2 takeaways from Ford CEO Jim Farley that boost our confidence in the automaker’s stock
Ford Chief Executive Jim Farley discussed a range of topics Thursday, from hybrid and electric vehicles to how the automaker is dealing with international rivals. Words from Wolff Research’s investor conference make us feel better about Ford’s future. Wall Street seemed to agree, sending the club’s shares up more than 2% in afternoon trading. Farley expressed optimism about the future of the automaker’s Pro business, which consists of commercial fleet vehicles and includes software and services for businesses. He also said that focusing on developing hybrid vehicles will be a key strategy to offset the loss of electric vehicles. He explained that hybrid vehicles could attract customers who are on the fence about electric vehicles but want improved fuel efficiency. “If you’re looking at the future of the auto industry, stop looking at FDS (fully self-driving) and Tesla and look at Ford Pro,” Farley said. “We haven’t reached peak Pro yet.” The executive Chang noted that the company has 500,000 subscribers resulting in 50% gross margins, a multi-year order bank, and production of all Pro vehicle lines at maximum capacity due to “huge pent-up demand” in the U.S. and the U.S. Europe. Farley said Pro’s transformation has been a significant success for the company. “We’ve always had a super-successful Pro business…but no one was paying attention to it.” Despite the Pro’s success, Ford continues to lose money in the Model e business of its electric vehicle fleet. Adoption of electric vehicles has slowed as customers hesitate to switch from gasoline to electric. But Ford is in a unique position due to strong demand for its hybrids and high profit margins. We’ve pushed automakers to focus more on hybrid vehicles. Electric and Hybrid Vehicles “Customers don’t have to change their habits for hybrid vehicles, they can instantly calculate fuel economy efficiencies,” Farley said. He added that “the calculations for electric vehicles are more complex” as customers question how much energy cost savings they can achieve with electric vehicles compared with gasoline. The economic benefits of owning an electric car “may be opaque to people who haven’t driven one.” Farley said the success of electric vehicles lies in being able to compete with Chinese automakers, whose vehicles have saturated markets in China and Europe. Chinese rivals include NIO, Li Auto and BYD, which still has a small presence in Warren Buffett’s Berkshire Hathaway. BYD was once an important part of Berkshire’s investment portfolio. F 1Y Mountain Ford 1 Year “If you’re in our industry, even if you have a Pro, if you can’t compete fairly with the Chinese around the world. Then 20 or 30 percent of your revenue is at risk,” Farley said. “Electric vehicle adoption on Pro is much better than we thought,” he added, given the high demand for vehicles like the E-Transit van or the Pro version of the F-150 Lightning pickup truck. “The operating cost advantage on the energy side is much better…that’s what’s really exciting for us.” Although Farley was hesitant to give updated guidance on electric vehicle losses, he noted that gross margins will be up this year. improved and will be close to break-even. (Jim Cramer’s Charitable Trust is Long F. For a full list of stocks, see here.) As a subscriber to Jim Cramer’s CNBC Investing Club, you’ll get Jim Cramer receives trade alerts before placing a trade. Jim waits 45 minutes after sending a trade alert before buying or selling stocks in his charitable trust portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing a trade alert before executing the trade. The investment club information above is subject to our Terms and Conditions and Privacy Policy and our Disclaimer. No fiduciary duty or obligation shall exist or arise upon your receipt of any information relating to the Investment Club. No specific results or profits are guaranteed.
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