential is huge, I think the world has been waiting for it. Ford will tell you that, particularly their fleet customers have been waiting for it, that they are under some pressure, regulatory pressure in some states, but also corporate pressures, internal pressures to green up to go to more sustainable solutions, to go to more zero-emission solutions. Again, it fits right in, starting next year, we can ship you electric pickups, zero emissions. They're easy to recharge and have a ton of features where it can charge on A/C power so that commercial customers don't have to dig trenches and install new equipment to do DC fast charging and so forth. They can do all of this, they can just plug into their existing systems with some simple electrical upgrades, packet base, or whatever, or the driver can take it home. There are some businesses where the driver takes the truck or the delivery van home at night, they can recharge it. Ford chargers will note how much electricity is going to the truck and then make sure that the driver gets reimbursed for that portion of their electric bill. They've thought this out really thoroughly.

For instance, they've spent three years scoping all this and you can really see it, it is huge. There's also a more subtle part to this strategy, which is that Ford knows they can sell this truck right now, certainly when it ships next spring to a lot of its fleet customers. Retail has been a little more of an uncertain thing. We don't know how retail electric vehicle adoption is going. Certainly, early reservations on the F-150 have been very promising. But the more subtle thing is, I think Ford season opportunity, you get people driving the electric transit, the electric F-150 at work, and they come home and say, electric vehicle's really nice, I think it's got a great truck, it's got a great pick-up, it's quiet, everything works really well. Maybe we want one of those, maybe I want one of those as my personal truck. Maybe when friends ask me, "Are these electric vehicles for me?" You can say, "Yeah, I drive one, it works, it's great." There is that word of mouth into audiences that buy a lot of trucks perhaps that will benefit Ford over time as well. It is a big deal. The F-150 is a huge part of that, but don't sleep on the electric transit, which is coming later this year, and it is really optimized for three years. They look at how much range our customers really need, we'll give them some extra but I forget what it is like 180 miles of range they're putting in the van. 

The first thing all the Tesla fan say, "Haha, that's nothing," and then Ford says, "Well, if I'd tell you the average van driver in our customer base and we have thousands and thousands of these that we track, drives 125 miles a day, what do they need anymore? They just need to be able to plug it in every night and have it ready to go in the morning. It's a really thoroughly thought out product tool for jobs, and this is all again under the Ford Pro brand subgroup within Ford that Ted Cannis is running.

Sciple: One other thing, while we're on the topic of the new F-150 Lightning, you mentioned earlier Ford defending its territory against some of these new entrants, Lordstown Motors is one example that's good to come to market. You've had Tesla with their Cybertruck. What do you think about what the competitive landscape is starting to look like in this EV truck market?

Rosevear: On a commercial side, good luck competing with Ford. Unless you're General Motors, good luck competing with Ford. The odds that a commercial fleet buyer is going to take a chance on an untested company, untested product when they know they can get a Ford next spring, I think the bull case for Lordstown now has some very big problems because their whole bet is that they could get some share in commercial vehicles, electric pickup trucks specifically before the big guys got there, and now that doesn't look so good. On the retail side, it's a much more interesting picture. That's not where Lordstown is going. It is where Rivian is going at the higher-end. Whether a truck in the 70, $80,000 space, it's a luxury truck. It's a little smaller than an F-150. Their pickup, they also do an SUV on the same architecture, on the same skateboard as we say now. I think the F-150 will challenge them a little bit at the high-end because, of course, as Ford does, the retail truck will come in several different tiers, including a loaded luxury tier that will go up around $90,000 with fancy leather seats and the great stereo and all this stuff. 

Tesla to me is somewhat of a question mark in the middle there. I look at the Cybertruck and I say that it is really not tailored for fleet years. I'm sure somebody will buy 10 of them to deliver pizzas and/or whatever. But when you look at the commercial vehicle businesses in North America and Europe, the Cybertruck doesn't fit into there at all. That's a real question mark to me. We talked about a $40,000 price point, that would certainly be lower. But I still think this is a niche product for Tesla fans, rather than something that's going to actually seriously threaten vehicles like the F-150, and like GM's pickups, Stellantis Ram pickups, and so forth. That's where I'm seeing it right now. We'll find out how this all goes in a year or so when these trucks actually come to market, something they'll do.

Sciple: Yeah. I think it's a fair prediction that the cable guys are not going to be driving up in Cybertruck in the near future, but you know what, I would love a world where that happens. Wouldn't that be a crazy world if all the cable guys are driving Tesla Cybertrucks? We've talked about the competitive landscape, the strategy that Ford has laid out in electric vehicles, how it is potentially opening up some more of these services-type revenues for Ford, which can be higher-margin when you think about the business earnings valuation, how does this change what Ford looks like as a business, say, five years in the future?

Rosevear: First of all, it gives me comfort that they're going to be around five years in the future, that they have a credible plan to go through this transition that the whole industry is going through because I think there are automakers that will get left behind here. Ford is saying very confidently and very credibly, no, we're not going to be one of them. We're going to defend our turf in trucks. We're going to defend our turf in vans, and SUVs, and so forth where we are strong and we're going to do it with go to have products that have a lot of emotion to them that happen to be electronics, that use electric capabilities, electric drive trying to offer new advantages and new features for customers. This has been the Ford party line for a few years now. But now in products like the Lightning, the Mach-E we're really starting to see that there is substance where the talk has been. 

I think yesterday they came out and talked to a bunch of Wall Street analysts and said, "Okay, $30 billion, we're spending this. We're not going to tell you the whole product plan in detail, but we're going to tell you there are vehicles in the pipe that look like Fords and there will be one that's rugged off roader," and they didn't say Bronco, but you can think that really loud. There will be an electric Explorer, there will be an electric Lincoln Aviator. This is going to go into a lot of their popular products. They're going to have an electric version and they're going to have it in the next four or five years, maybe sooner. What we know is that the platforms that we're talking about, those two architectures, one for trucks and one for crossovers in cars. The crossover in cars one that will come by mid-decade is an evolution of the architecture under the Mach-E today. The truck one will be new. The F-150 Lightning that will debut next year is derived from the existing internal combustion F-150. There will be an all new one around 2025 that will be built on this new pure electric from the ground-up architecture. I don't think that means that the current Lightning is a compromised product because, I mean, they really went down to the frame rails and built a whole new electric vehicle around it. What it means since they can optimize some things for scale that will be leveraged with their other large vehicles, with things like transit, with maybe they're big SUVs and so forth.

What they're saying is first of all, that this whole Ford Pro thing, in 2019, generated about $27 billion in revenue from commercial vehicles. They expect by 2025 with all of these new products and adjacent services and so forth, the software we talked about, that will be more like $45 billion. The margin on that should be pretty good too. The other thing they did is they've said for a while that they're targeting an 8% global profit margin, EBITDA margin, operating margin globally, 6% in Europe, 10% in the U.S. What they've said when said though, was actually new and they said we're going to do that by 2023. Wall Street said, "Okay." The larger frame for this is that Ford got a new CEO in October, Jim Farley, longtime Ford executive, who took over from Jim Hackett, who was Steelcase's CEO for many years before coming to Ford and was very much a tech futurist kind of guy. I think there was a sense that Hackett did not give Wall Street as clear a picture as he could have and did not perhaps tell the story of Ford as well as he could have. One of the things Farley is doing is changing that, and he's changing it in a big way. I think that right there is bullish for them to come out and say, yeah, we are not just throwing these margin numbers around. We're going to do this in two years. We're on track to do it in two years and we well beat it. That's the thing Wall Street analysts want to hear. Because Farley has put together a good team, a credible team with good track records. 

There's a sense now I think on Wall Street reading some of the analysts notes that came out late yesterday and this morning, that this is really credible, that the Street thinks that Ford can actually do this, that they will actually do this. I certainly do. I've been covering Ford for years and I've gotten to know a lot of people there, so sometimes I have to stop and say, OK, I'm too close to the company here? But the Wall Street checks are something of the synergy check. I think investors like what's going on here. I think the Street likes what's going on there. I do think it's a good plan and that they have everything they need to execute on it. That the early things we've seen, the Mach-E the Electric-Transit, the F-150 Lightning, are the kinds of products that we hope for from Ford, where they are exhaustively well-thought out, where they are tailored to their audiences extremely well, where they're built with some love. We can smirk at that, the auto business, but you can feel that. These are emotional products. They're not just commodities. Building it with some law has always been important in any auto business, and you can always tell when an automaker, some of their products are designed and created by enthusiasts who really sweat the details in summer. We need a small sedan, we'll go check that box. You can really tell that. 

I think the plan is credible. I've gone in circles here, but I think the plan is credible. I think they will hit those margins. Of course, the Astra is getting unless the global economy blows up or whatever might set them off a year or two. I mean, COVID-19 wasn't anything we expected in July of 2019 [laughs] and so forth. A couple of things they didn't hit on yesterday. During the question-and-answer session, one of the analysts asked about the dividend. For it suspended the dividend when it closes factories at the beginning of the COVID-19 crisis early last year. The question on a lot of investors minds is, when is the dividend coming back? I think CFO John Lawler gave a really elegant non answer to that question, where he was like, "We're going to do it as soon as we can." What you think about what Ford is that the family still owns a controlling stake in the company and they really want their dividend. Ford will do it, but they want to make sure they can fund all these new products and initiatives first. They did not talk about self-driving. They said there will be a separate event later this year, probably October, November, if I had to guess, to talk about their investment in their roadmap to self-driving and so forth. They didn't talk a lot about future specific products. They did acknowledge that an electric Explorer is coming. We don't know if Bronco EV is coming, but we sure think ones coming and so on and so forth. 

I think if you look at what Ford's iconic and popular products globally are, you can figure out where they're going to put the emphasis: the Explorer, the Ranger, the Bronco. What they're going to do with the Mustang, meaning the Coupe, I'm not sure. We know hybrids are coming in the next-generation. They may wait till more like 2030 to go fully electric on the Mustang Coupe and offer the Mach-E in the meantime for people who want the electric performance vehicle.

Sciple: John, you've laid out, it looks like Ford has put together a credible strategy and seems to have some advantages in the markets they're moving into, in particular in this Pro market where they can build out some of these new services. The stock market has rewarded some of these plans. If you look at Ford stock this year, year-to-date outperforming Tesla and Bitcoin. What do you make of Ford's value today? Do you think it beats Tesla and Bitcoin through the rest of the year?

Rosevear: Well, here's what I think. I think if somebody said this morning that Ford stock price has doubled since Jim Farley took over in October, the CEO I mentioned earlier, there's a good reason for that, and that is, Ford has owned its story and it's telling it better. We investors love stories, we love a great story. We love a profit growth story. We love a good product story. Product is king in many businesses including especially auto, we want to see great products that people are signing up for. Ford said yesterday to have 70,000 reservations for the F-150 Lightning. That's up from 44,000 on Friday morning. We know those 44,000 were all retail because they didn't open fleet reservations until Monday. [laughs] There's a lot coming. I've talked to a couple of people at Ford last week and they said those converted a high rate on Mach-E. People tended to buy highly option versions early on. That'll be a good boost to profit. 

But to come back to the question, is the stock a buy here? I think it is. We look at it, what is it? 14.5 times projected 2021 earnings, but 2021 earnings, we know they're compromised in the near-term because of the chip shortage and we've talked about that in the past year, that Ford, like other automakers, has had to cut production of a lot of its vehicles and that's going to be a couple of quarters of pain. If we look out another year, what we think they will be doing in 2022, 2023, the Ford P/E falls to something more like nine or 10, which is quite reasonable, I think, given what Ford has said about how they're moving aggressively into higher-margin software offerings and the adjacent offerings that are going beyond just the hardware.

Sciple: Yeah, it's certainly a compelling story and we'll continue to follow as the company executes on these plot points going forward, if you will, John, and I look forward to having you on the podcasts to break it all down. Thanks so much for joining me.

Rosevear: All right. Thanks.

Sciple: As always, people on the program may own companies discussed on the show and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear. Thanks to Tim Sparks for mixing the show. For John Rosevear, I'm Nick Sciple. Thanks for listening and Fool on!