Ford (NYSE: F) CEO Mark Fields told reporters last week that the American automaker had the expertise and ability to build a Tesla-style full-size, high-tech, high-performance, long-range electric vehicle.
Big deal!
I do, too — since Tesla CEO Elon Musk gave away the patents earlier this year.
It’s beyond laughable that the old guard automakers that criticized and mocked Elon Musk and Tesla Motors (NASDAQ: TSLA) five or six years ago are now trying to replicate the Tesla experience.
Of course, Detroit is simply incapable of doing such a thing. It simply doesn’t have the vision, the freedom, or — let’s face it — the balls to deliver anything close to a Tesla. At least not anytime soon.
But it looks like Ford is still going to take a stab at it.
Still a Good Deal
I suppose the timing was good…
Following Q3 earnings, which showed net income falling 34%, Ford’s stock took a slight haircut. Hinting at something new and exciting, like a Tesla-styled vehicle, was a smart way to try and ease the pain of bad news.
Credit Suisse followed up, however, with a price target cut from $15.50 to $13.50, noting that “strength in price for large pick-ups has masked the destruction to prices on Fiesta, Focus, Fusion, and Escape.”
Truth is, Ford has nearly always made the most off its large pick-ups, with smaller cars being less profitable — especially if they don’t break down as much as they used to. So I don’t necessarily find this eye opening.
Credit Suisse also suggested that if/when the Fed raises rates, Ford would experience a decline in future margins with a potential monthly impact to payments made from borrows. Average monthly payments could increase by $32.
I can’t argue with the Fed connection, but sometimes, when all you look at are transcribed ones and zeros, you can miss a lot of other important stuff, such as:
- Sales rose 26% in China, one of the most important car markets in the world.
- Some F-150 production was stalled in Q3 while the company began a manufacturing transition that’ll ultimately lead to a more attractive vehicle for consumers, complete with reduced weight and increased fuel economy.
- Q3 included about $500 million in recall costs. As long as there’s no repeat in Q4, this will make earnings look much better. Without the recalls in Q3, Ford would’ve had a 10.2% operating margin as opposed to a 7.1% operating margin.
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A Valuable Car Maker
Of course, there’s no saying whether or not Ford will run into recall problems again, but many of the problems of Q3 are unlikely to be reoccurring.
So between weakness on one-time expenses and a broader market deflating as we get closer to tax selling and end-of-the-year house cleaning, Ford might end up being a pretty solid bargain.
Ford is actually putting in the work right now to keep up in an increasingly competitive global market. It’s executing on plans that will strengthen the company as we head into 2015 and beyond.
Also worth noting is that Ford’s debt (excluding Ford Motor Credit) fell from $15.4 billion to $14.9 billion last quarter. The company’s balance sheet is in good shape, and in the absence of any major catastrophe in Q4, the stock should be valued at around $15.00 a share.
Although Ford will never be able to deliver what Tesla has — both in terms of products for consumers and gains for investors — it’s still a pretty valuable car maker. It should not be underestimated.
To a new way of life and a new generation of wealth…
Jeff Siegel
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Jeff is the founder and managing editor of Green Chip Stocks. For more on Jeff, go to his editor’s page.
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