Why Ford Stock Can Outpace the S&P 500 in the Upcoming Decade?

Author: Finscreener

Estimated read time: 3 minutes

Publication date: 9th Dec 2021 11:34 GMT+1

The last two years have been extremely fruitful for electric vehicle investors. For example, since the start of 2020, Tesla (NASDAQ: TSLA) stock has surged over 1,000%, easily outpacing broader market gains. 

Companies part of the EV sector are expected to gain pace in the upcoming decade given the global shift towards the adoption of clean energy solutions. So, it’s quite evident that the highly disruptive sector will attract both new and established players. 

One legacy auto manufacturer that has the potential to gain traction in the EV market is Ford (NYSE: F). Shares of the Ford Motor Company have more than doubled in 2021, easily beating the S&P 500. However, while the S&P 500 has returned 350% since December 2011, Ford stock is up just 167% in dividend-adjusted gains in the last 10 years.

Let’s see why Ford stock is poised to keep beating the market over the long term.


Ford has a 12% stake in Rivian

Ford invested $500 million in Rivian (NASDAQ: RIVN) for a 12% stake in the electric vehicle start-up which is still pre-revenue. Rivian is also backed by Amazon (NASDAQ: AMZN) and the tech giant has pre-ordered 100,000 delivery vans from the company.

Ford and Rivian were also collaborating to develop a vehicle but this partnership has now come to an end. In an interview with Automotive News, Ford’s CEO Jim Farley explained, “We have growing confidence in our ability to win in the electric space……So much has changed: about our ability, about the brand's direction in both cases, and now it's more certain to us what we have to do.”

The reservations for Ford’s battery-powered pick-up truck called the F-150 Lightning surpassed 150,000 units by the end of Q3. The base model of the Lightning is priced at $39,974 and can be considered a “workhorse vehicle”.

We can see why Ford is optimistic about its long-term prospects in the EV segment and decided to end its collaboration with Rivian while still maintaining a 12% equity stake in the latter.


Ford announced a joint venture with SK Innovation

In September 2021, Ford also announced a joint venture valued at $11.4 billion with South Korea-based SK Innovation which is a battery manufacturer. The two companies will build a six-square-mile factory complex to manufacture EVs as well as batteries in the state of Kentucky.

The initial battery production at the facility is estimated at 129 gigawatt-hours which is more than two times the capacity compared to Tesla’s Gigafactory in Berlin.

In the near future, Ford will launch three electric vehicles that include the F-150 Lightning. By the end of this decade, the automobile heavyweight expects 40% of its vehicle deliveries to be battery-powered, on the back of its rising capital expenditure and aggressive expansion plans.


What next for investors?

Deloitte estimates global EV sales to rise at an annual rate of 29% through 2030. So, total EV sales will touch 31.1 million units and account for a third of vehicle deliveries by 2030. Ford aims to $30 billion in this period which will allow the company to increase market share at a steady pace and take on leaders such as Tesla.

While Tesla and other players including General Motors (NYSE: GM) will expand their lineup of battery-powered sedans, Ford aims to dominate the pick-up truck and transit van verticals with its vehicles.

Investment bank Morgan Analyst (NYSE: MS) detailed that the F-150 accounted for 90% of Ford’s global net income in the trailing 12-month period. Ford has a razor-focused strategy that will help the company leverage its expertise to benefit from economies of scale and widening profit margins.

Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.