Ford Motor (F) — a Top Pick for the coming year — is a business redo with huge implications. Under Jim Farley, chief executive officer, the Dearborn, Mich.-based automaker is finally embracing electric vehicles, explains Jon Markman, editor of Strategic Advantage.
Ford began electrifying the F-150 in early 2020. Called Lightning, the truck is supposed to launch in 2022 and in every way, it will be a giant step up from its internal combustion cousin.
The Lightning will have more cabin and cargo space, better towing capacity, acceleration and contractor friendly attributes like 11 120-volt electrical outlets. It means never again having to carry a generator to job sites.
However, the big story at Ford has been Mach-E. Inspired by the Mustang, the SUV has been a hit everywhere it has launched. In May Mach-E outsold Tesla (TSLA) in Norway, and that is saying something.
Like Tesla, the Mach-E is a blazer, racing from a standstill to 60 mph in only 3.5 seconds. Unlike Tesla, Mach-E is a visual stunner. The SUV takes it head-turning good looks from the famed pony car. And the vehicle is sold out everywhere. Dealers that manage to get supply are selling Mach-Es for a hefty $12,000 premium over the list price.
Farley says that Ford will increase production for the Mach-E to 200,000 units per year by 2023. He also claims, according to an Automotive News story, that by the end of 2023 the company will reach overall EV production of 600,000 units.
While analysts worry about semiconductor shortages and the global supply chain, Ford is changing from a legacy automaker to an EV company. Shareholders will benefit from all of the new valuation metrics this transition entails. Production increases, even from small baselines will lead to higher prices. The same is true for new battery agreements, executive hires away from Tesla, and EV model reveals.
Ford shareholders are on the verge of getting the same investor love that launched Lucid (LCID) and Rivian (RIVN) to nosebleed levels. It’s a completely new way to value the business.
Lucid will produce on 20,000 EVs in 2022 and 50,000 in 2023, according a report at Reuters. Its market capitalization is $63 billion. Despite this, executives have found no shortage of willing investors. The company raised $1.75 billion in November with the sale of convertible senior notes.
The market capitalization at Rivian, an electric truck maker backed by Amazon (AMZN), is even more audacious. The Irvine, Calif.-based company has no current sales, although preorders for its pastel colored trucks have now reached 55,400. The market cap is $103 billion.
At only $88 billion Ford is a bargain. Shares currently trade at 11x forward earnings and 0.7x sales. As the company makes the transition to EVs by 2023 the stock should trade at 2.0x sales. The math implies a near triple from current levels.
The coming year is going to be all about getting back to normal. For businesses this will mean stable supply chains. Investors should pay attention to the companies that adapted during the global pandemic and remade their models. Ford is ready to fit into a new valuation. During the course of this year I expect a big rally for the stock.
