The electric car industry -- and automakers in general -- have been affected by the broader market volatility, which has been leading to swift and brutal sell-offs in small companies and industry leaders alike.
Ford (F 1.88%) and General Motors (GM -0.40%) are no exceptions. Both companies reported earnings last week, and both stocks sold off. Let's determine if either U.S. legacy automaker is a buy now given what we've learned.
GM's Factory Zero plant will build the 2024 GMC Hummer EV starting in 2023, and plans to build the electric Silverado pickup. Image source: General Motors.
Ford has bold plans for 2022
Daniel Foelber (Ford): The year-to-date charts for both Ford and GM are pretty ugly, as both stocks are down over 12%.
But what's really wild is that Ford briefly passed a $100 billion market cap for the first time in its history on Jan. 13. And less than a month later, it's now worth just $72 billion.
The company spent year after year underperforming the S&P 500 only to absolutely crush the market in 2021 due to excitement surrounding the Ford F-150 Lightning and other electric vehicles (EVs). Yet Ford only delivered just over 27,000 Mach-E SUVs in 2021, and plans to begin rolling out the F-150 Lightning this spring. It's a promising trajectory, but Ford is still early into its strategic shift toward EVs. For that reason, the sell-off in Ford stock is arguably justified since the time to realize its EV potential won't be a straight line up.
Ford's EV deliveries may look low, but Ford was the second-highest EV seller in the U.S. in 2021. Ford's performance also looks much better than GM's, which delivered a paltry 26 EVs in Q4 2021.
What stands out the most for Ford right now is the company's increased profitability and adjusted free cash flow (FCF) guidance even as it ramps spending on EVs. Ford is guiding for 10% to 15% more total vehicle volumes in 2022, a North America earnings before interest and taxes (EBIT) margin of 10%, which would be the highest in several years; full-year 2022 adjusted EBIT up 15% to 25% from 2021; and adjusted FCF of $5.5 billion to $6.5 billion, compared to $4.6 billion in 2021 and $1.3 billion in 2020.
Ford also announced that it plans to grow EV production capacity to 600,000 units by 2023, not to mention produce 100,000 Mach-Es this year. Simply put, Ford is growing profitability even as it adds lower-margin EVs to its existing ICE product mix. The company is confident it can further reduce costs as it integrates its EV supply chain with future generations of the Mach-E and F-150 Lightning.
Given its inexpensive valuation with a forward price to EBIT ratio of less than 6, its 2% dividend yield, and its incredible growth potential, Ford is arguably the best all-around automaker to buy in 2022.
The stock and the business are moving in different directions
Howard Smith (General Motors): The stocks of traditional automakers General Motors and Ford both dropped after recent earnings announcements, and both are down about 13% year-to-date. But zooming back out some, Ford shares have soared 56% over the past 12 months, while those of GM have dropped by about 6%.
Data by YCharts
Both automakers are accelerating their transitions to electric vehicles, and many investors are now trying to determine which might be the better investment going forward. GM has said it will invest $35 billion to grow its electric and autonomous vehicle businesses over the next several years. While Ford is also making big investments, GM has its Ultium battery platform and its stake in the commercialization of the Cruise autonomous ridesharing vehicle business.
GM said in its fourth-quarter and full-year 2021 letter to shareholders that it believes Cruise will be generating $50 billion in annual revenue by the end of the decade. More near-term, GM expects to show adjusted EBIT between $13 billion and $15 billion in 2022. Ford believes that it will see an adjusted EBIT of about $12 billion at the midpoint of its range estimate for this year.
There's still no guarantee that GM or Ford will seamlessly, and profitably, transition to electric vehicles. But both are investing heavily to do so. With General Motors' stock down over the past year, but its business prospects strong, it looks to be a good bet among traditional automakers for investors that want exposure to that transition.
The importance of a track record
Ford and GM both recognize that the EV industry is chock-full of unique supply chain, engineering, and technical challenges. Yet both companies have vital experience in mass production and distribution.
When assembling an EV basket built for the long haul, both Ford and GM garner consideration for their blend of profitability and growth. They may not produce gains as high as those of other growth names, but they also have less downside risk given they have established businesses.
