Ford (NYSE:F), a legacy automaker that is pursuing an ambitious electrification strategy, just might be vulnerable to the dreaded “Cramer” curse now that CNBC’s Jim Cramer is out with a resounding endorsement of the automaker’s electrification revamp. As a refresher, Ford announced on Wednesday that it was splitting its business into two distinct units, with Ford Blue responsible for the company’s existing portfolio of Internal Combustion Engine (ICE) vehicles while Ford Model e would spearhead the automaker’s electrification drive. CNBC’s Jim Cramer took a predictably flowery view of this development, terming Ford’s strategy a threat to Tesla (NASDAQ:TSLA):
Do you agree? — unusual_whales (@unusual_whales) March 2, 2022 You can watch the entire clip here:
Readers should note that Jim Cramer has hit a particularly rough patch recently, with his botched calls on Netflix, AMC Entertainment, and Cathie Wood’s ARK Invest ETF (ARKK) prompting some investors to call for an “Inverse Cramer” ETF. According to Bloomberg Intelligence, such an ETF has a decent shot at generating consistent alpha (returns in excess of the market). Electric Vehicles are one of the fastest-growing tech sectors currently. Akin to a rising tide lifting all of the boats, we have no doubt that Ford will be able to attain measurable success with its electrification revamp. However, the prospects for Ford to “destroy Tesla’s plans” are overwhelmingly small at this stage. Let’s delve deeper.
Why Ford (NYSE: F) is Unlikely to Cause Any Headache to Tesla
As we’ve noted previously, Ford is embarking on an ambitious electrification ramp, with the company planning to invest $30 billion through 2025 in this transformative initiative, including three new BlueOval battery plants in collaboration with SK Innovation. Pickup trucks remain one of the most popular vehicle segments in the US. With the electric F-150 priced at $39,974 before the application of tax credits, the truck is expected to be a very attractive proposition for a large segment of the overall pickup truck market. It is hardly surprising, therefore, that the company has now doubled its production capacity of the all-electric Ford F-150 Lightning to 150,000 units per annum at the Rouge Electric Vehicle Center in Dearborn, Michigan. Moreover, the Ford 2022 E-Transit van is also expected to hit the road this year. Additionally, Ford expects the production capacity of the Mustang Mach-E to reach 200,000 units by 2023. By 2024, the company expects its total electric vehicle manufacturing capacity to hit 600,000 units. As part of its Ford+ plan, the company intends to earn an adjusted EBIT margin of 10 percent by 2026 on the back of a sales volume of over 2 million EVs. By 2030, Ford expects its EVs to account for around half of its global sales volume. Despite these seemingly impressive commitments from Ford, the fact remains that Tesla is expected to remain at the apex of the global EV industry for the foreseeable future. For instance, Morgan Stanley’s Adam Jonas now estimates that Tesla’s market share in the US will swell to 10 percent by 2026 and 18 percent by 2030. For reference, Tesla’s 2022 share of the US auto market is expected to compute at just 3.5 percent. Since the auto market is generally characterized as a zero-sum, low-growth sector, Jonas believes that Tesla’s dramatic market share increase will come at the expense of legacy automakers such as General Motors (NYSE:GM) and Ford. In fact, Morgan Stanley now sees GM’s market share declining from 14.6 percent in 2021 to 14 percent by 2025, falling further to 12 percent by 2030. Similarly, Ford’s US market share is expected to plummet from 12.5 percent in 2021 to around 10 percent in 2030. As a result of this dramatic upswing in market share, Morgan Stanley’s Adam Jonas expects Tesla’s FY 2027 revenue to exceed the combined total top-line metric registered by GM and Ford in that year, marking a seminal shift that would cement Tesla’s ascendancy. In numbers, Jonas expects Tesla’s revenue to exceed $300 billion by 2026! Of course, Tesla also has another trick up its proverbial sleeves – its bespoke Advanced Driver Assistance System, dubbed the Autopilot. By leveraging real-time data from millions of connected cars, Tesla’s Autopilot is widely panned as leagues ahead of comparable offerings from the likes of Mobileye and GM’s Ultra Cruise. Bear in mind that Ford also has its own ADAS, dubbed BlueCruise. However, the product offers generic adaptive cruise control and street sign recognition on approved routes. For comparison, Tesla’s Autopilot can operate in much more varied conditions and offers substantially more utility. So why is an ADAS capability so important? Well, autonomous driving is expected to be the next big revolution in the mobility sector, and Tesla already claims to dominate this sphere with its Autopilot. In this paradigm, the space for Ford to create differentiation strategies for its own products is limited. Lastly, Ford is currently priced very attractively when compared with Tesla. As an illustration, Ford’s NTM EPS currently stands at 8.7x vs. a whopping 77.3x for Tesla. However, GM is much more attractively priced than Ford, based on an NTM EPS of 6.3x. Here again, Ford fails to constitute a best-in-class argument. To conclude, we do not think that Ford will outpace Tesla anytime soon. While we remain bullish on Ford over its low valuation and a sizable cash repository, we not only expect Tesla to maintain its EV lead over its legacy ICE counterparts but also enhance it.
