Ford: Friend or Enemy?
Summary:
● Is Ford your friend or enemy?
● An insight into the compny’s decorated loopholes
● Analysis of Ford’s stock
While there might be big celebrations on the recent win at the Motor trend with Ford (F) F-150 Lightning EV, we just might be turning a blind eye to a looming disaster awaiting the 120-year-old automobile manufacturer. This giant automaker has recorded over 3 million vehicle recalls to date and a shortage of semiconductors and component supply issues which has led to an impairment in the running of several plants for almost two years (source: Forbes).
Although it seems like they are making money and having earnings, I would have to note that they have heavily invested in the EV space and if I was looking at a peer-by-peer comparison, they are at a disadvantage in sourcing batteries as opposed to Tesla (TSLA) which has strong ties to China by building the Giga factory which is the first oversea factory in Shanghai, China in Shanghai. Although Ford is already in partnership with SK Innovation to build the BlueOval City, which would see the manufacturing of next-generation EV trucks and advanced batteries, we can't rule out the fact that this plan would have to wait till 2025 or later til it sees the light of day.
Another factor to consider is the current global battery shortages which are estimated to cause a 22% increase in the cost of EV production as the raw materials for producing these batteries are getting scarce. Reports project the cost of battery production to peak at $138 per kilowatt by 2026 before any decline by 2031 (Source: CNBC). On all fronts, this is bad news for Ford as this would cause an increase in the price of EVs by $1,500 and $3,000 per vehicle by 2026 and eventually reduce sales by 5% to 10% across the EV space.
In addition to that, reports show an increased cost in the prices of cars by 40.5% and 12.2% for used and new cars, respectively (source: USA Today). This implies that Ford's cost of commodities is coming down and their inventories are rising and with interest rates which means their holding costs and the cost of their dealer base are going to force dealers to keep lower levels of inventory creating oversupply unless they force inventory onto dealers like during the GFC.
This is funny because that is exactly what Ford said they wanted during Covid, that the new norm was lower amounts of inventory on dealer's lots but now they are going to want to pack their dealers with cars that their dealers are not going to want because when you consider the increased prices of cars and the rising interest rates, they have now priced their customers out of the vehicles. This means they are going to drastically reduce the prices to offset the higher interest cost for the customer which is their only option or hopes that the Federal Reserve is going to reverse mandate, and decrease interest rates, which is unlikely in the next six months unless there’s a financial crisis..
Let's talk Analysis
Personal IB Market Chart
Above is a chart that dates back to 1992 and we can see a well-formed channel that covers price movement from 2003 till date. As you can see, if you are a long-term investor, it's just a real dog of a stock. It has yet to generate a return for investors as it has continuously suspended dividends for the past 25 years so its dividends cannot even be trusted at this point even if they were going to try to entice people to come in with a higher dividend based on cash flow.
Personal IB Market Chart
On the monthly charts:
We have a Fibonacci retracement that started from the 2008 lows to the 2021 highs where we have previous support levels dating back to the early 1990s.
Personal IB Market Chart
We can see multiple attempts to break above the channel which proved unsuccessful backed by a major spike above the channel in Jan 2021 where it hit the Fibonacci retracement and is beginning to go back into the channel.
Personal IB Market Chart
The fact that price is under the moving average and the stock picked up a new downtrend in Dec 2022. Looking at the zone indicator, we can see the last time it turned red was in 2015 and it lasted for 5 years.
This could be the beginning of a multi-year entrenchment within the lower band of this long-term channel. Well, looking at the way it crept down from the high in 2015 to the lows of 2020, and is currently below the MA’s, it could just be a pending multi-year slug that would creep down over a 3-year run. So this stock is just a dog, a nowhere stock, a nothing burger.
They would likely try to entice investors with a dividend but don't fall for it. It would be a paltry dividend at best, their dividends are not to be trusted as they have been suspended many times over the history of this company.
It's very important to note that the trend line on the bottom is an exact parallel to top, therefore, making a perfectly paralleled channel that's 20 years old and telegraphed by institutional money.
Personal IB Market Chart
RSI is neutral; nothing to get excited about, it already hit a shooting star peak, it’s been in a downtrend so my 12-month price target for Ford is $8 per share.
usinflationcalculator.com
If you would have bought this stock at $12 in 2002, you would have owned it for 20 years and not have made a single dime which technically means you would have lost money because money has inflated almost to double which would mean over a 50% erosion on the value of your money even if it gets to the same level along the channel.
This stock is an inconsistent performer, an absolute dog of a stock, it's always trading above or below trendlines or running sideways, this isn't a stock to trust in your long-term holdings and your family's future with. Its executive management is not to be trusted, they have a classic history of over-expanding, ramping up productions at its plants, and then laying off its staff.
Personal IB Market Chart
Breaking down the charts on the weekly, we can see a 20-year trend line back where it bounces off almost to a penny in January 2020 and then ripped higher, spiked up, and now is starting its descent and has experienced a 54% sell-off from its high.
Personal IB Market Chart
We can also see a flag pattern formed from a triple bottom and descending highs which is indicative of a sell-off and a break below would likely lead to a heavy fall.
On the monthly and weekly RSI, it is not showing as oversold which means it can continue to decrease on a steady weekly basis without dropping substantially due to its long-term track record and just means it just might continue its sell.
This stock has already experienced a 59.44% sell-off and we know that many stocks don’t end with a 60% sell-off. It's either a 10%, 20%, or a drop to 66% of which getting to that would leave us with a price at $8.80 or ⅔ sell-off which means one day it could trade a crescendo and immediately bounce up higher.
Starting from 2022, it has made a series of lower lows and lower highs and I project that it's going to make further lower lows. If there's a great depression style market, then it could get to $2 or $4 which would be a financial system meltdown.
However, I don't think the worst is over for Ford and other auto-makers until there's at least one major bankruptcy. Lots of EV startups are on the ropes, filing bankruptcy, and are scrambling to find buyers.
Personal IB Market Chart
On the daily’s, we have a large sell-off candle approaching the 161.8% level which is indicative of a forthcoming sell.
Overall, this is not a good stock as there is a strong downward momentum on it.
Fundamentally, Ford has made great strides towards improving their ESG ratings in environmental and social impacts and has succeeded in that but their governance and physical responsibility is still underperforming to most of their major corporations throughout the world.
In addition to the headwinds faced by higher interest rates, slower consumer demands, and repossessions spiking at a very fast rate you’d also have to put into context, the uncertainty of Ford producing new batteries and technologies and the potential safety recalls that usually accompany such endeavors.
Does anybody honestly think that they are going to revamp half of their model lineup to complete EV and they are not going to run into substantial major recalls in the next several years? Tesla had a hard time doing this with just one model but Ford is doing pickup trucks, cars, and SUVs.
They would likely have batteries that could fail, catch fire, etc., which would likely lead to a higher need for newer technology, thus more investment capital.
With the record-breaking 108% growth in M&A (Margins and Acquisitions) recorded between 2020 to 2021 by the automotive industry in US history, we have more investments from private equity into the automotive space. This has led to an entourage of investors coming in and pressuring Ford into the EV space.
In addition to this, you have a slew of new operators that have never owned new car dealerships or have very limited experience with dealerships that purchased them from decades-long dealership families. As expected this has led to personality or corporate culture issues as half of their dealer base change hands, along with product issues as they have steered half of their lineup towards the EV space.
We’d also want to acknowledge the lawsuit filed by several hundred dealers that signed a petition to sue Ford based on unlawful franchise modifications, unfair pricing requirements, margin reductions, unlawful allocation systems, and forced payment of $1.2m over EV investments. Is Ford a friend or an enemy?
This alone throws pointers on Ford as simply a bad investment. They have lacked innovation and suddenly, a bunch of private equity investors start buying their dealerships, thereby pressuring them into the EV space because they are also invested in EVs then all of a sudden they change half their lineup and end up having problems with their dealer base.
The price action on charts is terrible, interest rates are rising, and their average truck has gone up by over 40% in the past 3 years. You have them trying to sell $80,000 trucks to people with 8% interest rates which is absurd as these payments are more than some American mortgages. We have customers who bought very expensive cars at lower interest rates underwater as they can't trade in used vehicles. With over 33% of Americans underwater on their loans, there are looming frustrations for citizens that acquired vehicles during the pandemic who are going to be on average trying to trade in their vehicles over the next 12 months.
Ford is majorly owned by the Ford family and by institutions that aren't in such great harmony. The increasing short selling percentage on this stock, already tells that the company's profit is going to be down in the nearest future.
Based on the cost of revenue and total revenue, and their net income only being 5.84%, you’re going to ask yourself, are they going to have to discount cars by more than 5% to move them off lots from their very overinflated values of pandemic highs? It’s my personal belief that Ford won't even turn a profit next year, that they would lose money overall for the year, and not just are they going to give off more than 5% in discounting over all of their inventories, I think that they are going to have a variety of problems stemming from new infrastructure cost.
With the rise in auto loan delinquencies, Ford Credit division has been forced to keep a close watch on prices for used cars as used car prices surge by 16.1% year over year and the average annual percentage rate for new cars hits a post covid high of 5.1%. This would possibly see Ford experience a reduction in their car loan originations.
Revenue barely increased by 1.60% year over year in line with an 8.2% inflation and a negative net income of -1.98B which clearly shows a complete breakdown in the fundamentals of profitability and steady deterioration on a month to month basis. It's a fall off the cliff for this company as these losses are only going to intensify as the Feds continue to raise rates. Adjusted earnings still fell 18% short of estimates.
According to Ford, the earnings results fell below its expectations for both Q4 and full-year 2022 due to"execution issues" rising from supply chain and production challenges (source: Ford investor relations), which raised costs and lowered delivery volumes. But we all know that this is not a company worth putting a dime into.
When looking at this company you can see a lot of headwinds. They are over-investing as they are trying to compete with Tesla and its peers, lack of consumer demand, they don't have a good solid supply chain for their computer chips, they are likely going to have safety recalls and issues, they are going to have problems with their brand new dealers as they are getting frustrated due to their large acquisition prices and subsequent breakdown in consumer demand. Debt service on these large autogroup acquisitions carry unsustainable debt service. When Vroom, Carvana, and Shift likely file bankruptcy and vommit inventory onto the market it will place other dealers further underwater on their inventories. You think unrealized losses with banks are bad right now, look at dealer inventories and factor those negative receivables into the floor plan companies that hold them like Ally (ALLY), AFC (KAR), Ford. Investors haven’t even realized the billions in underwater inventory unrealized by dealers and thus the floor plan companies.
Although Ford has crossed the two-month inventory barrier, we might probably still experience a couple of bankruptcies from the private equity space for investors who paid obscene amounts of money for these dealerships which are then going to bring down the value of the dealership brand name as well.
I just don't think that Ford's executive team has both hands on the wheel. Instead, they have partnered with a variety of interests that have now driven them into a model that can create substantial problems.
In closing, does anybody believe for a moment that overnight Ford can attempt to revamp its entire lineup and not experience challenges such as infrastructural challenges, quality control issues, or delays in manufacturing time? Answers to these questions clearly define the future of this automotive slug who’s seen brighter days. One possible reason for purchasing this stock is its attractive pricing as it is currently down, which may present a cost-saving opportunity but isn't a good reason professionally.