When I was 17, my first car was a '77 Mustang hatchback. Not exactly a dream car like a '69 fastback, mind you, but I turned it into a sweet ride nonetheless. I've been a Mustang fan ever since. But times are changing, and sports cars are now getting an electrified makeover, as evidenced by the Mustang Mach-E that will please some aficionados while turning others away.
But regardless of whether sports car fans are on board with the changes, investors can benefit from the stocks of companies making those changes. Some automakers have shifted into electrification overdrive, and Ford (F -1.11%) is leading the way down that road, a road that could be less bumpy for investors than for new Mustang owners.
I'd buy Ford stock before I bought the latest Mustang.
More electric vehicles
Ford's plan to electrify 40% to 50% of all vehicles it puts on the road by 2030 is well underway. The company sold 27,000 Mustang Mach-E all-electric SUVs last year and says it plans to build 2 million electric vehicles (EVs) a year by 2026.
Led by Jim Farley, who took over as CEO in 2020, the company is aggressively ramping up production of its electric versions of the Mustang and its top-selling F-150 truck line. The company said in December that it had stopped taking reservations for the electric F-150 Lightning after logging nearly 200,000 reservations, which are not actual orders. And it closed reservations for the 2022 electric Mach-E recently, saying that "due to high demand, the current model year is no longer available for retail order."
In collaboration with partner SK Innovation, Ford is putting its money where its mouth is to support the new lineup of EVs, starting with an advanced auto production complex in Tennessee, along with two battery plants in Kentucky. Total investment for the new facilities is expected to hit $11.4 billion when all is said and done by 2025.
Why not a Mustang Mach-E for me?
The Mustang Mach-E made a splash with buyers and I like the electric direction Ford is taking, but this car is not on my list of things to buy.
Japanese auto manufacturers dominate the landscape of auto dependability and from my own experience, I can say that my four Toyota SUVs and three Honda cars -- except for one Civic -- have outperformed my Ford Mustang and Chevy SUV.
I am also not a fan of buying a vehicle in its first model year, so that takes me out of the running to buy a Mustang Mach-E. This electric Mustang is brand-new. I'll wait for bugs to be worked out and feature improvements to be made before I start getting interested.
The stock, on the other hand...
I do like what Ford is planning from an investor's perspective, though. After vowing to make Ford into a competitive machine cranking out electric versions of the Mustang and best-selling F-150 trucks, Farley hired Alan Clarke, the former chief engineer from Tesla responsible for its top-selling Model S. This allows Ford to leverage firsthand experience.
And Ford has experienced revenue growth and hype related to its aggressive EV plans. Since Farley took over in October 2020, the stock has risen roughly 140% and been as high as $25 in the past five months, from just below $5 in April 2020.
The recent broader market decline fueled partly by inflationary pressures, supply issues, and fears of recession have caused the stock to drop to a price just below $17 as of this writing, making for a buy-on-the-dip opportunity for long-term investors. Ford is scheduled to report quarterly earnings on April 27. Investors will want to check how things are going when the information is released.
A long-term play
Earlier this year, the company said it expects growth to continue in 2022, with wholesale volumes to increase by 10% to 15%, topping previous guidance of 10%. Analysts are estimating an 8% revenue jump in 2022. The company has also set a target to improve its operating margin to 10% by 2026 and up to 14% by the end of the decade, potentially doubling from 7.3% in 2021.
The company is shooting for an EV sales capacity of over 600,000 vehicles by the end of 2023, following a 2021 banner year that saw the company take the No. 2 EV seller position in the U.S. And although January got off to a slow start, Ford's EV sales grew four times faster than the overall segment.
A strong pricing environment is also helping the company. As a potential Mustang buyer, this is not something I'm interested in hearing, but as an investor, it's music to my ears.
We are in the early stages of the EV boom. Some Mustang buyers might look back and wish they had waited but as Ford ramps up production -- pushed by a CEO with his pedal to the metal -- long-term investors might look back on this moment as the time when Ford's buy-on-the-dip opportunity is what helped propel their portfolio.