With the big push towards electric vehicles, traditional car makers have also pursued an aggressive portfolio transformation. Amidst intense competition in the electric vehicle industry, there are bound to be winners and losers.
Ford (F) seems like one company that’s positioned to survive and grow, with big investments in the electric vehicle segment. A revival in the company’s business is already indicated by the stock price trend. F stock is higher by 83% in the last 12 months. (See F stock charts on TipRanks)
Still, it seems that the best past of the upside is still to come. I am bullish on Ford, with the stock looking attractive at a current price-to-earnings-ratio of 14.9.
Talking about the electric vehicle industry, the International Energy Agency estimates that three million electric cars were registered in 2020. The agency believes that by 2030, there will be 145 million electric vehicles on road.
The key point here is that electric car penetration is still low. Given the growth outlook for the next decade, multiple players can survive and grow at a healthy pace.
Strong Financial Flexibility
Ford is gearing up for big investments in the electric vehicle segment in the coming years. The company expects to invest more than $30 billion in the segment through 2025. Further, Ford believes that electric vehicles will comprise almost half of its sales by 2030.
Since big investments are involved, the first point to note is the company’s financial flexibility. As of Q2 2021, Ford reported more than $25 billion in cash. Considering the undrawn credit facilities, the company has a total liquidity buffer of $41.0 billion.
Additionally, Ford reported adjusted free cash flow of $1.5 billion for 2020. In the current year, the company has guided for FCF of $4.0 to $5.0 billion. As cash flows accelerate, the add to the company's financial flexibility to make big investments.
Gradual Inroads in the Electric Vehicle Market
Ford has already been delivering strong electric vehicles sales. For June 2021, the company reported 117% growth in EV sales in the U.S. on a year-on-year basis. Furthermore, the company sold 56,570 electric cars in the first half of 2021.
The electric version of Mustang Mach-E has already captured second position in the U.S. among electric SUVs. Further, F-150 Lightning has garnered reservations of 120,000. Even in Europe, the company sold 151,000 passenger vehicles in Q2 2021. Of this, 46% were electric vehicles. Clearly, the initial sales response has been encouraging.
China is also a big market for Ford. The company has already opened 10 direct-to-customer electric vehicle storefronts in Q2 2021. During the quarter, the company also revealed the locally built electric Mustang Mach-E.
Commercial electric vehicle segment is likely to be another game changer for Ford. It’s worth noting that the company has leadership position in the commercial vehicle segment in Europe. By 2024, the company expects to have all-electric or plug-in hybrid commercial vehicles.
Overall, with a deep pipeline of electric vehicles for the next few years, Ford is positioned to gain market share.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, F stock comes in as a Moderate Buy, with six Buys and three Holds assigned in the past three months.
The average Ford price target is $16.26 per share, implying 28.23% upside potential from current levels.
Ford seems to be in a key transformation phase and initial results have been encouraging. The company has a global presence and a big addressable market.
With electrification of existing models and the launch of new cars, the company seems positioned for healthy vehicle deliveries.
Ford is well positioned from a financial perspective to aggressively invest in the business transformation. These factors make F stock attractive and the uptrend is likely to sustain.
Disclosure: At the time of publication, Faisal Humayun did not have a position in any of the securities mentioned in this article.
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