Long-term investing is usually the key to life-changing returns in the stock market -- but not if you bet on the wrong horse. Ford Motor Company (F +0.17%) is an example of a perennial underperformer. Shares in the automotive giant have grown only 16% over the last decade. And while the total return jumps to 97% when you include cash dividends, that's still far below the S&P 500 index's gain of 325% over the same time frame.
Can Ford break out of its chronic slump and generate the cash flow needed to maintain or grow the dividend payout that represents the vast majority of its returns? Let's dig deeper to find out what might come next for the company.
NYSE: F
Key Data Points
The Trump administration throws a curveball
The administration of President Donald Trump has introduced uncertainty to many aspects of the U.S. economy, but the automotive industry is arguably the most affected by the new policies. Massive tariffs on all of the U.S.'s trading partners have disrupted global automotive supply chains. But more importantly, they make it difficult for companies like Ford to properly plan for the future or build production capacity in the best locations.
Simply moving production to the U.S. isn't a long-term solution, because the tariffs rest on uncertain legal grounds and could be overturned in the coming months or when a new president takes office. The uncertainty makes it impossible for Ford to predict the correct course of action. And mistakes could have consequences that far outlast Trump's term.
The company's abrupt pivot away from electric vehicles demonstrates the value destruction that can occur when a company miscalculates future government policy in an increasingly uncertain political environment.
The EV pivot ends in failure
In December, Ford announced a spectacular retreat from electric vehicles (EVs), which it had previously overcommitted to in response to Biden-era policies (yet another miscalculation). The company has recorded a whopping $19.5 billion asset write-down related to canceled EVs. It plans to replace its poorly selling fully electric Ford F-150 Lightning with a hybrid that uses a gas-powered engine to recharge its battery.
In the near to medium term, pivoting away from EVs is obviously the correct move. U.S. EV sales dropped 41% in November following the Trump administration's removal of a $7,500 tax credit. And the relaxing of tailpipe emission rules will make gasoline-powered cars cheaper to produce and more competitive over the next few years.
Image source: Getty Images.
That said, EV battery technology is improving rapidly. And by reducing its presence in the industry, Ford risks falling behind -- sacrificing brand recognition and market share to rivals like Rivian, which will now face very little direct competition in the market for fully electric pickup trucks. And the next administration may take a more favorable stance toward EVs, putting Ford on the back foot once again.
Caught between a rock and a hard place
Ford's management seems to be constantly reacting to the changing political climate instead of sticking to a company-specific strategy that can create value no matter who is in the White House. This inconsistency is already leading to multibillion-dollar capital allocation mistakes, and the problems could get worse if U.S. government policy becomes increasingly erratic and inconsistent between administrations.
The good news is that with a price-to-earnings (P/E) ratio of 9.8, Ford stock is relatively cheap compared to the S&P 500 average of 22, so downside risk looks limited. Furthermore, the company can probably maintain its large 5.4% dividend with cash flow by focusing on its high-margin gasoline-powered trucks and SUVs. But investors who prioritize growth and future-oriented leadership should probably look elsewhere.
