Ford: All Eyes On Ford+
Summary
- Ford Motor Company's Ford+ event is likely to focus on the company's EV targets.
- Can a giant organization built on hierarchy and traditional style turn nimble almost overnight?
- I believe in Ford's transformation process but part of any good process is to have realistic goals too.
Vera Tikhonova
Producing Electric Vehicles safely, profitably, and at scale isn't easy. Throw in an aggressive timeline into the mix and things get more complicated. Just ask Elon Musk. Now, to that mix, add a company that is not too well known for being nimble or fluid in its organizational structure nor management style. Then, the ask gets almost impossible. Yet, Ford Motor Company (NYSE:F) is targeting just this as part of its Ford+ campaign, which will be the company's focus in today's event "Delivering Ford+".
What exactly is the Ford+ campaign? Officially, it is that the company wants to become more customer focused, nimble, and drive business segments towards value creation. A "small" part of that equation is the company's aggressive target to achieve a production run-rate (typically a year) of 2 million EVs per year. If you already know the company is about to lose $3 billion this year in its EV business, you'd be thinking this in an aggressive target (to put it mildly). If you think I am being skeptical here, you are absolutely right. I have my reasons as explained below.
- Tesla, Inc. (TSLA) took a good 18 years after its launch to sell a total, again total, of 2 million EVS. Their timeline is given below:
- 2003: Tesla was born.
- 2008: Tesla Roadster was launched
- 2012: Model S was introduced
- 2015: Model X
- 2017: Model 3
- 2020: Model Y
- 2021: Sold 2 million cars
Granted, Tesla had to navigate almost on its own back in the days and the industry is much more advanced these days. In addition, if there is one thing Ford knows better than most auto manufacturers, it is scale. However, to go from producing about 11,000 EVs in the first quarter of 2023 to an annual production run-rate of 2 million in less than 4 years from now seems ultra aggressive, if not unrealistic, to me.
2. It is not just the 2 million run-rate that seems aggressive but also the company's stated 8% EBIT margin for its EVs. The two charts below highlight how this maybe even harder than reaching the volume target. The first chart below shows Ford's current EV margin (-40%) and its transition plan as it targets to move from -40% to -20% to -15% to -10% to 3% to 8%.
Ford EV 2026 (Cnbc.com)
The second chart below shows Tesla's historical EBIT margin over the years. I maybe a little off here but it appears like Tesla's EBIT first hit the 8% mark just about two years ago in June 2021.
TSLA EBIT (Macrotrends.net)
3. Ford, in its apparent battle against Tesla, should not lose focus of the fact that there are other competitors. In fact, long time rival General Motors (GM) handily overtook Ford by selling almost double the EVs that Ford did in the U.S in the first quarter of 2023. GM occupied the 2nd spot (way) behind Tesla on this list with Ford being placed a distant 5th.
Ford Rank (Cnbc.com)
4. And then there is the big question of market saturation. We know Ford's aggressive targets. General Motors has its own target to overtake Tesla in the coming years. Not to be left behind, the ever so humble Musk has a target of production 20 million EVs/yr by 2030. I believe even if this scale is reached, it is also likely that the profit margin shrinks drastically along the way.
5. Lastly, the elephant in the room in my opinion is Ford's deep-rooted history and organizational structure as a traditional manufacturing company may make it much harder for it to reach this lofty goal than an energetic young company. Granted, the company's recent hiring efforts point to a desire to change its ways but truly successful companies just don't wake up one day and decide they need to be "customer-centered". They are customer-centered by definition, typically led by a ruthless leader at the top.
Conclusion
Overall, I still believe Ford is proceeding in the right direction on its transformation process. However, having unrealistic goals will dampen even the best of progress, for both the company and investors. While Ford may succeed in some of its EV goals, in my opinion, it is hard to see them meeting the goals within the timeframe at the desired margin in their current organizational form. Something's gotta give. I do not have a position at this moment but I do sincerely hope that unrealistic hopes on EV targets don't cloud investors' judgement.
This article was written by
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Recommended For You
Comments (78)
Ford is scaling to build something as important as The Rouge was when it was built.
Ford is going to be better than fine, count on it.
Elmo is about to get schooled by more than one company that knows how to build, market, distribute and sell cars. Tesla enjoyed an empty market that is only getting more crowded every day. Crowded by companies that don't make promises for years before halfway keeping them.
GM - 21,000
Tesla - 423,000Ford and GM keep spotting Tesla a bigger lead as Tesla out executes them in scaling BEV manufacturing. Tesla is showing no signs of slowing down while Ford and GM haven't offered any proof that they are speeding up, relying instead on sound bites and Powerpoints. Don't be gullible.
In the future with 28b in cash on the balance sheet and the ability to outshine Tesla on EV
He dose not expect much from the battery business. It is my belief that some day when the battery business becomes a commodity business, Ford will spin or sell it off.
If people had any idea of what's going to be coming out of BOC.
"Musk's $25,000 EV"
Yes, he's promised that for years. Meanwhile, F will come out with a 25K EV PU. I bet before Musk gets his 25K car (that he keeps cancelling).
You really need to do more reading and less posting.
www.youtube.com/...From a dealer....
"Now Ford is going to add an electric powertrain to the Maverick with the moniker Lightning. This news may come as a surprise to some, but with the outrageous sales that Ford has been having on their electric vehicles, there’s no doubt they want to add electric powertrains to more of their popular vehicles."
Ford's 1st quarter was down because of a production problem, not lack of demand.
Ford is quietly preparing to scale the EV business, securing commodity supplies and on sourcing batteries to ensure supply.
Ford is waking up.
What I find most amusing is mentioning Elmo's 20 million unit claims with a straight face.
Even if he could build 20 million cars, and he can't, no car since the Model T has had that kind d of market share.
It seems Wall Street is going to wait & see.
F has the Lightning, Tesla, still no PU.
F has extremely popular EVs. gm has had to discount the Bolt up to 27% (after a prior discount) to get them to sell. Now the Bolt is cancelled, so gm just needed to get rid of them.When you actually compare things, F is way ahead of Tesla and gm especially. F will do in a few years what it took close to two decades for Tesla to do.Hackett, Farley, delivered. CT, Bolt, not so much. And it's just getting started.
I'm sure Farley will deliver. He's not a promise first kind of guy.
(gm, Tesla cough, cough)
There's much going on at F that most investors don't have a clue about. I'm fine with that, it makes it easier to add when I want to.
At some point, everyone will start to realize that and I should be topped off with the stock by then.That 40-50% of FCF is going to fund a lot of fun.