Ford could do 2 things to shine in a challenging 2024 for auto industry
While the industry faces challenges as demand for electric vehicles weakens, Wall Street sees a chance for traditional automakers like Ford to emerge in 2024. Ford can have a successful year by doing two things: continuing to shift its strategy toward more profitable hybrids rather than investing heavily in less profitable electric vehicles, and improving quality issues. 1. Go hybrid Ford doesn’t want to go broke on electric vehicles. Chief Executive Jim Farley is abandoning unprofitable vehicles such as electric vehicles while doubling down on money-making areas such as hybrids. Jim Cramer believes management should put more resources into the company’s “incredible mix of businesses” to boost profits. Last week’s strong fourth quarter and total hybrid sales for the year underscore our optimism. Sales rose 55.5% in the quarter, while electric vehicle sales rose 27.5%. Internal combustion engine (ICE) sales fell 3.4% in the fourth quarter. For the whole year of 2023, hybrid vehicles will grow by 25.3%, electric vehicles will grow by 17.9%, and internal combustion engine vehicles will grow by 5.5%. With higher-margin hybrid sales leading the quarter and year, the Maverick Hybrid performed best, with 2023 sales up 67% from a year earlier. The F-150 Hybrid is also a winner, with sales up 41% in 2023. Forced to reduce investment in electric vehicles, Ford last month announced plans to cut production of the all-electric Lightning in half this year as it works to “match and build production based on customer demand.” Lightning remains Ford’s best-selling model throughout 2023 Sales volume increased by 54.7%. What does Wall Street think? Analysts at Morgan Stanley and Wells Fargo are quite pessimistic about the auto industry in the year ahead. F 1Y Mountain Ford 1Y Ford stock’s late-2023 rally has reversed course in the new year, reflecting this concern. But like us, Morgan Stanley has higher expectations for Ford. Morgan Stanley analysts pointed to a bearish bias in the auto industry in their mid-December outlook, citing the need for companies to figure out how to respond to an environment of slowing demand for electric vehicles while continuing to fund unprofitable electric vehicle projects. Compete with market leader Tesla. However, analysts also believe that traditional automakers such as Ford and General Motors have “significant opportunities to unlock value” through capital allocation, spending discipline and focusing on higher-margin products in their portfolios. Analysts believe that these prudent management decisions next year “will have a high degree of certainty in the stock price performance of industry/individual stocks.” “GM and F have room to reorient and resize spending as they continue to address capital allocation issues across their portfolio,” the analysts explained. This could mean management could “withdraw electric vehicle products due to a lack of profitability.” ”. They added that while Ford remains committed to electric vehicles, it “may be at a much slower pace than expected.” Morgan Stanley also said their focus on internal combustion engine products makes sense, with profits from those products helping to offset losses in electric vehicles, as Ford and GM’s pickup trucks and SUVs provide durable cash flow and account for total profits. A large part of it. In another less encouraging outlook in mid-December, Wells Fargo said automakers “will face numerous significant challenges through 2024,” citing falling vehicle prices and overcapacity in electric vehicle production while demand continues to rise. reduction, which could have a negative impact on automakers. profit margin. Analysts predict that Ford’s electric vehicle portfolio will bring about $200 million in headwinds, while falling vehicle prices will also bring about $3.2 billion in pricing headwinds. Wells Fargo also faced a $2.4 billion hit from higher labor and advertising costs. One countervailing factor we see is that if inflation falls enough for the Fed to start cutting interest rates, auto sales could improve. Since most people need a loan to buy a car, if interest rates fall, it will be cheaper to buy a car. 2. Quality Control The second thing Ford must solve is quality issues. The company has been dealing with high warranty costs that have eroded profits. Ford’s third-quarter profit fell short of expectations, in part because of a $1.2 billion annual increase in warranty expenses. Management said at the time that recalls were driving up warranty costs and that inflation was driving up repair costs. Quality control had been an issue at Ford for years before Farley became CEO. If management handles warranty issues better, there should be fewer quarters with unexpected shortfalls in revenue. (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.
On Thursday, April 14, 2022, a Ford F-150 Lightning Platinum electric truck was unveiled at the 2022 New York International Auto Show (NYIAS) in New York, USA. NYIAS returns two years after being canceled due to the Covid-19 pandemic.
Michael Nagel | Bloomberg | Getty Images
Wall Street sees opportunities for traditional automakers, e.g. Ford Although the industry faces challenges as demand for electric vehicles weakens, it will still emerge in 2024.
Svlook
