There is no getting round it — 2022 has not been an excellent yr for automakers. Shares of all main producers, whether or not fossil gasoline or electrical autos, are down by double-digit percentages. The seasonally adjusted annualized fee (SAAR) for brand spanking new light-duty car gross sales in August is about 13 million items, which is a 14% drop from the year-ago interval.
Nevertheless, August’s gross sales themselves had been up 6% from final yr and three% increased than July. So whereas the year-to-date numbers present the business remains to be in a steep funk, this may very well be an indication that automotive gross sales could start rising once more. Both approach, Ford (F -4.07%) is a inventory that buyers ought to have on their watch lists. It is my high auto inventory to purchase and maintain ceaselessly.
An business caught in impartial
Automakers are discovering it tough to promote automobiles this yr. Inventories on supplier tons are slack as a consequence of provide chain snarls brought on by ongoing COVID-19 lockdowns, similar to these in China, whereas Russia’s invasion of Ukraine has exacerbated the issue.
Shipments of important elements like pc chips ended up being delayed, inflicting new fashions to turn into unavailable on showroom flooring. Many producers responded by transport autos with out chips for non-safety associated controls, similar to air con, simply so that they had one thing to promote.
China, although, has imposed yet one more spherical of strict lockdowns, this time within the vital manufacturing metropolis of Chengdu, which accounts for 1.7% of the nation’s economic system and is dwelling to vegetation for a few of the world’s most vital firms, together with Apple and Toyota. Disruptions within the world provide chains aren’t more likely to be over anytime quickly.
Nevertheless, auto producers have been in a position to snap again to some extent. Ford had a profitable August, marking the second consecutive month its autos had been the top-selling model and the third straight month that gross sales rose.
Even when Ford’s F-series of vans misplaced their top-selling standing for a single quarter final yr, they snapped again within the following interval, ending 2021 because the best-selling car within the nation. That is an unparalleled 44 consecutive years of getting the most well-liked truck within the nation.
Ford has been performing higher than the business
Ford bought over 158,000 autos in August, a 27% improve over final yr and effectively forward of the business’s 4.8% acquire. That allowed it to achieve a further 2.4 share factors of market share, giving it a complete of 13.4%.
Demand throughout its complete portfolio of autos stays sturdy, whether or not truck, SUV, automotive, or electrical, with every section outpacing the business.
Truck gross sales grew 13% in August, SUV gross sales had been up 48%, automotive gross sales jumped 49%, and EV gross sales quadrupled to simply shy of 5,900 items, with the F-150 Lightning having its greatest month since its launch. Ford says the Lightning is the best-selling electrical truck within the nation, and the F-150 hybrid is the best-selling hybrid truck. The Mustang Mach-E electrical muscle automotive noticed gross sales greater than double within the month.
That bodes effectively for Ford’s long-term progress, as a result of the place Stellantis is trying to be absolutely electrical by 2028 and Basic Motors by 2035, Ford is hedging its bets by preserving an excellent portion of its fleet fossil-fuel based mostly. Not that it is ignoring alternative-fuel autos — an excellent portion of the three,000 layoffs Ford introduced are coming from its employees making inner combustion engine vegetation in Dearborn, Michigan. It plans to make use of the financial savings to take a position extra in electrics, however that could be a bumpier street than deliberate.
A strong long-term decide
Ford is solidly targeted on the long run. It ended the second quarter with $49 billion in money, equivalents, and short-term investments, sufficient to offset the $17 billion in long-term debt it has, excluding Ford Credit score. It additionally has a $45 billion line of credit score that can be utilized to additional finance its progress.
Ford’s inventory was an excellent performer in 2021, rising 136% for the yr, solely to show south this yr as pressures from provide chains and the broader market downturn weighed on its shares. 12 months-to-date Ford is down 25%, however at simply seven occasions trailing earnings, 5 occasions subsequent yr’s estimates, and simply 13 occasions the free money move it produces, the automaker’s inventory is affordable to purchase now.
It is true that Ford has not at all times been a stellar inventory to purchase, routinely underperforming the S&P 500. Since 2000, its inventory is down 50%, however over the previous decade the automaker appeared to seek out its groove and its return on invested capital markedly improved, doubling in worth.
That took place as Ford targeted much less on sedans and leaned extra closely into vans and SUVs, which by some accounts represents 97% of its U.S. enterprise. It resulted in some loss in general market share, however improved profitability (and its truck market share improved). Ford additionally generated important free money move, greater than $34 billion value over the previous 10 years.
With its sights set on with the ability to promote no matter automobiles and vans shoppers wish to purchase sooner or later, Ford is a inventory that buyers can really feel assured holding for a very long time to come back.