Electric PUMA And BOSK Battery Factory Will Shape Future Opportunities

Key Takeaways

• Ford's strategic focus on hybrid trucks and software services positions it for high-margin recurring revenue and potential net margin elevation.
  
• Cost reductions, new EV models, and expanded production capabilities support revenue growth, competitive pricing, and robust long-term earnings.
  
• Increasing EV market competition and tariff risks could significantly impact Ford's revenue, margins, and profitability amidst ongoing cost challenges.

Catalysts

Develops, delivers, and services Ford trucks, sport utility vehicles, commercial vans and cars, and Lincoln luxury vehicles worldwide.

• Ford's strategic focus on hybrid trucks and the growth of their software and physical services business positions the company to capture increased high-margin recurring revenue streams, potentially elevating both revenue and net margins.
  
• The introduction of new models, such as the all-new Electric PUMA and advancements like the Ford Pro service offerings, are likely to drive revenue growth and improve the overall product mix, contributing to a more favorable revenue outlook.
  
• Ongoing cost reduction initiatives, including $1 billion in product design cost savings and further enhancements in manufacturing efficiency, are expected to improve net margins and bolster earnings.
  
• Ford's emphasis on developing flexible multi-energy powertrains, including hybrids and electric vehicles, aligns with changing market dynamics and customer preferences, which could significantly impact revenue and maintain competitive pricing.
  
• Expansion in EV production capabilities, notably with the upcoming launch of the BOSK battery factory, positions Ford to better capture tax credits and reduce costs, supporting improved EBIT and generating more robust long-term earnings.

Ford Motor Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Ford Motor compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Ford Motor's revenue will decrease by 0.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.2% today to 4.6% in 3 years time.
• The bullish analysts expect earnings to reach $8.4 billion (and earnings per share of $2.09) by about April 2028, up from $5.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 8.0x on those 2028 earnings, up from 6.4x today. This future PE is lower than the current PE for the GB Auto industry at 18.0x.
• Analysts expect the number of shares outstanding to decline by 0.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Ford Motor Future Earnings Per Share Growth

Risks

• Ford faces challenges from increasing competition in the EV market, which includes new models launching and increased pricing pressure. This competition could impact their revenue and net margins by reducing pricing power and market share.
  
• The company's guidance does not account for potential impacts from changes in policy by the current administration, such as tariffs and tax policy changes. Tariffs at a 25% level could wipe out billions of dollars in industry profits and affect Ford's earnings and net margins.
  
• There is a significant risk from increasing competition from Chinese OEMs, which have strong operational fitness and expanding supply chains. This could pressure Ford's revenue and profit margins globally.
  
• Ford's ambitious plans to reduce costs and improve execution are a work in progress, and failure to close the competitive cost gap could impact their ability to improve net margins as planned.
  
• Ford's Model e segment is currently not profitable, and increased industry pricing pressure could further challenge its ability to improve this segment's profitability, affecting overall earnings and margins.

Valuation

• The assumed bullish price target for Ford Motor is $12.55, which represents one standard deviation above the consensus price target of $10.01. This valuation is based on what can be assumed as the expectations of Ford Motor's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $17.0, and the most bearish reporting a price target of just $7.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $183.4 billion, earnings will come to $8.4 billion, and it would be trading on a PE ratio of 8.0x, assuming you use a discount rate of 11.4%.
• Given the current share price of $9.45, the bullish analyst price target of $12.55 is 24.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.