What Do the F-150 Lightning and Ford Pro Mean for Ford Stock?

It's clear that Ford Motor Company's (F -1.92%) new electric F-150 Lightning pickup could play a big role in the push to get more consumers to adopt electric vehicles. But will it give Ford's profits a boost, or is it just about defending the Blue Oval's existing pickup-truck turf from new entrants like Tesla (TSLA -1.11%) and Lordstown Motors (RIDE -1.70%)?

In this Motley Fool Live video, recorded on May 27, Industry Focus host Nick Sciple and Motley Fool senior auto specialist John Rosevear take a look at how Ford is planning to use its new line of electric vehicles -- and the enhanced computing power it's bringing to all of its products -- to drive revenue and profit gains that could give the stock an extra boost over the next few years. 

Nick Sciple: 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?

John 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 gotta-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, they 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 eight percent global profit margin, EBITDA margin, operating margin globally, 6% in Europe, 10% in the U.S. What they've said when say though, was actually new and they said we're going to do that by 2023. Wall Street said, "OK." 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 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 made 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 I 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, with the asterisk that unless the global economy blows up or whatever. That 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 that 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 one's coming and so on and so forth. I think if you look at what are Ford's iconic and popular products globally, 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 hybrid is 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 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 honed 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 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 optioned 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, what is it? Fourteen-and-a-half 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 PE 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.