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Would Ford Stock Continue Its Good Run in 2022?

Ford stock is up 144% so far in 2021 and is among the top three S&P 500 gainers. The stock has outperformed other legacy auto and pure-play EV (electric vehicle) stocks by a wide margin this year.

Ford stock has seen a valuation rerating this year as markets seem impressed with its vehicle electrification plans. What lies ahead for the company in 2022 and can it continue its good run?

Ford’s stopped taking new orders for F-150

Ford has stopped taking new orders for its F-150 all-electric pickup model. “We are completely oversubscribed with our battery electric vehicles, Lightning especially,” said Ford’s CEO Jim Farley on the Lightning model. He added, “We had to stop reservations we got so many. We stopped at 200,000, and those are orders. Hard order.” Farley seemed to be taking a swipe at some of the other EV companies which have hyped their pre-orders. Lordstown Motors for instance admitted that some of its orders were indeed inflated. The company has delayed the launch of its Endurance pick up to 2022. The model is expected to compete with F-150 which has been America’s best-selling pickup for decades.

Meanwhile, Ford is increasing the capacity for F-150 all-electric to 70-80,000 units per year. Commenting on the capacity ramp-up Farley said “We’re going to try to double that.” He added, “We’ve done it in the past. Don’t bet against Ford when we have to increase capacity. This is what we do.”

Ford F-150 is the key profitability driver

While Ford does not provide the breakup, it is widely believed that F-150 accounts for the bulk of the company’s profits. It has kept the starting price of the F-150 all-electric model at around $40,000 while the premium end would cost around $90,000. The model will have two battery options and would have a range of 230 to 300 miles.

To put that in perspective, Tesla plans to have an EPA range of 250 miles for its Cybertruck, and the base pricing is expected to be similar to that of the Ford F-150.

Focus on profitability

Unlike some of the other electric vehicle companies that are making losses and burning cash for every car that they sell, Ford expects the F-150 electric model to be profitable. Darren Palmer, Ford’s head of electric vehicles said earlier this year that “We’re going to make money on this truck,” He added, “Our mantra is: 1. We have to make money on it … and 2. They have to do things that other trucks never did. That’s how you tempt people in.”

Speaking with the Verge, Palmer said “I think there’s enough to tempt people to look at [buying the electric version], and a good percent already were — we saw that in our research. But I think it’s going to tempt people who weren’t even looking.”

Ford versus pure-play EV companies

There is a massive valuation disconnect between the valuations of legacy automakers and EV companies. For instance, Tesla is a $1 trillion company while recently listed Rivian has a market cap in excess of $100 billion. Rivian has just recently started delivering its cars while Tesla delivered 500,000 cars last year and its current annual run rate is almost 1 million cars.

Notably, Ford has ambitious plans for vehicle electrification and aims to have a production capacity of 600,000 cars within two years. This would make the company the second-largest EV seller behind Tesla. Other EV makers have outlined massive plans and Volkswagen expects to become the largest EV company globally by 2025. The German giant has already dislodged Tesla to become the top EV seller in Europe.

Ford has turnaround under Jim Farley

Ford has seen a turnaround under the leadership of Jim Farley. He has taken hard decisions and exited loss-making markets like India. Also, he has put electric and autonomous cars at the forefront in a bid to take on pure-play EV companies.

Earlier this year, he said, “We are accelerating all our plans – breaking constraints, increasing battery capacity, improving costs and getting more electric vehicles into our product cycle plan.” Taking an apparent swipe at the companies in the electric vehicle and autonomous driving ecosystem that are commanding high valuations despite not making any current revenues, Farley said “People are responding to what Ford is doing today, not someday.”

Markets have bought into Ford’s turnaround story which is reflected in this year’s price action.

Ford stock forecast

Ford’s median price target is $20 which is 6.8% below the current stock price. Its highest price target is $24 while its lowest price target of $11.8. Of the 22 analysts covering the stock, 12 recommend a buy while two recommend a sell on Ford stock. The remaining eight analysts recommend a hold on the stock.

Wall Street analysts have been gradually raising Ford’s target price this year. However, analysts’ action has lagged the stock’s price action. We saw something similar with EV companies like Tesla and NIO last year as they traded above the consensus target price.

Valuations

Ford stock could see better days ahead as the adoption of its electric vehicles grows. While markets are valuing pure-play electric vehicle stocks at an exorbitant premium, they have largely been cold towards legacy automakers like Ford and General Motors. With an NTM (next-12 month) PE multiple of 11.4x, Ford looks like a good way to ride the vehicle electrification story. The company has also reinstated its dividends beginning with a quarterly payout of 10 cents. It could increase dividends next year if the momentum in earnings sustains.

Incidentally, Ford’s current chairman Bill Ford, who is the great-grandson of the company’s founder Henry Ford, has spent over $20 million to exercise options in the stock. While corporate insiders have been on a share selling spree, and this year looks set to be a new record in terms of new listings, Ford is among the companies where insiders are adding more shares.

Should you buy Ford stock?

If the company can deliver on the aggressive plans that it is touting, the stock could run even higher in 2022. You can trade in Ford stock through any of the reputed online stockbrokers. Alternatively, if you wish to trade derivatives, we also have reviewed a list of derivative brokers you can consider.

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Users should remember that all trading carries risks and users should only invest in regulated firms. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.