Long-term investing is usually the key to massive returns in the stock market. But sometimes you bet on the wrong horse. Ford Motor Company (F 0.45%) is an excellent example. With shares generating a total return of just 240% over the last 20 years, you would have probably been better off just keeping your money in a high-yield savings account or Treasury bonds. The S&P 500 managed a 692% total return over the same timeframe.
While the electric vehicle (EV) transition offered the potential to help the company turn over a new leaf and possibly reinvent itself, the Trump administration initiated regulatory changes that threw a wrench into those plans. Let's explore what the next five years might have in store for Ford as the iconic American automaker pivots away from EVs.
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The Trump administration has upended the American EV market
A few years ago, EVs looked set to take over the world. Not only were the vehicles cleaner to run than traditional gasoline-powered models, but they also boasted simpler designs that could theoretically lead to lower manufacturing costs and better margins as battery technology continued to improve. That said, the transition was driven by much more than just economics. Behind the scenes, governments around the world tipped the scales to favor EVs through subsidies, credits, and regulations.
To say the Trump administration has turned this trend on its head would be an understatement. U.S. EV sales collapsed by an eye-popping 41% year over year in November as demand evaporated thanks to the removal of a $7,000 tax credit for EV purchases that expired Sept. 30.
But those are just the short-term effects. Over the coming years, investors should expect gasoline-powered cars to slowly increase their sales edge over EVs because of the rollback of fuel economy standards and fines that made it more expensive to build dirtier-burning vehicles.
Has Ford given up on EVs?
Ford responded to the changing economics by sharply pivoting away from EVs. This month, the company reported a colossal $19.5 billion writedown (this is a reduction in the value of assets on its balance sheet), with almost half of that going to canceled EV models. The most prominent of these is the fully electric F-150 Lightning, which was supposed to revolutionize the market for electric pickup trucks -- providing a more mainstream alternative to controversial rival vehicles like the Tesla Cybertuck.
Ford has also canceled its $6.5 billion battery supply deal with LG Energy Solutions as it plans to shift focus to hybrid vehicles instead of full EVs. Management claims to be just following the market's demands.
Ford's transition away from EVs makes business sense in the short term. However, lithium-ion battery technology continues to improve at a rapid pace, and EVs could still eventually replace gasoline-powered vehicles -- although perhaps on a longer timeframe than initially anticipated. Ford is likely ceding market share to rivals like Rivian, which will benefit from the dramatic reduction in competition in the market for fully electric trucks and SUVs. It could be hard for Ford to win this market share back.
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Trapped between a rock and a hard place
In the near term, pivoting away from EVs and back to more traditional SUVs and trucks makes a lot of business sense for Ford. Likewise, reshoring its manufacturing footprint back to the U.S. would be the reasonable response to Donald Trump's tariff policy. However, there is no guarantee that either of these policies will last longer than Trump's four-year term. A new administration could just as easily reverse them, putting Ford in a lose-lose situation that makes long-term planning all but impossible.
Ford is one of the most obvious victims of the U.S.'s increasingly volatile and erratic economic policy. This situation is already causing the company to make multi-billion-dollar mistakes in capital allocation. Shares look very likely to continue underperforming the market for the next five years and possibly beyond. Investors should stay far away.
