With shares down by 22% over the last ten years, Ford Motor (F +3.46%) stock has been a colossal time waster for most shareholders, who would have been better off putting their money in a savings account. The legacy automaker stagnated at a time when rivals like Tesla (TSLA +2.96%) turned their early investors into millionaires.
Now Ford is trying to reinvent itself by betting on electric vehicles (EVs), a technology platform expected to become the future of the automotive industry. Let's dig deeper into what these efforts could mean for the company over the next five years and beyond.
NYSE: F
Key Data Points
Ford's electric vehicle transition
According to analysts at Goldman Sachs, electric vehicles could rise to represent a whopping 50% of global car sales by 2035, with that number hitting 100% and 70%, respectively, in developed markets like the U.S. and E.U. Against this backdrop, it makes sense for legacy automakers to rapidly transition their business models around this new technology to maintain relevance and avoid losing long-term market share.
Ford's strategy has sought to lean into its natural advantages with branding, especially in categories it leads, such as pickup trucks. And in April 2022, the company launched its all-electric F-150 lighting, well ahead of rival products like the Tesla Cybertuck, which only became available in late November. But just two years into its release, Ford has already decided to halve F-150 Lighting production (to 1600 trucks per week) because of weaker-than-expected demand.
The company is also delaying $12 billion worth of EV investments into battery plants and other ventures because of the changing consumer landscape. To be fair, these challenges could have a lot to do with elevated interest rates, which make it harder for people to afford cars on credit. But that might be the tip of the iceberg for Ford's EV woes.
Margins are terrible
Image source: Getty Images.
If you thought EVs would reinvigorate Ford's lumbering, low-margin business, think again. The new products are actually doing the opposite. Despite being America's second-largest EV maker with 72,608 vehicles sold in 2023, Ford's electrified segment, the Model E, still looks more like a cash-burning start-up from an operational perspective.
In the third quarter, Ford's Model E segment generated earnings before interest and taxes (EBIT) loss of $1.3 billion compared to its revenue of just $1.8 billion -- a staggeringly low EBIT margin of negative 75.6%. While growing businesses typically generate losses until they reach scale, it is hard to see Ford's EV business growing into profitability any time soon, especially now that rising competition in the market continues to put pressure on industrywide growth and prices.
I'm losing hope for Ford
I don't see a light at the end of the tunnel for Ford. While shares boast a hilariously low price tag of just 0.27 times sales (compared to Tesla's 7.98), this dismal valuation is beginning to look realistic and justified. Instead of reinvigorating Ford's business, the EV transition is dragging down its performance even more.
It is unrealistic to assume every EV maker will be able to attain good margins, especially as the market becomes more crowded and competitive. And while Ford may eventually dig itself out of this hole, I don't see that happening any time soon. Shares look likely to continue underperforming over the next five years, and possibly beyond.
