More than a century ago, Henry Ford transformed the way people traveled from one place to another. The Blue Oval has since become an iconic brand with a loyal customer base. The big question today is, can Ford (F 0.90%) stay as relevant for another century?
Let's take a closer look at Ford's key challenges today and the company's plans to address them.
Can Ford revive its sales?
The first major concern for Ford is a drop in its revenue. In the first quarter, Ford's revenue fell 5% from the year-ago quarter. The company attributed the drop in revenue to supply chain constraints even as the demand for its products remained robust.
Moreover, the company's restructuring of its international operations to focus its efforts on electrification is largely behind the drop in its global revenue.
Image source: Ford.
Even while Ford is struggling to grow revenue, Volkswagen (VWAGY 0.56%) and Toyota Motor (TM 0.26%) managed to restore their revenues to pre-COVID levels in 2021.
Ford Revenue (Annual) data by YCharts.
There are a couple of things worth noting in the chart above. First, Ford's revenue for 2021 didn't recover as much as that of Volkswagen and Toyota. Both those companies experienced a significant improvement in revenue for 2021. Auto sales recovered globally as the pandemic-related concerns subsided. However, Ford's restructuring of its international operations to focus its efforts on electrification is partly behind a slower recovery in its revenue.
Second, Ford's revenue trend resembles that at the end of the 2008-09 recession. As the chart shows, Ford's revenue did not return to its levels prior to 2008-09, while Volkswagen and Toyota continued to grow.
A focus on margin growth
Apart from sales, the second factor that could impact Ford's performance is its margins. In the latest quarter, Ford's net profit margin, after adjusting for loss on its Rivian Automotive investment, was 4.5%. That was lower than the figure for Volkswagen, Toyota, and General Motors. The company attributed the lower margins to higher commodity prices, lower unit sales, and a sales mix with more low-margin models.
Image source: Ford.
Ford targets an EBIT (earnings before interest and tax) margin of 8% or above for its electric vehicles. In the last five quarters, Ford's overall EBIT margins averaged about 7%. So it is expecting higher margins from its EVs.
Should you buy Ford's stock now?
The recent fall in Ford's revenue is due to the company's focus on electric vehicles. The company plans to invest $50 billion in EVs by 2026. Ford has managed to maintain its position in the global auto market over the past decade; in fact, it has grown its revenue slowly during this time frame. Importantly, Ford has managed to keep itself relevant over decades when several other automakers have gone bust or been taken over.
NYSE: F
Key Data Points
The company has a loyal customer base, and it has deep expertise that should enable it to retain a major chunk of that base. Ford targets having half of its global sales volume be all-electric by 2030 and is taking several steps to achieve this ambitious goal.
Overall, though I don't expect Ford to grow exponentially, its stock should rise if the company progresses well on its electrification and margin targets. At a forward price-to-earnings ratio of just 6.9, the stock clearly looks attractive right now.
