Ford Can't Catch A Break

“You have heard that it was said, ‘You shall love your neighbor and hate your enemy.’ But I say to you, love your enemies, bless those who curse you, do good to those who hate you, and pray for those who spitefully use you and persecute you, that you may be sons of your Father in heaven; for He makes His sun rise on the evil and on the good, and sends rain on the just and on the unjust.

Matthew 5:43-45

God’s desire is for all humanity to seek Him and to be forgiven of their sin. As a Christian, one of the hardest things to do is to see someone do the opposite of what my ideology is and not become overly critical. I don’t know everyone’s circumstances, nor their life story or what they have dealt with over time. God reminds me that I am no better than anyone else, and that even those who would be critical of me deserve His forgiveness and even greater so, my compassion and understanding.

I think the application of this verse is mostly from the latter part for investing. Sometimes an investor can do everything right and still feel like rain has been sent regardless. Even when things appear sunny, how quickly the tables can turn. Many times, retail investors often feel like they are casualties of the Wallstreet game. But ironically, Wallstreet often feels the same pressures and difficulties (sometimes even more so) as we are all human and thus imperfect. The key is to recognize that there will be ups and downs, and that investing, like the Christian life is a race and test of endurance.

Ford Motor Company (F) was trading around $25 per share in January of 2022. Since then, the stock has declined by 63 percent and now trades at nearly the same level as it did in August 1987, almost 40 years ago. F and General Motors Company (GM) both have lost their competitive edge as the automotive industry in the U.S. has been dominated by foreign companies. This is very different versus the railroad industry (U.S. focused businesses and consolidation) that essentially serves as an oligopoly of U.S. Class I railroads. Railroad companies have witnessed substantially expanded cash flow margins and significantly higher stock price multiples due to their competitive positions, while F and GM have not kept up with leading automotive technologies and offered lackluster returns for investors.

Due to the nature of the more commoditized automotive industry, F and GM trade around 0.8 times EV/Sales and around 2 times OCF/Share, extremely low valuation multiples. During the 2022 stock price peak, electric vehicle, or EV government-driven policies and Wallstreet’s pumping of this new technology to increase legacy OEM valuations were in full effect. F was quick to jump on this and tout their company’s competitive edge and leading approach. Since then, U.S. EV sales have slowed, and pricing has gotten more competitive leading to lower revenue despite increased unit sales across many OEMs.

F has witnessed a 33 percent decline in average EV unit sales since 2022, while Tesla, Inc. (TSLA) has witnessed a global drop in average EV unit sales during the same period at just over 20 percent.  28 percent of this decline for F occurred during 2024 suggesting that F’s EV unit growth has been spurred mostly by substantially lower prices, even as the market still is nascent.

This has placed F in a difficult position. On the one hand, the company has taken an aggressive shift towards EVs investing billions (and losing billions) and on the other hand, the Trump Administration is now pushing back against the federal policies and funding programs for the advancement of accelerated EV adoption. F is not going to walk away from its EV endeavors, but the company continues to find itself in a cannibalizing situation that is seemingly never going to end anytime soon, adding increasing risk to the company’s prospects for investment returns.

Management at F has continued to shift its operations first through organizing numerous operating segments under a holding structure, to now having an executive position that oversees these various segments. Complicating matters worse is the competitive landscape as the leading players for EVs are both completely new entrants in TSLA and BYD Company (BYDDY), and F’s future in this technology may face a similar obstacle to foreign and newer entrants taking substantial market share. Rivian Automotive, Inc. (RIVN) is also lurking as the next vertically integrated innovator to take substantial market once the business scales further.

F’s current stock price does offer investors some upside potential, albeit with anticipated volatility for the foreseeable future. As an example, in the event F witnesses increasing cash flow margins the cash flow multiple could see expansion. Additionally, market players may see F’s downturn as a quick-gain opportunity, but longer-term investors should be more cautious.

TSLA is the U.S. standard of success and neither F nor GM are willing to take an equivalent degree of risk as they continue to reorganize and restructure their businesses. F and GM need to fully separate their EV businesses to maximize the potential opportunity. Instead, they have chosen to sacrifice the entirety of their businesses for the sake of politically driven circumstances and as the tides have changed, they are in a less stable position for the mid-term. This is questionable leadership and a reason why legacy-based companies often struggle to transition to newer technologies.

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