Ford Motor Company (F -1.92%) is one of the world's legacy automakers, having been around for over 120 years. It helped usher in an era of mass-produced vehicles, and it's led to the company being one of the world's most influential and recognizable automakers.
Ford hasn't been without its struggles, however. Changing consumer trends and supply chain disruptions have weighed the stock down recently. It's down 8% in 2023 and over 57% from its January 2022 highs.
Ford's recent woes have caused many investors to wonder if now is the right to invest in the company, and I believe the answer ultimately comes down to your timeline.
Its EV unit needs to remain on target for profitability
In March 2022, Ford announced a major company restructuring. It divided into two broad, interdependent businesses: Ford Blue and Ford Model e. Ford Blue is dedicated to its traditional gas and hybrid vehicles, and Ford Model e focuses on electric vehicles (EVs) and connectivity.
The good news is that in the third quarter of 2023, Ford's Model e whole units were up to 36,000 from 25,000 in Q3 2022, and revenue was up $400 million year over year. The bad news is that Ford loses a lot of money on each EV sold, and the Model e division is wildly unprofitable. In Q3 2023, the division lost $1.3 billion in earnings before interest and tax (EBIT).
Ford expects its EVs to be profitable by 2026, but it could get worse before it gets better. For long-term investors, these present-day losses are for the greater good as Ford invests in new factories to build EV cars at scale and hopefully lower long-term costs.
The UAW is weighing on Ford's financials
At the end of Q3 2023, Ford had more than $29 billion in cash and $51 billion in liquidity. That still didn't distract investors from its relatively disappointing Q3 financial results. Vehicle revenue was $41.8 billion, and earnings per share were $0.39, but both missed Wall Street estimates.
It's no surprise that earnings are coming in low when a single division is losing $1.3 billion, but a critical aspect of Ford's latest financials is just how much impact the United Auto Workers union (UAW) is having. For perspective, the UAW strike had an EBIT impact of around $100 million in Q3 alone, and it could affect Ford's 2023 EBIT by around $1.3 billion.
Earlier in the year, Ford's management set an EBIT guidance of $11 billion to $12 billion. However, the strike has created uncertainty around Ford's ability to meet that, so it withdrew its guidance for the year. That's not quite music to investors' ears. Luckily, there's a tentative agreement in place, but the strike could affect Ford for the coming quarters.
Ford's valuation and dividend look appealing
There are some legitimate concerns for Ford's business right now. There's the cash-burning EV division, supply chain issues, and UAW strikes over worker contracts. The latter is more of a short-term concern, but the first two could cause lasting issues if not addressed properly.
That said, it's hard to ignore Ford's low valuation at the moment. Its price-to-earnings (P/E) ratio is below 7 (less than its average for the past decade), and it has a dividend yield of 5.6%, well above what an S&P 500 ETF would offer.
F Dividend Yield data by YCharts
Ford's attractive dividend can provide consistent income and should keep investors patient while the company navigates this transition to make EVs a viable profit-making business segment. Having been around for over 120 years, Ford has shown the ability to adapt, so I don't doubt this time is drastically different.
If you currently own Ford shares, I don't think you need to panic and sell them. For new investors, I recommend dollar-cost averaging your way into a stake in the company. Consistent investments over time should help reduce risk while letting you capitalize on Ford's potential long-term growth.
