The Electric F-150 Lightning announced by Ford last week may be transformative for Ford Motor Company (F, Financial). Ford's F-Series trucks, including the F-150, make up the top-selling vehicle line in the United States and typically generate about $42 billion a year in revenue, according to BCG. If the Electric F-150 succeeds, it could be the single biggest step in the electrification of the U.S. fleet, even more than the Tesla (TSLA) Model 3.
The planned specs on the new F-150 are quite remarkable, and pricing is competitive. The Ford F-150 Lightning is expected to go on sale next spring for $39,974. Because Ford electric vehicles still qualify for the federal EV tax credit, most Americans would pay a little less than $32,500 for this truck. The base model can travel 230 miles (368 km) on a full charge. A version with a range of 300 miles starts at $59,974. Both models are four wheel drive with two motors mounted on each axle. In addition, they will have several power plugs, so essentially the battery acts as a power source which can power tools in the field. It could even act as an emergency power source for several days at home during power failures. This effectively renders the Tesla Powerwall redundant.
The F-150 Lightning is generating a lot of excitement, with Ford getting tens of thousands of pre-orders (deposits of $100 each) as expressions of interest. If the F-150 Lightning is a hit, it could transform Ford.
Ford's stock is up materially in the last month and has nearly tripled from the bottom it hit last year. Operating cash flow and free cash flow are up strongly.
Balance Sheet
Automakers like Ford are very capital intensive. Thus, the fact that short and long term assets and liabilities are evenly balanced is a good sign.
Ford is now planning to spend $30 billion in capex on vehicle electrification by 2025, up from a previously stated goal of $22 billion in EV spending, with the incremental $8 billion to support battery production. Following is a diagrammatic representation of Ford's balance sheet.
Valuation
The projected free cash flow (FCF) valuation model for Ford shares indicates that it is highly undervalued.
However, the company is cyclical and has low earnings predictability. Since the intrinsic value calculations based on discounted cash flow models cannot be applied to companies without consistent revenue and earnings, GuruFocus has developed a valuation model based on the normalized free cash flow and book value of the company. The details of how Gurufocus calculates the intrinsic value using this method are described in detail here.
The company also looks undervalued on a median price to operating cash flow basis as well, a per the diagram below.
Conclusion
The success of the EV F-150 Lightning would be transformative for Ford and the industry in general. There is a lot of societal and government support for electrification of the automotive fleet. Ford stock could be a multi-bagger if this bet pays off.
Of course, there is a lot of competition coming established automakers as well as Tesla and a number of other EV companies. However, the Ford-150 is the "salt of the earth" mainstream and is one pick up truck which may be able to single handedly take on all the combined competition due to the reputation of the company and vehicle family.
Ford's stock is certainly more accessible than that of Tesla as well, and we might even see multiples expansion if the EVs are a success.
However, before we rush off to buy Ford stock, we should take a moment to consider what Warren Buffett (Trades, Portfolio) once said about potentially investing in internet stocks in 1999, when the dot.com craze was peaking. Berkshire hadn't touched them, and people accused Buffett of missing out on stock that was booming at the time. In response, Buffet said:
"You know, the two most important industries in the first half of this century in the United States—in the world, probably—were the auto industry and the airplane industry. Here you had these two discoveries, both in the first decade—essentially in the first decade—of the century. And if you'd foreseen, in 1905 or thereabouts, what the auto would do to the world, let alone this country, or what the airplane would do, you might have thought that it was a great way to get rich. But very, very few people got rich by being—by riding the back of that auto industry. And probably even fewer got rich by participating in the airline industry over that time. I mean, millions of people are flying around every day. But the number of people who've made money carrying them around is very limited. And the capital has been lost in that business, the bankruptcies. It's been a terrible business. It's been a marvelous industry. So you do not want to necessarily equate the prospects of growth for an industry with the prospects for growth in your own net worth by participating in it."
Very few dot.com stocks survived the carnage, though a few winners rose to dominate two decades later. I think the same will likely hold true for EV's now. We don't know how this EV transformation will shake out 10 or 20 years from now and who will dominate.
However, Ford has as much a chance as Tesla, is much cheaper and is well-established in the automobile industry. Even if it isn't the #1 winner in the EV market, it seems more likely than startups in the industry to be able to pull in steady profits.
Disclosure: The author currently does not own Ford Motors Stock but is considering buying.
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