This is just a short commentary on the potential Ford has and how they are wasting it.
Yesterday, Ford released their Q1 results, forward guidance, and plans for the future. Due mostly to the lacklustre guidance, the stock dipped >10%. Investment strategy aside, I believe the single biggest takeaway from Ford's report was their plan for the future.
While I'm a big fan of CEO Jim Farley, and his plan to make Ford a more focused (pun not intended) and lean company, I feel like he is focusing more on paths to a higher temporary stock price rather than proper long term investment.
To Ford and its management's credit, I do think they are attempting long-term investments, I just believe they are the wrong ones; Ford is investing heavily in electrification and autonomous driving, however, neither of those are sufficiently monetizable and are extremely capital intensive. Additionally, they are investing over a billion dollars for a factory in Cologne, Germany and streamlining the factory process.
Expanding on my aforementioned comments, investing in autonomous technologies will not yield Ford any significant reward- they are too behind competitors, it's complex and capital intensive, and it would be just as simple for Ford to partner with, say, Waymo.
On the same wavelength, I believe Ford should increase their equity stake in Rivian and use their electric innovations rather than attempting to spend billions on developing their own. On the topic of electrification, Ford should not be attempting to electrify their core lineup of pickups and Mustang's first. It undermines the fundamental principles of both for the time being. Instead, electrification is best suited to the luxury segment of the automotive market- Lincoln for Ford. Electrifying the Lincoln brand could kill multiple birds with one stone, testing EV technology, revitalizing the Lincoln brand, helping increase margins, spending less on analog technology to do things like quiet the vehicles, and so forth.
Additionally, handing over control of their software to Google is a big mistake- it eliminates the prospect of extracting monetization from their vehicle, which will be a large aspect of vehicles and will allow competitors to undercut Ford by selling at a loss to extract later value, contrary to what Ford will be able to do.
A large issue for Ford when attempting to streamline their lineup and manufacturing process is potentially breaching union contracts by cutting staff- opening a factory in one of the most union-friendly countries in the world isn't helping that. The additional tariffs and whatnot for manufacturing less in the EU would be more than compensated with a more nimble organization. In fact, I'm a proponent of completely pulling the Ford brand out of Europe, which would aid in stressing the 'Americanness' of the brand, where Ford gets much of its appeal in the States. Additionally, once debt is paid down (more on that later), Ford should be working to slowly exit Detroit and expand its manufacturing clout in more business-friendly, union-hostile environments, such as Texas or the Midwest. Not only would this increase Ford's bottom line and transform them into a more agile corporation, but this will also enable greater employment in more states, meaning more lobbying power.
Above all else, though, Ford should be focusing on paying down or buying back their debts- it's too much of a drag on long-term growth and investment ability. To do so, they should cut their dividend alongside other cost-saving strategies I've outlined.
After the debt is better managed, some key investments Ford should go for are investments in monetizable software, a reintroduction into the sports car foray (Thunderbird, anyone?), new factories in anti-union states, vertical integration of the manufacturing process (and focus on selling parts B2B), expanding their niche commercial operations (such as with police cars currently, they could expand into delivery and so forth), expansion of the high margin Ford Credit, lobbying to be allowed to cut out dealerships as Tesla has, and so forth.
Essentially:
- Increase stake in Rivian and use them to electrify (Lincoln first)
- Partner with a third party to integrate current autonomous operations
- Divest from Detroit and other union-friendly areas to become a more nimble organization
- Cut debt, dividends, etc.
- Double down on successful sub-sectors
Ford is in a position to do great things, while Farley & Co. have improved the company, there is so much more to do that they are ignoring. Obviously, there are subjects I am not aware of, however, from what I've read through their presentation, Q1 report, and 10-Q, these are some things that should be done.
Obligatory disclaimer: I don't own Ford, not a fan of the sector as an investment.
Submitted April 30, 2021 at 02:11PM by CorneredSponge https://ift.tt/3e6lRTP
