Ford Motor Co: Kudos to the Ne

A strong electric vehicle (EV) strategy has gradually become an integral part of every automaker’s functioning across the globe – at least the ones that don’t want to be rendered obsolete in the future.

Ford Motor Co (F, Financial) is no exception to this rule. The company has been in the news recently with respect to its plans to increase investment in electric vehicles to $30 billion through 2025.

Like most automakers, Ford said its sales were negatively impacted by the Covid-19 pandemic throughout 2020, but the first quarter of 2021 came as a big relief for the company. The recent results surpassed Wall Street expectations, and there were a number of positives that came out of the result.

The management made meaningful restructuring efforts in Europe and South America and enhanced its product line-up globally to focus on light truck models. One of the biggest updates was the planned launch of the new EV F-150 Lightning, which is expected to be a major driver of the company’s future growth along with the Mustang Mach-E SUV.

Recent financial performance

Ford managed to report an all-around beat for Q1 2021. The company reported a top-line of $36.23 billion for the quarter ended March 31, up 5.56{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} compared to the $34.32 billion in revenue reported in the corresponding quarter of the previous year.

Ford was able to raise prices in order to make up for the industry-wide imbalance of supply and demand given the semiconductor shortage as a result of its strong market position and customer loyalty. This is why it was able to beat the analyst consensus estimate which called for $36.13 billion in revenue.

These revenues translated into a gross margin of 14.79{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644} and an operating margin of 8.63{2e54b6599e2852fcddcb96c51aef71201c0435684ebd8fbda55b4c693aab2644}, which were higher than in the same quarter of last year.

Ford reported net income of $3.26 billion and adjusted earnings per share (EPS) of 89 cents, which was above the average Wall Street expectation of 30 cents. In terms of cash flows, the company reported $4.49 billion in the form of operating cash flows and spent $491 million in investing activities during the previous quarter, leaving the company with strong free cash flows for future EV investments.

F-150 Lightning and other key developments

Amidst U.S. President Joe Biden’s push for electric mobility, Ford unveiled its plans for the F-150 Lightning, the first-ever all-electric F-Series truck, which has already received 70,000 reservations since it was announced. In fact, President Biden test-drove the new model himself and remarked, “This sucker’s quick.” The latest model is scheduled to appear in the markets by 2022 and remains true to the earlier F-150 models. Notably, the truck will have 563 horsepower and the standard model has enough power to drive up to 370 kilometers on a single charge. Moreover, the management claims that 10 minutes’ worth of charging would provide the vehicle enough power to run for more than 50 kilometers.

Ford is rapidly catching up with rival General Motors (GM, Financial) in the EV space, and its strong brand loyalty could make it a strong contender even against pure-play EV comanies like Tesla (TSLA, Financial).

Apart from this, the company has also formed a new global battery center called Ford Ion Park, which will help accelerate the company’s research and development efforts of battery as well as battery cell technology. Ford plans to equip the center for future battery manufacturing.

The management is targeting to invest $1 billion in an electric vehicle manufacturing facility in Cologne, Germany as part of its pledge to sell electric cars exclusively in Europe and the UK by 2030.

Joint venture with SK Innovation

Ford entered into an agreement with South Korea-based SK Innovation to form a joint venture called BlueOvalSK to manufacture battery cells and array modules in the U.S. The new venture will approximately produce 60-gigawatt hours (GWh) annually starting mid-decade, and the manufactured battery cells and arrays will be used to run future Ford EVs. As per the management, by 2030, Ford expects the annual energy demand for vehicles to increase to 140 GWh annually in North America and 240 GWh worldwide.

This joint venture will enable both Ford and SK Innovation to reach mass production of battery cells which are customized to efficiently add value for customers. Moreover, SK Innovation has supply partnerships with multiple major global automakers, which bodes well for Ford.

This move comes in line with Ford’s vision of an all-electric future, which includes providing fifth-generation lithium-ion batteries as well as preparing for the transition to solid-state batteries.

The automaker plans to invest $185 million in opening a collaborative learning lab in Southeast Michigan. The lab will focus on developing and manufacturing lithium-ion as well as battery cells and arrays. Overall, the company’s efforts towards electrification could act as a key catalyst behind its long-term stock price growth.

Final thoughts

The recent EV developments have given a huge push to Ford’s stock price, which has almost tripled in the past 12 months. The recent price surge is signaling the fact that investors are bullish about the sales potential for the newest version of the F-150 as well as the future growth plans of the company.

Ford is trading at a price-earnings ratio of 15 and an enterprise value-to-revenue ratio of 1.31, both of which appear to be significantly low when compared with the median for the automaker industry. This also indicates considerable potential for multiple expansion given the company’s accelerated efforts in the EV space as well as the strong availability of cash to execute its future plans.

Overall, I believe that despite the recent runup, Ford has plenty of steam left for further appreciation and could be an excellent EV stock for auto investors.

Disclosure: No positions.

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