Ford Predicts Robust 2024 Performance with a Mix of ICE and EV Investments

TipsForTraders | April 3, 2024

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Ford Motor Company (NYSE:F) has seen its stock begin an upward movement since November, suggesting resilience and potential growth even amidst concerns that the demand for electric vehicles (EVs) may not reach previously expected heights. Ford, acknowledging a dip in the enthusiasm for electric models, has adjusted its strategy, notably scaling back the production of its F-150 Lightning pick-up. Yet, the automaker remains optimistic, projecting a free cash flow of at least $6 billion in the fiscal year 2024. This financial stability, combined with Ford’s continued focus on internal combustion engine (ICE) vehicles, positions the company as a promising income investment for the coming year, regardless of the EV market’s performance.

Previously, I endorsed Ford’s stock in January, ahead of its fourth-quarter earnings report, citing a crucial agreement with the United Auto Workers that mitigated investment risks in the brand. Since then, Ford’s stock has appreciated by 11%, demonstrating resilience even after announcing a cutback in F-150 Lightning production. This decision reflects a broader trend within the automotive industry, where companies like General Motors (GM) have also expressed concerns over slowing EV demand. However, Ford’s substantial reliance on ICE vehicles sets it apart, offering a buffer against the EV market’s volatility.

January’s announcement of reduced F-150 Lightning production came as Ford grappled with a sluggish EV market, echoing sentiments from other industry players such as GM, Li Auto (LI), and Tesla (TSLA). Ford’s EV segment reported a $1.6 billion EBIT loss for the fourth quarter and a $4.7 billion loss for the year, with expectations of further losses in 2024. This slowdown has impacted the entire EV sector, with some manufacturers adjusting their sales forecasts downward for the fiscal year 2024.

Despite these challenges, Ford’s extensive portfolio of ICE vehicles offers a measure of protection against the downturn in the EV market. In the early months of 2024, only a small fraction of Ford’s sales were electric, underscoring the brand’s enduring reliance on traditional models. This strategy provides a comparative advantage over companies focused solely on EVs, such as NIO (NIO), Li Auto, and Tesla.

Looking ahead to 2024, Ford anticipates an adjusted free cash flow between $6 billion and $7 billion. This projection, alongside favorable earnings and free cash flow valuations, underscores the company’s financial health and investment appeal. Ford’s competitive dividend yield further enhances its attractiveness to investors seeking income opportunities, even in a landscape marked by uncertainties in the EV market.

Ford’s strategy emphasizes financial prudence and flexibility, potentially leading to additional cash dividends for shareholders. The company’s robust free cash flow supports a sustainable dividend payout, with room for growth. This approach, coupled with Ford’s minimal exposure to the EV slowdown, positions Ford as an attractive option for dividend-focused investors.

Nevertheless, Ford’s dependence on ICE vehicles, while currently advantageous, could pose risks if the automotive market shifts decisively towards electric models. An economic downturn or a revision of the company’s financial forecasts could also impact its investment viability.

In conclusion, Ford stands out as a resilient player in a fluctuating market, buoyed by its strategic focus on ICE vehicles and a solid financial foundation. The company’s potential to distribute increased cash dividends in response to the EV sector’s challenges makes it an appealing prospect for investors seeking reliable income streams. Despite the slowdown in EV sales, Ford’s conservative valuation, based on earnings and free cash flow, coupled with a substantial dividend yield, underscores its position as a worthwhile investment, especially for those prioritizing income generation amidst market uncertainties.