Investors have long overlooked the U.S. auto industry due to its poor returns. And with stocks down about 29% over the past decade (not including dividends), Ford Motor Company (NYSE:F) is a typical example in this lackluster industry.
That said, an ambitious turnaround electric vehicles (EVs) can shake things up. Let’s examine the pros and cons of Ford to see if it has the potential for millionaires.
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Compared to most of its rivals, Ford quickly realized the importance of larger vehicles. In 2018, the company discontinued all its sedans to focus on more profitable trucks, SUVs and crossovers.
This turned out to be the right move. Larger vehicles are not only more profitable, but also better suited to changing customer tastes. Other automakers love it General engines Ford eventually followed suit by eliminating sedan models.
Ford has also aggressively scaled back its flagging international operations, exiting Brazil and India while shrinking its footprint in Europe. The result is a leaner company that can focus on its electrification strategy. The third quarter results provide insight into how the transition is taking place.
Sales grew a modest 5% year over year to $46 billion, representing the tenth consecutive quarter of sales growth for Ford.
The company’s internal combustion engine (ICE) business has become a stable cash cow, with the Ford Pro segment (which focuses on commercial vehicles) generating $1.8 billion in revenue. earnings before interest and taxes (EBIT). The Ford Blue Oval segment generated EBIT of $1.63 billion. However, while the legacy ICE business is flourishing, the EV transition has been challenging.
Instead of creating value, Ford’s new EV business (represented by the Model E segment) is slowing down the company’s performance. In the third quarter, Model E sales fell 33% year-over-year to $1.2 billion, with an EBIT loss of $1.22 billion.
Much of the weakness can be attributed to its flagship Mach-E crossover, which has seen declining sales and price cuts to cope with increased market competition.
In the coming years, Ford’s EV business is likely to resume its longer-term growth as battery technology improves and consumers become more willing to embrace the new technology. But it is unclear how much shareholder value this will create.
To start, Most EV growth is expected to come from consumers moving away from ICE vehicles, so this trend will likely cannibalize Ford’s profitable older segments. Furthermore, competition in the sector is increasing, with pure EV companies such as Tesla, Rivian automotive industry, And Clear group encroaching on Ford’s US truck and SUV niche market
The biggest threat will come from China, where a bevy of low-priced automakers appear poised to use their vertically integrated supply chains, government subsidies and cheap labor to turn electric cars into a form of low-cost electronics, akin to toaster ovens and flat-top electric cars. screen TVs. While U.S. tariffs could keep these rivals in Ford’s home market at bay, they could decimate what remains of Ford’s business in Asia and Europe.
Ford is undergoing a huge transition and it is unclear how the chips will fall. In the best case scenario, the EV division will experience rapid growth that will keep pace with expected declines in ICE sales and allow market share. At worst, the company will be overshadowed by nimble rivals in the US and China.
Either way, Ford isn’t a millionaire maker, as neither scenario is likely to generate market-beating stock growth. Long-term investors should probably sell or avoid the stock.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Tesla. The Motley Fool recommends General Motors and recommends the following options: In January 2025, $25 would appeal to General Motors. The Motley Fool has a disclosure policy.
Is Ford a Millionaire Maker Stock? was originally published by The Motley Fool
