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Ford’s strong hybrid sales show the company needs to pivot to increase profits
Exploding consumer demand for Ford (F) hybrids last month is further evidence the automaker should pivot its production focus and scale back on electric vehicles. Hybrids “make a ton of money,” Jim Cramer said Monday after Ford reported a 75% year-over-year surge in hybrid sales in November to roughly 12,100 vehicles. EV sales were also strong — rising 43% to nearly 9,000. “Ford should be spewing capital right now,” because hybrid vehicles are more profitable than EVs, Jim added. He also suggested that given the new sales numbers Ford could be in better shape than its stock indicates. “There is no doubt that we’re in the sweet spot.” Shares of Ford increased about 1% on Monday’s news. Perhaps keeping a lid on gains was the 6.5% drop reported in legacy internal combustion engine vehicle (ICE) sales to nearly 124,500 units. ICE still accounts for more than 80% of the vehicles sold. Overall, Ford saw sales in November fall 0.5% to 145,559, just shy of estimates for 151,000. November sales were better than October. Compared to the S & P 500 ‘s nearly 19% year-to-date rally, Ford has lost roughly 8% in 2023. Weighing on the stock is a United Auto Workers’ deal that adds an estimated $8.8 billion to labor costs over the life of the union contract, which expires in April 2028. Ford is also struggling with EV losses, especially recently as the electric vehicle industry goes through price cuts. F YTD mountain Ford YTD What’s clear, however, is that Ford has a strong and growing foothold in hybrids. Maverick and F-150 trucks drove a 40% increase in hybrid sales in the third quarter, the three months ended in September. Hybrids and ICE are part of the Ford Blue operating segment. Hybrids “continue to be a success,” management said in its post-earnings call. Ford Blue, which delivered $1.7 billion in earnings before interest and taxes (EBIT), offset EV investments and a $1.2 billion increase in quarterly warranty costs due to high recalls. EVs are housed in Ford’s Model e division. Ford also announced plans in September to double production of its hybrid F-150 pickup, making good on a promise from CEO Jim Farley back in July to add hybrid options to “quadruple our hybrid sales in the next five years.” Bottom line We want to see Ford lose less money on EVs and focus more on the hybrids and ICE vehicles that are generating more profits and cash flow. Anything they can do to adjust that cost structure and investment to make more money would be a huge benefit to the company. The increase in warranty costs and the long-term financial impact of the labor deal that ended the UAW strike are also concerning. However, these headwinds are offset by a good balance sheet, great value offered through an annual dividend yield of more than 5.6%, and the company’s strong cash generation. That’s why we still believe that Ford shares are a good value at six times 2024 earnings estimates. We’re willing to wait for the automaker to eventually pivot and get it right because Farley has a good handle on the business, which is safeguarded by its cash flow. (Jim Cramer’s Charitable Trust is long F. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Exploding consumer demand for Ford (F) hybrids last month is further evidence the automaker should pivot its production focus and scale back on electric vehicles.
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