Will EV mania boost Ford’s share price?

Last year was a tumultuous one for Ford’s [F] share price, which was on a downward trend even before the coronavirus market sell-off in March 2020. In fact, Ford’s share price spent most of the year in the red. On 23 March — its worst day of trading — Ford’s share price fell to $3.96 before closing at $4.01, marking a 56.1% loss year-to-date and its lowest value since 2009.

Although Ford’s share price eventually managed to recover the bulk of its lost value, it didn’t return to the green until 24 November, when the stock closed at $9.45 — even then it was only up by a slim margin of 3.4%.

More recently, Ford’s share price has shifted up a gear, rallying 23.5% year-to-date as of its 2 February close of $10.86. This makes January 2021 the stock’s best month since July 2009. In fact, after General Motors [GM], Ford is among the best-performing vehicle stocks in the S&P 500, according to Dow Jones market data.

Investors across the wider electric and autonomous vehicle theme will be watching Ford’s share price closely following the release of its fourth-quarter earnings, due 4 February.

How has Ford been performing?

When Ford released its third-quarter earnings on 28 October, it announced earnings of $0.65 per share, nearly three times the Zacks Equity Research consensus estimate of $0.22. The results also marked year-over-year growth of 91.2%. Meanwhile, revenues totalled $37.5bn, beating estimates of $32.49bn by 15.4% and marking year-over-year growth of 1.4%.

Jim Farley, Ford’s president and CEO, credited the better-than-expected result with “higher-than-expected demand for our new vehicles in the quarter at a time when inventories are really low following the virus-related first half factory shutdowns. Now this contributed to a very favourable pricing environment and mix,” he said.

"[Ford saw] higher-than-expected demand for our new vehicles in the quarter at a time when inventories are really low following the virus-related first half factory shutdowns" - Jim Farley, Ford president and CEO

“Together, these factors, plus the strongest performance from Ford Credit in 15 years, led to a total company-adjusted EBIT margin of 9.7%. That's 490 basis points higher than last year.” As a result, the company generated $6.3bn in adjusted free cash flow.

In the five days leading to the earnings call, Ford’s share price dropped 6.2%, closing at $7.70 on 28 October. While it closed slightly higher the day after the release, the earnings didn’t have an immediate effect on Ford’s share price.

Analysts expect Ford to post a loss of $0.08 per share, which would represent a drop of 166.7% year-over-year. On the other hand, revenues for the quarter are expected to total $32.89bn, down 10.3% from the year-ago period.

As a blue-chip company, Ford’s performance is a significant marker for thematic ETFs such as the Global X Autonomous & Electric Vehicles ETF [DRIV] — the growth of which has far outpaced Ford’s share price. By the end of 2020, DRIV was up 62.7% year-to-date compared to Ford’s 3.8% loss for the same period.

Ford accounts for just 1.25% of the ETF, while some of 2020’s hottest EV stocks make up larger shares of the fund, including Tesla [TSLA] at 4.8% and Nio [NIO] at 2.8%.

For the full year, Wall Street expects Ford will post a loss of $0.03 per share — down 75% year-over-year from the same period in 2019 — and revenues of $119.48bn.

Could a stronger EV offering continue to boost demand?

Ford and other traditional automakers have been losing out to industry disrupters like Tesla as investors have found pure-play EV companies more appealing thanks to their growth prospects.

According to Bernstein Research, electric cars made up 3% of global vehicle sales in 2020. The Wall Street Journal reports that “analysts expect that share to grow while sales of gasoline- and diesel-powered vehicles decline”.

In a research note seen by the Wall Street Journal, Brian Johnson, analyst with Barclays, wrote that investors’ enthusiasm for the EV market should last well into 2021. He said they are likely to be boosted by US president Joe Biden’s support for charging stations and other proposals that may encourage faster adoption of plug-in cars.

“To start with, we're developing all-new electric versions of the F-150 and the Transit, the two most important, highest-volume commercial vehicles in our industry,” said Farley in the Q3 earnings call.

"we're developing all-new electric versions of the F-150 and the Transit, the two most important, highest-volume commercial vehicles in our industry" - Jim Farley, Ford president and CEO

Although investors believe Ford’s EV plans are lacking when compared to its rival General Motors, Ford’s share price has lifted following the news of plans to produce the E-Transit, its own electric cargo van, as well as a plug-in hybrid version of the F-150 pickup truck.

Regardless of who is currently in the lead, the EV race is far from over. As traditional manufacturers take the consumer shift to all-electric cars more seriously, it would appear there is plenty of potential for the market ahead.