2023-10-23 18:10:49 ET
Summary
- Detroit's automakers, including Ford, GM, and Stellantis, have been competing to invest in and produce battery electric vehicles (BEVs).
- Ford is facing challenges with its BEV production goals, including potential cancellations and falling sales of BEV trucks.
- Falling consumer demand for EVs and engineering difficulties also affected other automakers, such as GM and Lucid Group.
For the past few years, Detroit automakers including Ford Motor Co. ( F ), General Motors Co. ( GM ) and Stellantis N.V. ( STLA ) have been locked in a competition to out-promise and out-invest one another in the race to battery electric vehicles (BEVs).
One multi-billion investment was topped by an even larger multi-billion dollar commitment, along with promises to abolish fossil fuel vehicles sooner and more comprehensively than rivals, thereby staking a claim to environmental righteousness. The fact that Tesla has been increasing sales of BEVs and profits, as well as its market capitalization, added to Detroit’s fervor.
The Big Three automakers swiftly created impressive BEVs like the Ford Mustang Mach-e and GM’s Hummer EV – though their corporate sales projections seemed heedless of the infrastructure, premium pricing and other significant hurdles that lay between these new models and consumer acceptance.
Slowing down
In July, Ford CEO Jim Farley pushed off its BEV production goals, including an earlier pledge to build 2 million BEVs by 2026, and disclosed that its losses attributable to BEVs would be $4.5 billion this year, $1.5 billion more than an initial forecast.
Last week, a memo leaked by a United Auto Workers union official to the Wall Street Journal indicated that Ford is considering canceling a work shift at its factory that produces F 150 Lightning battery-powered full-size pickup trucks. Ford hasn’t acknowledged that it's considering the move. In the third quarter, sales of BEV truck fell 46%.
Last month, Ford paused work on a $3.5 billion battery plant project in Marshall, Mich.. The automaker said it was concerned about its ability to operate the plant competitively. The plant is intended to manufacture batteries using technology licensed from China’s CATL. Farley also remarked that the UAW is holding Ford hostage over battery production, striking the company’s operations until it agreed to promise that workers at the plant will be represented by the union – a charge the UAW denied.
Farley earlier signaled in July that Ford planned to alter the automaker’s approach to electrification, offering more gas-electric hybrid models, which don’t require recharging while offering superior fuel efficiency than pure gasoline models.
Industry leader Toyota Motor Corp. ( TM ) has argued publicly that its strategy of offering more gas-electric hybrids while introducing BEVs more cautiously than Detroit automakers will actually reduce CO2 emissions more quickly than pouring its resources into BEVs. Environmental activists have criticized Toyota’s position.
Supply over demand
Over the summer, the inventory of unsold BEVs rose alarmingly, in part because of the number of new models entering the market and in part because many early adopters of the technology had already bought their vehicles. Accordingly, manufacturers including Tesla began to cut prices to stimulate demand. Falling prices have increased Ford’s losses on BEVs, as mentioned above.
Falling consumer demand for EVs, as well as engineering difficulties, were the reasons GM gave for pushing back production of its battery-powered Silverado full-size pickup by a year to late 2025 . The decision has been made with an eye "to better manage capital investment while aligning with evolving EV demand," said GM spokesperson Kevin Kelly.
Not only incumbents are getting hammered by weak BEV demand. Lucid Group (LCID), start-up manufacturer of the highly-acclaimed Lucid Air luxury BEV, has reported falling production numbers of its vehicles since late 2022, its shares falling last week to an all-time low.
For Ford and GM (and to a lesser extent, Stellantis), weaker than expected demand for battery-powered full-size pickups is particularly ominous because the U.S. automotive industry has morphed over the past few decades into a truck industry. Trucks are the moneymakers in Detroit. Foreign automakers have largely conquered the U.S. passenger car industry – which leaves Ford and GM in a lurch in the event they're migrating to battery power and customers aren’t particularly attracted to BEV pickups.
Pickups still king
Ford’s near total reliance on full-size pickup trucks for its net income is a key factor in the poor performance of its shares. When the hype around announcements for massive investments in BEV technology was rising, investor interest in Ford shares also rose. Once the tepid consumer response and other difficulties inherent in battery technology became apparent, Ford share prices began to weaken. Now, the prospect of an economic recession and potential government debt crisis add additional uncertainty to the company’s near- and mid-term prospects.
The best news for Ford is that it hasn’t made any iron-clad commitments to discontinue its gasoline-powered F150 or shut in production capacity, which would have been like tossing the family jewels into a volcano. F150 can make money for a long time – and Ford management seems to be waking up slowly to the reality that America’s transition to BEVs will take longer than once thought.
Given the many pro-electrification statements issued by Executive Chairman Bill Ford Jr. and Farley, it would take quite a bit of courage to readjust the company's strategy to more resemble that of Toyota. That is to say: A balanced, nuanced approach to electrification that encompasses the hard reality that most American motorists aren't interested yet in the technology. Were this shift to happen, Ford's financial future would be more sound and the stock probably would take off.
Ford is expected to report Q3 earnings this Thursday. Analysts expecting a solid bump from a year ago – even factoring in losses and financial dislocation attributable to the UAW strike.
Ford’s dividend yield is nearly 6.5%, which may be an incentive to income-oriented investors. At the same time, the company has a spotty history when it comes to consistent payment of a quarterly dividend and is currently rated an F failing grade by SeekingAlpha in terms of its safety or likely prospect of payment.
My bias is that I’m a long-term investor and rarely will take a chance on a security for the chance of a short-term gain. The comments from many Ford investors show there’s substantial interest in the stock by those who buy and sell and buy shares over and over for short periods of time in an attempt to notch a gain quickly and then seize the next opportunity. Who knows if F’s current weakness is an opportunity? Not me.
For further details see:
Ford Losing Some Battery EV Enthusiasm, Which Could Be Good For The Stock