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Will The EV Slowdown Benefit Ford Stock?

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Ford stock (NYSE:F) has been a weak performer this year, rising by just 1% year-to-date, compared to the broader S&P 500 which has gained close to 11%, amid concerns of a slowing automotive market.

However, Ford’s recent performance has been reasonably strong. The automaker posted a better-than-expected set of Q1 2024 results last month. While total revenue increased 3% to $42.8 billion, adjusted operating income stood at $2.8 billion. Growth was driven primarily by Ford’s Pro business, which serves commercial customers. Ford Pro sales were up 36% driven by high demand for Super Duty work trucks and transit vans. However, Ford’s Blue segment, which includes its engine-based vehicle sales to retail customers, was down by 11% for the year on account of a slow manufacturing ramp of the new 2024 F-150 pickup truck.  The F-150 series of gasoline trucks remains the company’s single most lucrative product line with margins for trucks being higher than they are for other body styles. This means that sales and margins could pick up in the coming quarters.

There are some concerns for the automotive market though. While consumer prices in the U.S. have been rising, with the CPI up 3.4% in April, prices for cars have been on the decline.  New car prices fell 0.4% in April and 0.4% from the prior year, marking the third straight month of declines per data from the BLS (Bureau of Labor Statistics). Used car prices declined 1.4% in April and 6.9% from the prior year. This could translate into lower pricing and profitability for the likes of Ford, which saw strong increases in average selling prices in recent years. Demand could also cool a bit in the near term as consumer confidence in the U.S. weakens. Per data from the Bureau of Economic Analysis car and light truck sales for April stood at an annualized rate of 15.7 million units, down from 16.1 million in December. The pre-pandemic number was typically above 17 million units.

F stock has shown strong gains of 35% from levels of $9 in early January 2021 to around $12 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the increase in F stock has been far from consistent. Returns for the stock were 136% in 2021, -44% in 2022, and 5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that F underperformed the S&P in 2022 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the mega-cap stars GOOG, MSFT, and AAPL.

In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could F face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Although there are concerns about the broader automotive market amid a mixed macro picture and high interest rates, there are some positives for Ford as well. While the slow pace of Ford’s EV transition was a headwind for the stock previously, we believe this should ease considerably. The EV market has been slowing down, with demand cooling and stock prices of key EV bellwether Tesla down by almost 30% this year. Slower growth in EV demand could give Ford more time to monetize its gas-based vehicles while investing in long-term electric vehicle developments. Ford has indicated that it planned to adjust EV production and delay roughly $12 billion in investments amid softer demand for premium EVs. Ford’s valuation is also attractive, with the stock trading at under 7x 2024 consensus earnings. Ford stock also remains down by almost 20% since mid-2023 and by over 50% since early 2022. We value Ford stock at about $15 per share, which is around 25% ahead of the current market price. See our analysis on Ford Valuation: Expensive Or Cheap for more details on what’s driving our price estimate for Ford.  For more information on Ford’s business model and revenue trends, check out our dashboard on  Ford Revenue: How Ford Makes Money.

 Returns May 2024
MTD [1]
YTD [1]
Total [2]
 F Return 1% 1% 1%
 S&P 500 Return 5% 11% 137%
 Trefis Reinforced Value Portfolio 6% 6% 653%

[1] Returns as of 5/16/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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