Supply chain issues have dented Ford's (F +1.96%) exterior, but strong demand for its trucks and electric vehicles could be setting the stage for unexpected growth for one of the world's oldest automakers.
Ford's stock had a stellar 2021. Shares rose 140%, partly thanks to investor enthusiasm for Ford's new direction under President and CEO Jim Farley, who's focusing on electric vehicles and investing in new technologies like batteries, software, and semiconductors. Moreover, its financials show Ford is on the right path, even if losses associated with the company's investment in Rivian left Q1 earnings weaker than expected.
Ford's F-150 Lightning Lariat EV truck. Image source: Ford Motor Company.
Ford's future growth potential
The exciting launch of the Ford electric pickup could disrupt the EV industry and significantly contribute to Ford's revenue growth in the coming years. Sporting a price tag of roughly $40,000, it brings EVs within reach of the average consumer.
While Tesla (TSLA +0.78%) may remain the leader in EV sales, Ford wants to close that lead rapidly. The combination of its Mustang Mach-E, the E-Transit commercial cargo van, and the recently launched Lightning F-150 EV truck will help them do just that. Lightning F-150 models sold out in the first days after launch, and Ford expects to deliver 600,000 or more by the end of 2023.
Ford's recent sales numbers reflect this projected growth. In April, Ford's sales outperformed the industry with a total share of 13.8%. That's an improvement over its 2021 share of 12.6% and reverses four years of market share decline. Additionally, sales of new models rose 17.9% versus March, and electric vehicle sales were up 139% year over year.
NYSE: F
Key Data Points
Supply chain struggles subsiding?
Of course, the supply chain issues that have dogged nearly every business could put a wrench in those delivery plans. Yet Ford has reiterated its guidance recently, indicating that it's not too worried about this. And while the company could be wrong about that in the short term, supply chain issues will almost certainly continue to improve in the long term. A recent New York Federal Reserve Bank report indicates that such pressures are easing, albeit slowly, based on its Global Supply Chain Pressure Index (GSCPI).
The company could also give that improvement a jump-start of its own by "nearshoring" -- moving production lines and facilities closer to where the products are needed. This reduces transit times, allowing products to be delivered more quickly. Ford is already increasing its production in Mexico and building battery factories in Kentucky.
That nearshoring is a part of the automaker's overall Ford+ plan for growth. As seen in Ford's most recent Sustainability and Financial Report Summary, the company is investing heavily in electric vehicle production and improving the quality of its operations, while aggressively attacking costs. Ford has successfully hiked prices, and it's aiming for further cost savings by increasing its volumes.
The automaker expects to ramp up deliveries as part of a restructuring plan that divides Ford's business into two distinct divisions:
- Model E for EVs
- Ford Blue for combustion engines
Ford expects the EV business to account for 50% of global sales by 2030. Ford has already seen EV sales jump 139% in April on the strength of Mustang Mach-E and E-Transit electric vehicles.
Ford's financials in focus
Currently, Ford's shares look undervalued compared to its competition. Ford's P/E of 4.70 is well behind GM's (GM +1.53%) 6.2 P/E, much less Tesla's 98 P/E.
While Ford shares have taken a hit in the short term, this is due to factors out of Ford's control. What it can control -- costs, innovation, and quality – is hitting on all cylinders. Management expects this to contribute to 15%-25% growth in adjusted earnings before interest and taxes (forecast to rise to $11.5 billion-$12.5 billion) in 2022.
While this could all take some time to play out, investors who start accumulating Ford shares now will see rewards as it increases its market share in the EV market. In addition, adding the Lightning F-150 to the mix should show even better sales numbers heading into the summer months. And while they're waiting, investors interested in electric vehicles can enjoy the company's dividend yield, currently in the vicinity of 3%.
