With F-150 EV Production Cut 50%, What Lies Ahead For Ford Stock?

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Ford (NYSE:F) will slash production for its F-150 Lightning pickup truck – the electric version of its iconic F-150 – by about half next year, amid weaker demand. Based on a memo sent to suppliers, reported by Automotive News, Ford plans to produce about 1,600 Lightning trucks weekly starting in January at its Rouge Electric Vehicle Center in Michigan, about half its 2024 weekly production target of 3,200 trucks. The news comes after the company’s Q3 earnings call, during which it indicated that it planned to adjust EV production and delay roughly $12 billion in investments amid softer demand for premium EVs.

EV sales in the United States have actually held up pretty well this year, with over 1 million vehicles delivered over the last 11 months, up by about 51% versus 2022, driven in part by generous incentives from the Inflation Reduction Act. However, even this level of growth doesn’t appear to be meeting the lofty targets of mainstream automakers who may have overplanned their production capacity and investments. Now, pure-play EV behemoth Tesla appears to remain the biggest beneficiary of growth in the EV market. Tesla’s Q3 deliveries rose 26% to 435,059 vehicles. Ford dispatched 20,962 EVs during the quarter, an increase of about 15% compared to last year. Overall, Ford’s electrification drive appears to be driven by vehicles such as the Mustang  Mach-E which sold 14,842 units year-to-date, up 42.5% year-over-year and the  E-Transit van is also doing well.

However, the F-150 EV is seeing a slump, with sales down by about 45% in Q3. While this was partly due to production being halted to carry out some expansion work during the quarter, there have been indicators that demand for the truck was not too strong. For perspective, in July, Ford said that it would reduce the listed price on some trims of the Lightning by almost $10,000. The slow uptake of the F-150 Lightning could be an issue for Ford for a couple of reasons. The F-150 series of gasoline trucks remains the company’s single most lucrative product line and the truck has been the best-selling U.S. vehicle for over 40 years. Ford’s overall truck sales for Q3 stood at 275,554 units, a 15.3% year-over-year increase. Margins for trucks are also higher than they are for other body styles. This means that the electrification of the truck line-up remains crucial to Ford’s longer-term strategy and profitability and the recent setbacks for the F-150 EV are a bit concerning, indicating that customers are not yet ready for an electric pickup truck.

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Now, F stock has shown strong gains of 20% from levels of $9 in early January 2021 to around $11 now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. However, the increase in F stock has been far from consistent. Returns for the stock were 136% in 2021, -44% in 2022, and -5% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 21% in 2023 (YTD) – indicating that F underperformed the S&P in 2022 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could F face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

We recently cut our price estimate for Ford from $17 per share to about $14 per share, due to concerns about the broader automotive market amid a mixed macro picture and high-interest rates, which could be making financing vehicles more expensive. Ford’s truck sales – which have been booming – could also be bottoming out. That being said, we think these issues are already priced into Ford stock, which remains down by about 25% since July and by over 55% since early 2022. Ford stock is trading at under 7x 2024 consensus earnings and revenue growth is projected to pick up in 2024, per consensus estimates. We value Ford stock at about $14 per share, which is over 25% ahead of the current market price. See our analysis on Ford Valuation: Expensive Or Cheap for more details on what’s driving our price estimate for Ford.  For more information on Ford’s business model and revenue trends, check out our dashboard on  Ford Revenue: How Ford Makes Money.

Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 F Return 8% -5% -9%
 S&P 500 Return 1% 20% 106%
 Trefis Reinforced Value Portfolio 2% 31% 572%

[1] Month-to-date and year-to-date as of 12/12/2023
[2] Cumulative total returns since the end of 2016

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