Ford Motor Company (F 0.95%) sold the most electric vehicles (EVs) in the U.S. last year after Tesla. While that sounds exciting, it's worth noting that it accounts for less than 8% of the U.S. EV sales compared to Tesla's 65% share of the EV market. Still, it's a mini-achievement for Ford. Yet the stock corrected 44% in 2022. Let's discuss if Ford looks like a buy in 2023.
An iconic brand
The first factor that favors Ford over other automakers is deep brand loyalty. The century-old brand has managed to stay relevant in the highly competitive auto sector. Importantly, that hasn't changed. Even as electric vehicles are expanding their share in the auto market, Ford is transforming itself to focus on the EV segment. A loyal customer base means that whenever Ford launches an EV, it sees immense demand.
Ford's F-150 Lightning is the best-selling electric truck in America since its launch in May 2022. The truck won the 2023 MotorTrend Truck of the Year award for its "instantaneous torque and standout ride and handling."
Ford's E-Transit vans are America's best-selling electric van with a 73% share of the segment. Mustang Mach-E sales rose 45% in 2022 to 39,458 units. This shows that one can expect a sizable market share for Ford in the electric segment as it scales up its EV production.
NYSE: F
Key Data Points
Benefits from the Inflation Reduction Act
Ford expects to derive significant benefits from the Inflation Reduction Act (IRA). First, the act provides a battery-production tax credit of roughly $45 per kilowatt hour. Ford estimates that under this provision, from 2023 to 2026, the company and its battery partners could get more than $7 billion in tax credits. And the annual credits will only increase thereafter as its joint-venture battery plants ramp up production.
The second important benefit is the $7,500 per-vehicle commercial EV credit. As per the company's initial estimate, 55% to 65% of its commercial vehicle customers will qualify for this credit. As a leading commercial vehicle brand, Ford will clearly benefit.
Furthermore, the company expects some of its Mustang Mach-E and F-150 Lightning models to meet the critical-materials requirement under the act, making them eligible for a $3,750 per-vehicle credit.
A shift in autonomous driving strategy
Full autonomy is something that all auto companies have been looking to achieve for years. In 2017, Ford invested in autonomous driving technology, along with Volkswagen, through Argo AI. The company added to this investment in 2020. However, Ford now believes that fully autonomous driving (known as Level 4) would be a crucial breakthrough; yet, it could take several more years before this technology becomes fully developed and profitable.
So the company has decided to focus on lesser levels of autonomy (Levels 2 and 3) for now and has taken an impairment charge on its Argo AI investment. Although this sounds like a step back, it is sensible to the extent that the company took a pragmatic approach to the investment and decided not to throw more money into something it thinks is not working as planned.
President and CEO Jim Farley summed up the strategy shift, saying, "We're optimistic about a future for L4 ADAS, but profitable, fully autonomous vehicles at scale are a long way off and we won't necessarily have to create that technology ourselves."
Reasonable valuation
At a price-to-earnings ratio of just 5.7, Ford's stock looks attractive. The stock may not attain the kind of multiples some of its pure-play EV peers trade at, but it looks well-placed to rise steadily as it ramps up its EV deliveries.
F PE Ratio data by YCharts
Overall, a reasonable valuation, strong brand, focus on EVs, and potential benefits from the Inflation Reduction Act make Ford's stock attractive. If you're looking to add an auto stock to your portfolio, Ford certainly makes it to the top of the list of stocks to consider in 2023.
