Why Ford Stock Can Outpace the S&P 500 in the Upcoming Decade?
09 December 2021 - 9:34PM
Finscreener.org
The last two years have been
extremely fruitful for electric vehicle investors. For example,
since the start of 2020, Tesla (NASDAQ: TSLA)
stock has surged over 1,000%, easily outpacing broader market
gains.
Companies part of the EV sector
are expected to gain pace in the upcoming decade given the global
shift towards the adoption of clean energy solutions. So, it’s
quite evident that the highly disruptive sector will attract both
new and established players.
One legacy auto manufacturer that
has the potential to gain traction in the EV market is
Ford (NYSE:
F). Shares of the Ford
Motor Company have more than doubled in 2021, easily beating
the
S&P
500. However, while the
S&P 500 has returned 350% since December 2011, Ford stock is
up just 167% in dividend-adjusted gains in the last 10
years.
Let’s see why Ford stock is
poised to keep beating the market over the long term.
Ford has a 12% stake in Rivian
Ford invested $500 million
in Rivian (NASDAQ:
RIVN) for a 12% stake in
the electric vehicle start-up which is still pre-revenue.
Rivian is also backed by Amazon
(NASDAQ:
AMZN) and the tech giant has pre-ordered 100,000
delivery vans from the company.
Ford and Rivian were also
collaborating to develop a vehicle but this partnership has now
come to an end. In an interview with Automotive News, Ford’s CEO
Jim Farley explained, “We have growing confidence in our ability to
win in the electric space……So much has changed: about our ability,
about the brandU+02019s direction in both cases, and now itU+02019s
more certain to us what we have to do.”
The reservations for Ford’s
battery-powered pick-up truck called the F-150 Lightning surpassed
150,000 units by the end of Q3. The base model of the Lightning is
priced at $39,974 and can be considered a “workhorse
vehicle”.
We can see why Ford is optimistic
about its long-term prospects in the EV segment and decided to end
its collaboration with Rivian while still maintaining a 12% equity
stake in the latter.
Ford announced a joint venture with SK
Innovation
In September 2021, Ford also
announced a joint venture valued at $11.4 billion with South
Korea-based SK Innovation which is a battery manufacturer. The two
companies will build a six-square-mile factory complex to
manufacture EVs as well as batteries in the state of
Kentucky.
The initial battery production at
the facility is estimated at 129 gigawatt-hours which is more than
two times the capacity compared to Tesla’s Gigafactory in
Berlin.
In the near future, Ford will
launch three electric vehicles that include the F-150 Lightning. By
the end of this decade, the automobile heavyweight expects 40% of
its vehicle deliveries to be battery-powered, on the back of its
rising capital expenditure and aggressive expansion
plans.
What next for investors?
Deloitte estimates
global EV sales
to rise at an annual rate of 29%
through 2030. So, total EV sales will touch 31.1 million units and
account for a third of vehicle deliveries by 2030. Ford aims to $30
billion in this period which will allow the company to increase
market share at a steady pace and take on leaders such as
Tesla.
While Tesla and other players
including General Motors (NYSE:
GM) will expand their
lineup of battery-powered sedans, Ford aims to dominate the pick-up
truck and transit van verticals with its vehicles.
Investment bank
Morgan Analyst (NYSE: MS) detailed
that the F-150 accounted for 90% of Ford’s global net income in the
trailing 12-month period. Ford has a razor-focused strategy that
will help the company leverage its expertise to benefit from
economies of scale and widening profit margins.
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