Ford’s Financial Future: Can It Compete in the EV Market?
Ford Motor Company (NYSE: F) is a well-known figure in the automotive world, boasting a robust history. Remarkably, the company managed to avoid bankruptcy during the 2008-09 Great Recession, a feat not shared by some American rivals.
But can Ford’s stock really make investors rich?
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While there is always potential for significant gains, it is wiser for potential investors to adopt a cautious perspective on what lies ahead.
A Closer Look at Ford’s Operations
Ford stands as one of the largest auto manufacturers globally, with a market capitalization of about $40 billion. In 2024, it sold over 2 million vehicles, with a notable surge in electric (EV) and hybrid models. However, the company predominantly focuses on trucks and SUVs, which account for approximately 56% and 42% of sales, respectively. Traditional sedans now represent a small fraction of its overall business.
Examining sales performance reveals another crucial trend. EV sales increased by 38% year over year in 2024, yet combustion engine sales remained nearly flat, rising only 0.2%. The total growth of 4.2% came primarily from the shift to EVs.
This situation is not entirely negative. Nevertheless, EVs constituted around 14% of Ford’s total vehicle sales, signaling a significant shift in the automotive landscape. Ford is navigating a critical transition as it adapts to changing consumer preferences.
A Ford F-150 Lightning electric vehicle. Image source: Ford Motor Company.
Profits Amidst Transition Challenges
Ford operates through three distinct segments: Ford Blue, Ford Model E, and Ford Pro, representing traditional combustion engines, electric vehicles, and business sales, respectively.
In the first nine months of 2024, Ford Blue and Ford Pro yielded earnings before interest and taxes (EBIT) of approximately $3.7 billion and $7.4 billion. Conversely, Ford Model E reported a negative EBIT of about $3.7 billion, mirroring the profits of the combustion segment. This division, however, remains a small part of overall sales.
The company is currently at a crucial juncture, balancing established technologies with the innovations needed for future growth. While there is potential for improved performance as EV production scales up, there is also a considerable risk with outdated combustion vehicle assets that could lose value if demand drastically declines.
For Ford’s stock to become a game-changer for investors, the company must successfully transition from combustion engines to EVs or find a sustainable balance for long-term success. This endeavor takes place in a market filled with intense competition from Tesla and other well-established manufacturers also attempting similar changes.
Considerations for Potential Investors
Prospects for Ford stock generating newfound wealth seem bleak in the near term. Additionally, Ford operates within the consumer discretionary sector, known for its cyclical fluctuations. Vehicle sales tend to decline during economic downturns.
Not only is the company facing this challenging shift, but it must also contend with the typical ups and downs of the automotive industry. As a result, those who prefer conservative investments should likely consider other options, while even risk-tolerant investors may want to remain cautious given the current climate.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
