Ford: Finding It Difficult To Crack This Growth Market, In 5 Charts

| About: Ford Motor (F)

Summary

Ford is languishing in the U.S. EV market behind the likes of Tesla, GM, Nissan as sales of its EVs have declined at a faster pace than the overall market.

Ford is not making drastic changes to its EV line-up as the new Focus Electric shows, with the car only receiving minor updates while competitors are introducing entirely new models.

The introduction of a new electric SUV from Tesla and a cheaper Model 3 will pose challenges for Ford that has been slow in making innovation in the EV space.

Ford’s EVs carry very less range, which is why its $4.5 billion investment in the sector to enhance battery technology will play a key role in EV growth.

Ford, however, will not be able to make a swift comeback in EV sales in the U.S. due to the presence of stronger competitors, so investors should not get excited.

Last month, Ford (NYSE:F) came out with an aggressive plan to tap the growing market for electric vehicles and lined up an ambitious investment to make the most of this growth opportunity. However, a closer look at EV sales in the U.S. for 2015, which is Ford's home market, indicates that the decline in oil prices is turning out to be a headwind for the sector.

2015 was not a good year for EVs in the U.S.

The year 2015 was not as strong for the U.S. electric vehicle market as one would have hoped. Gasoline prices averaged only $2.40 per gallon for U.S. consumers in 2015, down from an average of $3.34 per gallon in 2014. In December alone, the average price was down to $2.01 a gallon. As a result, low fuel prices forced car buyers to either stay with or shift back to conventional internal combustion engine-driven vehicles, especially to the fuel efficient SUVs.

As such, EV sales in the U.S. declined for the first time in a full year from 123,049 units in 2014 to 116,548 units in 2015. This was in stark comparison to global EV sales that increased by at least 50% during the same time period. What's more, the market share of EVs in the U.S. also shrunk slightly from 0.73% to 0.66%.

Source

However, as seen in the table above, the industry made a comeback of sorts in the final months of the year and closed 2015 with healthy numbers. Monthly sales, which were down year-over-year for six out of the first nine months, started picking up pace as the year progressed. But, how will the picture look like for EVs in the U.S. in the long run? Let's find out.

A look at the long run

There is no denying the fact that weak oil pricing has created pressure on the EV market, but as seen in the chart above, despite lower gasoline pricing, EV sales picked up in the last few months of 2015. This can be attributed to the fact that consumers are finally becoming aware of the benefits of electric vehicles, while tough zero emission vehicle norms in states such as California, Maine, Connecticut, Maryland, etc. will also drive adoption.

In fact, as per Navigant Research, by 2024, sales of electric vehicles in the U.S. are anticipated to grow in a range of 16%-20.9%. This puts the number of EVs on U.S. roads in 2024 in a range between 860,000 and 1.2 million units. In comparison, EV sales in the U.S. in 2015 were less than 120,000 units, as pointed out already. In addition, even in Canada, Navigant forecasts that EV sales will increase in the range of 23% to 26%, clocking a higher growth rate than the U.S.

Thus, looking ahead, the demand for electric vehicles in North America will continue increasing on the back of improvements in charging infrastructure. In light of these prospects, we will take a closer look at Ford's prospects in the U.S. EV market and how it stands in comparison to its competitors.

Ford and the U.S. EV market

Ford sells 3 plug-in electric vehicles in the U.S market: The Focus Electric, the C-Max Energi, and the Fusion Energi. The first plug-in vehicle from Ford - the all-electric Focus - proved to be a sales dud with a low monthly average of 150 cars and ended 2015 with just 1,582 units. In comparison, Ford had sold 1,964 units of the car in 2014.

However, Ford is looking to change the game and will launch a new Focus Electric with approximately a 100-mile-range and faster charging (up to 80% in 30 minutes) this year. Despite all the hopes its maker has, would it make any sense with the likes of the Next gen Nissan LEAF (107 miles) and 2017 Chevrolet Bolt already available at prices similar to what Ford is planning to offer? I have doubts.

Source

In addition, the C-Max Energi's full year sales have also declined from 8,433 units in 2014 to 7,591 units in 2015, and a recovery doesn't seem imminent as of now. The following chart clearly indicates that sales of this vehicle have flat-lined of late:

Source: Inside EVs

Similarly, the Fusion Energy has also lost an almost similar fraction of its last year sales. It sold 9,750 units last year as compared to 11,550 units in 2014. But, unlike the other two models, it did show a tendency of a comeback toward the end of the year as it is Ford's latest EV in the market. In fact, the model finally returned to double-digit in December after a long gap since August 2014, as shown below.

Source: Inside EVs

Looking ahead, Ford plans to improve the performance of this vehicle further and has presented the new 2017 Ford Fusion at the North American International Auto Show (NAIAS) 2016. Ford calls it the "smartest, most technology-packed Fusion ever." It will come with better fuel economy on the plug-in side and some refinements on the electric side. The same 7.6 kWh battery will be used in it, so no change in range or speed is expected. But, since the existing model is selling well, an improved one should definitely fare well in the market due to more features and refinements in the engine.

What about the competition

The following chart tells the story of the U.S. EV market end results for the full year 2015.

Source

Combined together, Ford's three models own 16% of this market, while Tesla Motors' (NASDAQ:TSLA) Model S is estimated to have sold 23,518 copies in the last year, which amounts to 20% of market share. The latest model from Tesla, the Model X, has just started its journey and could be a tailwind for Tesla.

In fact, looking into 2016, Tesla expects the Model S to stabilize around the 25,000-unit mark, while the Model X is expected to deliver around 15,000 units in the U.S. in terms of sales. Moreover, the highly affordable Model 3 ($35,000) is coming in March of this year. Thus, Tesla is well-equipped to keep its lead over the others in this sector.

However, there are multiple contenders for the second and the third spot. The Nissan Leaf is also close to the Model S in the race while even the Chevrolet Volt has the potential to become a best seller. As evident from the chart, Ford is languishing way behind the others in this race.

Thus, even though the total sales forecast for EVs in the U.S. this year is expected to be around 175,000 units, Ford might not be able to make much progress due to the moves made by the likes of Tesla.

Will Ford's long-term EV performance improve?

So, the biggest problem with Ford is that it has not been updating models at a good enough pace, while competitors such as Tesla are continuously innovating their products and are focused on increasing the range and providing low-priced electric vehicles such as the Model 3 as well.

To address this problem, Ford has decided to pull up its socks and it will be investing $4.5 billion in electric vehicle initiatives until the end of the decade. As a part of this plan, Ford will not only invest in the development of 13 new EVs to take the EV fleet to 40% of its overall fleet, but also invest in battery technology so that it can increase the range of its vehicles.

However, it remains to be seen whether this initiative of Ford actually bears fruit as the company has fallen way behind newcomers such as Tesla and other established players such as Nissan and General Motors. The range of the company's EVs is still quite low, as mentioned earlier, which is why it needs to continue working toward developing a stronger portfolio so that it can take advantage of the end-market growth. So, in my opinion, investors should not expect Ford to make a swift turnaround in the EV business in the U.S. as it faces considerable competition from rivals.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.