The automotive industry is a bedrock of American manufacturing. Arguably, no domestic automotive brand is more recognized than Ford Motor Company (F -1.92%). The company's founder, Henry Ford, invented the automotive assembly line, and consumers have driven the Blue Oval since the early 1900s.
That longevity and sentimental value make the stock popular among investors. But does Ford's impressive history translate to life-changing investment returns?
It hasn't worked out that way in recent years. I've identified why that is and will discuss whether that's likely to change.
The reality of the modern automotive industry
The modern automotive industry is arguably more challenging to compete in today than ever. Building high numbers of machines quickly and profitably isn't easy, which is why the assembly line was such a game changer back then.
The automobile has become increasingly complex and harder to build over the years, so manufacturers must constantly invest in keeping their factories on the cutting edge.
At the same time, the world's economy is more global now than ever before, as Ford and its peers are competing with the world. A customer in America can buy a competing brand from Germany, South Korea, or Japan. It's not easy for a new manufacturer to enter the field, but the competition is ruthless among those already here.
Ford enjoys strong customer loyalty for its passenger truck line. The Ford F-Series has been the highest-selling vehicle in America for 47 consecutive years. Still, the stock has fared poorly against the broader stock market.
F Total Return Price data by YCharts.
The electric questions
The emergence of electric vehicles and Tesla's success has only muddied the waters, forcing a legacy automotive company like Ford to invest in electric. This not only isn't profitable at its current size but threatens to eat at the company's existing, profitable gas-vehicle sales.
Image Source: Ford Motor Company
Ford's gas-powered segments, Blue and Pro, sold nearly 4.3 million units in 2023 for $14.7 billion in earnings before interest and taxes (EBIT). The electric segment sold 116,000 units but lost $4.7B in EBIT because the volume wasn't enough to pay for all the overhead and costs of building them.
Predicting what Ford's financials will look like years from now is hard. Will electric vehicles eventually be as profitable as gas? What will the ratio between gas and electric sales be?
It will take years for the dynamics between gas and electric vehicles to play out, and it's unclear where Ford will wind up in the industry's reshuffled pecking order when the dust settles.
Can Ford make you a millionaire?
Investors trying to maximize their total returns should be wary of Ford stock. Yes, Ford pays a dividend that yields a juicy 4.8%, but there's not much else to get excited about right now.
Ford earned a non-GAAP profit of $2.01 per share in 2023. Consensus analyst estimates of $1.97 per share for 2026 mean Wall Street expects Ford to virtually tread water for the next several years, likely due to its continued balancing act between gas and electric.
Investors are only looking at mid-single-digit investment returns from its dividend without a considerable lift in valuation, which seems unlikely given Ford's dim growth outlook. The stock looks cheap at a price-to-earnings ratio (P/E) of just under 7, but stagnant earnings mean it's trading at the same valuation using 2025 and 2026 estimates.
No growth doesn't mean Ford's business won't stick around, but millionaire-making stocks set a high bar that Ford doesn't appear ready to clear.
