Over the past twenty years, investors have Ford (NYSE:F) have seen their starting capital increase by only 55% (as of November 25). For comparison: the S&P500a benchmark for measuring the performance of stocks in general, has generated a total return of 647% over the same period.
Clearly, Ford has not positioned itself as an effective tool for building wealth. But maybe the future will be different. Could this be Detroit car stockthat has lagged the broader market over the past twenty years, and made investors for life?
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Ford has been around for over 100 years. However, don’t be misled by that long history. This company is facing some serious issues that investors should be aware of.
In the second quarter of 2024 (ending June 30), Ford reported net income of $1.8 billion, which was not only down 9% year over year, but that figure was also significantly above Wall Street expectations. The reason for the disappointment was higher than expected warranty costs due to vehicle quality issues. There was an improvement in the third quarter, but the problems are still weighing on profits.
The industry’s shift towards a more sustainable future has led to heavy investment by car manufacturers to sell more electric vehicles (EVs). Ford’s strategy is no different. However, the progress to date in building a financially viable EV segment has been nothing to write home about.
Through the first three quarters of 2024, Ford’s Model e, which houses the company’s EV business, posted a cumulative operating loss of $3.7 billion. This effectively offset the bottom line of Ford’s old auto division. The leadership team simply doesn’t see demand as strong enough as it had initially hoped. It also doesn’t help that the market is extremely competitive.
It’s a good idea to take a step back and understand that Ford has unfavorable traits that reduce the chances of adequate long-term returns. Here are some things potential investors should keep in mind.
To start with, the automotive industry is very mature, with low growth prospects. The number of passenger cars sold worldwide in 2022 was only 12% higher than ten years earlier. The muted unit growth doesn’t provide a strong backdrop for Ford to meaningfully increase sales. According to analyst consensus estimates, the company’s 2026 revenue will be just 0.8% higher than the projected 2024 total.
