Ford Motor Company (F 1.16%) is a compelling investment choice for a rebound. The stock has been hammered due to higher warranty costs crushing quarterly results, along with mounting electric vehicle (EV) losses; though its dividend yield has reached 5.6%, it currently trades at a modest price-to-earnings (P/E) ratio of 11.
But one recent move could help Ford reverse those EV losses. Here are the details.
Hello again
Goodbyes don't always have to be forever, and after a three-year break Ford is planning to reopen its Chennai plant in India. Early in September, Ford officially submitted a letter of intent to the government of Tamil Nadu outlining its plans to restart the plant to manufacture for export; the rumor is that it will be utilized for exporting EVs.
That decision might come as a surprise to many investors, who have heard Ford news that includes its pulling back on $12 billion in EV investments and projects, minimizing a battery factory, canceling a line of EV SUVs, and replacing EV volume with Super Duty trucks in Canada. The idea was simple: curb the massive losses taking place within its Model e, as the division could lose up to $5.5 billion in 2024 alone.
This decision to reopen its Indian plant, apparently to serve global markets with EVs, is a case of Ford having its cake and eating it too.
Why it's a smart move
It's prudent for Ford to pull back on EV investments in the U.S., where the transition from internal combustion engine vehicles is going slower than anticipated. But it's also true that EV sales are booming in other parts of the world.
Ford should be able to make electric vehicles more affordably in India once the supply chain is established, then export them to countries with more quickly rising EV sales. To show how much further along some foreign markets are in the transition, China's EV share of new passenger cars in July was 51%. (Note that it's unlikely Ford will export to China, due to stiff competition from low-cost Chinese EVs.) EVs are still surging in markets such as Southeast Asia, parts of Europe, and South and Central America -- and Ford's Indian plant should be able to export to all the hot spots.
NYSE: F
Key Data Points
What Ford needs to be successful
While Ford still needs to confirm what it will export from India, it's clear that to be successful and competitive -- at least in terms of sales volume -- its "skunkworks" team will have to come through for the company. Years ago Ford made a quiet bet on a small team dedicated to working on a low-cost platform, with a target price of around $25,000. At the time this might have seemed drastic, but now it seems like the reality of competing with lower-priced Chinese EVs globally.
The problem is that some analysts question whether a $25,000 EV will ever be profitable. If not, that could become a huge problem for Ford: Electric trucks aren't as lucrative as internal combustion trucks, because the much larger batteries needed come at a high cost. The Detroit automaker can't currently rely on electric trucks to offset losses from a low-cost platform -- although thankfully it still makes high-profit traditional trucks.
Flexibility matters
This move shows that Ford is turning over every stone to try to curb EV losses in slow-growth markets such as the U.S., while also trying to rebound globally and compete in regions where EVs are growing at a more rapid clip.
Ford needs its low-cost platform to be a success. More importantly, it needs it to be at least slightly profitable. This is a development to keep an eye on, because a global export hub in India could help Ford rebound competitively in global EV sales.
