Value stocks are shares in companies trading at low multiples relative to their earnings or growth potential. Ford Motor (F -1.30%) fits into this category, especially as its electric-vehicle (EV) business gains steam. Let's explore the reasons why this legacy automaker could make an excellent long-term investment.  

Electrification is the future

Ford has high hopes for the electric-vehicle opportunity in the U.S, which will help support long-term growth in its home market. Management expects industry-wide electrification rates of 33% and 70%, respectively, in the pickup and van markets by 2030. And the company plans to invest over $30 billion in the next several years to achieve a 40% global EV product mix by 2030. 

High-tech car speeding on futuristic road.

Image source: Getty Images.

So far in 2021, Ford's numbers are helping to meet those high hopes. In July, the company's EV sales jumped 58% to 9,103 vehicles -- driven by the popularity of the Mustang Mach-E and the F-150 PowerBoost Hybrid, which launched in the 2021 season. According to CEO Jim Farley, Ford will focus on automotive segments where it already boasts dominant brands (pickup trucks, transit vans, and the Mustang sports car). This strategy meshes with Ford's goal to streamline operations, which led it to exit the U.S. sedan market and lay off thousands of employees in 2019 and 2020. 

Ford is transforming into more of a higher-margin, niche automaker with a strong EV focus. And to pull this off, it will need cheap batteries -- lots of them. 

The company plans to build 240 gigawatt hours (GWh) of battery-cell production capacity globally by 2030. To put that in perspective, global capacity right now is only around 455 GWh. And Ford is working with Korean energy company SK Innovation to create a joint venture called BlueOvalSK to help it reach this goal. It also expects to reduce its battery pack cost by 40% to $100 per kilowatt hour (kWh) -- mainly through economies of scale and entering into joint ventures. The company thinks it can eventually bring the cost down further to $80 per kWh by 2030 compared to the current industry average of $137 per kWh. 

Legacy operations 

Ford's EV future is bright. But as of July, internal combustion-powered vehicles still represent around 92% of sales volume, and consumer demand is strong despite the semiconductor-chip shortage. Ford is also benefiting from easy comps against the pandemic year of 2020. 

Second-quarter revenue jumped 38% year over year to $26.8 billion as coronavirus-related headwinds faded. Ford also reported an adjusted earnings before interest and taxes (EBIT) of $1.1 billion -- up $3 billion against the prior-year period as Ford Credit earnings helped offset losses in automobile manufacturing.

While Ford's legacy auto operations aren't so impressive -- growth is inconsistent and margins are thin -- they give the company a solid platform to launch its EV transition with a global distribution network and supply chain. 

An unbeatable valuation 

With a forward price-to-earnings multiple of about eight, Ford's valuation is extremely low compared to that of Tesla, the current EV market leader, which trades for about 125 times earnings. Unlike Tesla, Ford is a slow-growing company with operations that are still dominated by internal combustion vehicles.

Over the long term, however, Ford's EV transformation could boost top-line growth and lead to an upward reevaluation of what the company is worth.