A lot has been said about Tesla and how it’s going to be the number one electric vehicle (EV) company. It has a market value of over $1trn, so there’s already a lot of success baked into the share price in my view. But is Ford (NYSE: F) stock a better buy for my portfolio to profit from this booming sector? It could well be after it surged on news that the company plans to almost double production of its electric F-150 Lightning.
I’ve commented before that Tesla’s valuation is too rich for me to buy its shares. I can’t say that about Ford, though. Let’s take a look at the stock in more detail.
The bull case for Ford
The doubling of F-150 Lightning production is a good sign for the company’s prospects in the growing EV market. The target now is for 150,000 electric trucks to be made by 2023, well above the prior target of 80,000. What’s more, this is due to accelerated demand for the F-150 from consumers reserving the truck. I view this as a bullish sign for Ford stock.
It’s not surprising to see Ford being able to double its EV production capacity. Only in September, the company announced it was going to lead America’s shift to electric vehicles. To do so, Ford has committed $11.4bn to build a mega campus and battery plants in the US.
This is significant, because it’s an established carmaker with expertise in how to mass-produce vehicles worldwide. Ford delivered almost 4.2m vehicles in 2020 (final numbers are pending for 2021), while Tesla delivered a far smaller 500,000. Now, Tesla’s production numbers are growing, but it remains a smaller player. If Ford can accelerate its EV production line then it may also see a huge boost in its stock price, as Tesla has in recent times.
What are the risks?
Ford has actually been a terrible investment for shareholders until last year. The stock peaked at almost $18 in 2014, and didn’t regain this price until November just gone. It was generally regarded as an ex-growth blue-chip company. Therefore, there’s a lot riding on the success of its EV business for the stock to rally further.
I’m also not too keen on some of the company’s metrics. It achieves a small gross margin in the low teens that has been falling for a number of years. It hasn’t been able to generate significant returns on its capital. Of course, I have to keep in mind that this is a manufacturing company, so these values are generally small anyway.
Should I buy Ford stock?
It clearly could become a major player in EVs. But taking everything into account, I’m going to wait a little while longer before I think about buying some shares. Ford still has considerable investment ahead to pivot its legacy manufacturing business to electric, so I’ll wait for further updates to gauge progress. There are other EV stocks I can consider in the meantime.
