Electric Dreams Fuel Major Upgrade For Ford Shares
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The electric vehicle space is hot and no company is benefitting more than Ford (F). Yet even with the impressive stock gains in 2021 shares are still dramatically underpriced.
Jim Farley, Ford’s chief executive, on Friday was sounding all of the right notes. The Dearborn. Mich.-based company plans to triple output for the Mustang Mach-E, its hot-selling electric SUV.
Long-term investors should consider buying Ford shares at current levels.
It wasn’t always this way. Like other legacy automotive companies Ford used to be a company that could not get out of its own way. Previous executives were slow to embrace EVs because they believed the transition to electric propulsion was far off in the future. Then Tesla (TSLA) came along. The EV pioneer dominated the luxury sedan markets. Now the Austin, Tex.-based company is planning the same for trucks.
Entry into trucks was a big red flag for Ford.
The Ford F-150 pickup truck brand has been the best-selling vehicle in the United States for the past 39 years, according to a 2020 CNBC story . However, when Tesla announced the Cycbertruck in November 2020, a quirky stainless steel behemoth with design cues straight out Mad Max, truck buyers when into overdrive.
Cybertruck is still in pre-production yet Tesla has 1.2 million reservations, and counting.
Ford began electrifying the F-150 in early 2020. Called Lightning, the truck is supposed to launch in 2022 and in every way, it will be a giant step up from its internal combustion cousin. The Lightning will have more cabin and cargo space, better towing capacity, acceleration and contractor friendly attributes like 11 120-volt electrical outlets. It means never again having to carry a generator to jobsites.
However, the big story at Ford has been Mach-E.
Inspired by the Mustang, the SUV has been a hit everywhere it has launched. In May Mach-E outsold Tesla in Norway, and that is saying something.
Like Tesla, Mach-E is a blazer, racing from a standstill to 60 mph in only 3.5 seconds. Unlike Tesla, Mach-E is a visual stunner. The SUV takes it head-turning good looks from the famed pony car. And the vehicle is sold out everywhere. Dealers that manage to get supply are selling Mach-Es for a hefty $12,000 premium over the list price.
Farley says that Ford will increase production for the Mach-E to 200,000 units per year by 2023. He also claims, according to an Automotive News story, that by the end of 2023 the company will reach overall EV production of 600,000 units.
That number would put Ford ahead of Tesla’s 2022 domestic EV production, for now. Tesla is near the grand opening of its Austin, Texas Gigafactory. The state-of-the-art facility could produce 500,000 annually when production ramps up in late 2022.
Ford is going to stay behind Tesla for a while in terms of domestic EV production. That should not deter investors from buying Ford shares now, though.
Company shares are being re-rated.
Ford is changing from a legacy automaker to an EV company, and shareholders will benefit from all of the new valuation metrics this entails. Production increases, even from small baselines, will lead to higher prices. The same is true for new battery agreements, executive hires away from Tesla, and EV model reveals.
Ford shareholders are on the verge of getting the same investor love that launched Lucid (LCID) and Rivian (RIVN) to nosebleed levels. It’s a completely new way to value the business.
Lucid plans to produce 20,000 EVs in 2022 and 50,000 in 2023, according a report at Reuters. Its market capitalization is $63 billion. Despite this, executives have found no shortage of willing investors. The company raised $1.75 billion in November with the sale of convertible senior notes.
The market capitalization at Rivian, an electric truck maker backed by Amazon.com (AMZN), is even more audacious. The Irvine, Calif.-based company has no current sales, although preorders for its pastel colored trucks have now reached 55,400. The market cap is $103 billion.
At only $88 billion Ford is a bargain.
Shares currently trade at 11x forward earnings and 0.7x sales. As the company makes the transition to EVs by 2023 the stock could trade at 2.0x sales. The math implies a near triple from current levels.
Longer-term investors should put the old Ford in the rearview mirror. The Ford of Mach-E and Lightening is going to race much higher.
