STLA - Ford: Don't Be Fooled By The Smoke And Mirrors Show

2023-09-26 09:00:00 ET

Summary

• Ford Motor Company stock and the dividend are at risk of falling and being cut due to the UAW strike and increased costs.
• The high prices of Ford's electric vehicle lineup and the lack of demand for EVs among the majority of Americans pose challenges for the company.
• The inadequate charging infrastructure and the possibility of an upcoming recession further contribute to Ford's troubles.

Ford Is in Huge Trouble

As many of you may know, I have been in and out of Ford Motor Company ( F ) stock for decades. Most recently, I have turned bearish. I have not shorted the stock, though, but am now seriously considering it. In the following piece, I will lay out my case as to why I believe Ford's stock price and dividend are now at grave risk of falling and being cut, respectively. Here are the primary reason why.

The UAW strike

Ford's stock seems to be levitating today due to the fact rumors are out that Ford is moving closer to a deal with the United Auto Workers Union, the UAW, than Stellantis N.V. ( STLA ) or General Motors Company (NYSE: GM ).

Ford Current Chart

Well, I say be careful what you wish for regarding that news. What it says to me is, Ford may be rolling over more than the other two. This means Ford's costs are going to increase greatly. What's more, the timelines for completing all of CEO Jim Farley's Electric Vehicle, or EV, grand plans are going to be extended once again. If you are long Ford stock, you need to be prepared for more bad news and lowered guidance coming in future earnings reports. Not to mention the dividend being cut or eliminated completely. I just don't see how it can unfold any other way.

Farley made zero concessions or references to increase costs due to a UAW strike in the previous earnings reports or guidance. On top of this, according to the rumor mill, Ford and the UAW are still at odds on the total amount of the wage hike, the cutting/ending of wage tiers, and the amount of cost of living adjustments. These are three huge new expenses for Ford. Couple this with the fact they are already losing billions on current EVs, and you have a recipe for failure on a massive scale.

This leads me to my next point, the price of the new EVs.

The price of EV vehicles

The price of Ford's EV line up is already astronomical. Looking at my local dealers , the price of the F150 Lightning equivalent of my current truck would be $80,000. Now, to be honest, I am doing alright as far as cash flow, even so, there is no way I'm going to lay out $80 grand for a new EV truck that doesn't even have the capacity to do the things that I current do with the internal combustion engine, or ICE, truck I own now. Furthermore, 60% or more of the U.S. population is currently living month-to-month with no savings. I don't see any of them ponying up $80,000 for a new EV truck, or even $50,000 for the base model. The final straw is the fact that Tesla ( TSLA ) and Chinese EVs are significantly lower in price as well. Another issue I see is the fact that a majority of people don't even want an EV.

Majority of people aren't ready to adopt EVs

I submit to you that a majority of EVs on the roads now are owned by what is called the "Early Adopter" cohort. You hear so much about all the Big Three's EV plans, it almost seems like they would be where all the money is made. Nevertheless, less than 1% of the cars currently on the road in the U.S. are EVs. According to IEA data:

"The percentage of electric vehicles in relation to total cars on the road is 1.4% worldwide. Scandinavian countries—including Norway (25%), Iceland (9.9%), Sweden (6%) and others—are among the highest in terms of this adoption rate."

"China’s on-the-road EV adoption rate is 3%. Of the 250 million vehicles on the roads in the United States, only about 0.9% are electric. In Canada, the adoption rate is only slightly higher, at 1.2%. And most countries in the world are near 0%."

My point is once all the early adopters have an EV in the driveway, I see EV sales stalling out. I don't think a majority of Americans even want an EV. I know I don't. I did some research and found this study that backs my premise. According to Green Car Reports:

"Most Americans still aren't ready to buy an EV, according to the Deloitte 2022 Global Automotive Study, which examines consumer perceptions of electrification and other technology movements in the auto industry.

More than two-thirds (69%) of Americans said their next vehicle won't have any kind of electrification, while only 5% saw their next vehicle being an EV, according to the study, which was conducted globally via email questionnaire. In comparison, 17% said they could see a hybrid as their next car."

There are just too many unknowns at this time. What's the max range, how will weather effect the range, how do you take care of an EV, and last but definitely not least, where are you going to charge it? Not to mention, how long is that going to take?

That is a great segue into my next point, that charging infrastructure is woefully lacking.

Infrastructure not ready

I live in Texas and recently took a road trip to Louisiana down I-10. It was a 358-mile drive. There were several points throughout the trip that major construction was happening on the highway. It added a couple extra hours to my trip. I can only imagine the anxiety I would have been experiencing if my battery charge started saying it was low. I don't know for sure, but I imagine the charging stations in Texas are still few and far between. I did some due diligence regarding what experts are saying about the U.S. electrical grid. I found this excerpt from an article quoting Britta Gross enlightening.

Britta Gross, transportation director at the nonprofit power-sector research group Electric Power Research Institute recently stated:

"States with the most EVs today are already struggling to accommodate large-scale charging loads on congested grids — and these constraints will only become a bigger problem as the number of EVs grows, Gross said. California, the country’s leader in EV adoption, may need to spend $30 billion to $50 billion on grid upgrades over the next 12 years to accommodate its EV growth plans.

Charging for heavy-duty EVs like trucks and buses is even more challenging to accommodate on the distribution grid since they require far more power in concentrated locations.

“We’re already seeing pain points at a fleet level,” Gross said, with some electric truck buyers being told by utilities that grid upgrades to support their multi-megawatt charging needs ?“will be 18 months from now, or two years or four years, depending on the nature of the upgrade required or the headroom on that feeder.”

That pretty much sums up what I thought in the first place. Here in San Antonio, the electric company already sends out alerts on hot days saying the grid is maxed out, don't run the dishwasher. How are they going to be able to support a flood of demand from new EV charging stations? I'll tell you, by investing billions of dollars to upgrade the system. And who is going to pay for that? The taxpayers, by increased monthly electric bills. At that point, people's electric bills will be so high, they won't be able to afford an expensive EV.

My final point is the fact, I believe we are heading for a recession of some magnitude.

The looming recession

Fed Chair Powell just shook the markets by coming out with what I classify as a "hawkish pause" statement at his recent presser after the Fed decision was announced on Wednesday of last week. The line I zeroed in on was when Powell said (emphasis added) "a soft landing was now not their base case."

The Fed has a reputation for arriving late and staying too long to the party. I believe they are going to make the same mistake this time. Plus, the cost of gas is up substantially, student loan repayments are beginning again, household savings are just about drained, and food costs are down slightly, yet still high. The consumer is definitely weakening. So I don't see a bunch of people ready to run out and buy a new EV today, or anytime soon for that matter.

Now let me wrap this piece up.

The Wrap-Up

The reason I used the phrase "smoke and mirrors" in the title of this article is the fact that is where I believe the entire EV revolution is at this point. What's more, when reality sets in and everyone figures out no one really even wants an EV at present, the electrical grid can't handle the increased power demand anyway, and the deal with the UAW is going to drain Ford's coffers, it will be too late to throw in the towel. Ford will eventually have to cut the dividend or eliminate it completely and lower guidance at that point. Not to mention, if a recession hits, no one will be able to afford a high-priced Ford EV in the first place.

The bottom line is, I see the Ford EV house of cards imploding in on itself sooner rather than later. The UAW strike just made it that much more clear to me.

The fact of the matter is, I don't want to be anywhere near Ford when that happens. If you listen to the news, the Union workers on the picket lines have said it's time to stop giving away the profits to shareholders in the form of dividends and share buybacks and give them their "fair share" instead. It's a zero-sum game. Ford can't do both, as far as I am concerned. So the fact Ford is closer to a deal with the UAW just means their demise will materialize that much sooner. If the UAW deal going through, I see Ford's dividend being cut and the stock price plummeting 36% to $8 before too long. This is where it was trading at in 2019.

Ford Current Long-term Chart

Those are my thoughts on the matter. I look forward to reading yours.

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