Ford’s strong hybrid sales show the company needs to pivot to increase profits
Consumer demand for Ford’s hybrids surged last month, providing further evidence that the automaker should shift its production focus toward electric vehicles and scale back. Jim Cramer said Monday that hybrids are “making a lot of money” after Ford reported a 75% increase in hybrid sales in November from a year earlier, to about 12,100 vehicles. Electric vehicle sales were also strong – up 43% to nearly 9,000 units. Jim added that “Ford should invest a lot of money now” because hybrid vehicles are more profitable than electric vehicles. He also said Ford may be in better shape than its stock suggests given the new sales figures. “There’s no doubt we’re in the best shape of our lives.” Ford shares rose about 1% after the news broke on Monday. Sales of conventional internal combustion engine vehicles (ICE) fell 6.5% to nearly 124,500 units, which may have limited gains. ICE still accounts for more than 80% of vehicles sold. Overall, Ford sales fell 0.5% to 145,559 vehicles in November, slightly missing estimates of 151,000 vehicles. Sales in November were better than October. Ford is down about 8% in 2023, compared with the S&P 500’s year-to-date gain of nearly 19%. The stock was pressured by a UAW deal that is expected to increase labor costs by $8.8 billion in 2023. The union contract is set to expire in April 2028. Ford also faces losses in electric vehicles, especially as the industry experiences recent price cuts. F YTD Mountain Ford YTD What’s clear, however, is that Ford has a strong and growing foothold in the hybrid segment. Hybrid sales of Maverick and F-150 trucks grew 40% in the third quarter ended in September. Hybrids and internal combustion vehicles are part of Ford’s Blue Operations segment. Hybrid “continues to be successful,” management said on a post-earnings conference call. Ford Blue achieved earnings before interest and taxes (EBIT) of $1.7 billion, offsetting investments in electric vehicles and a $1.2 billion increase in quarterly warranty costs due to high recall rates. The electric vehicle is produced by Ford’s Model e division. Ford also announced plans in September to double production of its hybrid F-150 pickup truck, fulfilling CEO Jim Farley’s promise in July to add hybrid options “over the next five years.” Quadruple our hybrid sales within the year.” Bottom line: We’d like to see Ford lose less money on electric vehicles and focus more on hybrids and internal combustion vehicles, which generate more profit and cash flow. Anything they can do to adjust their cost structure and investments to make more money will bring huge benefits to the company. There are also concerns about rising warranty costs and the long-term financial impact of the labor agreement that ended the UAW strike. However, these headwinds are offset by the great value provided by a strong balance sheet, an annual dividend yield of over 5.6%, and the company’s strong cash generation. That’s why we still believe Ford stock is worth six times 2024 earnings estimates. We’re willing to wait for the automaker to finally pivot and make the right call, as Farley has a good handle on the business and the cash flow has secured it. (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 is created or created by any information you receive in connection with the Investment Club. No specific results or profits are guaranteed.
Explosive consumer demand Ford (F) Last month’s hybrids are further evidence that automakers should shift their production focus toward electric vehicles and scale back.
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