Ford Motor Company’s (NYSE: F) stock has not been a rewarding journey for long-term investors. A $100 investment in the automaker a decade ago would only yield $128 today, dividends included. In stark contrast, the S&P 500 Index would have multiplied that initial investment to $339. And then there’s Tesla, transforming many into millionaires while Ford’s stock remained dormant.
Can Ford’s bold electric transition steer it back on track, or is it time for investors to abandon ship? Let’s delve deeper to unearth what the next five years might hold for this iconic company.
Revisiting the Age-old Optimism
Not too long ago, Ford’s optimistic narrative was straightforward. The established automaker would swiftly pivot away from its traditional gas-powered operations towards electric vehicles (EVs), leveraging its renowned brands like Mustang and F-150 to swiftly capture market share.
Investors banked on the assumption that EVs would inherently yield superior profit margins compared to their internal combustion engine counterparts – a notion supported by Tesla’s commanding operating margins post-2020, eclipsing Ford’s and underpinning a considerably higher valuation. Tesla’s current price-to-earnings (P/E) multiple stands at a staggering 70, dwarfing Ford’s modest 6.2.
The narrative suggested that Ford’s aggressive embrace of this new technology could unlock considerable value, especially when coupled with its robust supply chain and expansive dealership network.
Dimming Electric Aspirations
Having sold 72,608 all-electric vehicles in 2023, Ford ranks among America’s largest EV manufacturers. However, the foundational assumptions that buoyed the company’s ambitious transition are gradually unraveling.
With mounting competition in the EV landscape, even Tesla is feeling the squeeze, evidenced by its plummeting operating margin from 11.4% to a paltry 5.5% in the initial quarter.
Ford faces even graver challenges. The Model E segment (dedicated to consumer EVs) witnessed an 84% revenue drop to $100 million following a 20% slump in sales volume, signaling a drastic price slash. According to CNN, Model E hemorrhaged $132,000 for each of the approximately 10,000 cars sold during the period, with projections painting a grim $5 billion loss for this segment in full-year 2024.
Image source: Getty Images.
Despite the gloom, Ford’s enterprise-focused EV models, like the E-Transit vans, are stepping up to mitigate Model E’s performance woes. As societal and political pressures continue to push for environmentally conscious practices, expect these models to assume greater importance in Ford’s EV portfolio, evident in orders like the 9,250 E-Transit vans requested by the U.S. Postal Service.
Forecasting Ford’s Next Five Years
Regrettably, electric vehicles may not be the panacea that catapults Ford’s stock valuation. Rather than amplifying margins, this new business sphere seems poised to further squeeze the company’s profitability, leaving less on the table for investors. This scenario appears unlikely to shift over the ensuing half-decade.
Ford attempts to temper its stagnant stock performance with a dividend yielding 4.85%, significantly higher than the S&P 500’s average of 1.35%. Yet, income-focused investors might find more security in government bonds, with five-year Treasury bonds presently yielding 4.4% and bearing less risk.
Should you place $1,000 in Ford Motor Company today?
Before diving into Ford Motor Company’s shares, ponder this:
Despite strong industry headwinds, the Motley Fool Stock Advisor analysts have identified ten stocks positioned for explosive growth – and Ford Motor Company isn’t among them. These selections bear the potential for substantial returns in the forthcoming years.
Reflect on when Nvidia cracked this list on April 15, 2005 – a $1,000 investment back then would have burgeoned to $635,982 today!*
Stock Advisor furnishes investors with a user-friendly roadmap to success, proffering portfolio-building insights, regular analyst updates, and two fresh stock picks monthly. Since 2002, the Stock Advisor service has outperformed the S&P 500 by over fourfold*.
Explore the 10 high-potential stocks»
*Stock Advisor returns as of May 13, 2024