For those who are fans of the Book of Revelation or 1980s heavy metal music, seeing Ford (F) shares close yesterday at $6.66 must have been a wonderful coincidence.
For those who own F shares, it was not the case. If you bought Ford shares at any time between October 2009 and January of this year, you would have a major capital loss. Bottom-fishers in February and March 2020 have been rewarded, but as Jim Farley begins his term as new Ford CEO on Thursday, my objective is to determine the answer to the question of whether my clients and I will invest in Ford shares today. Short answer: no.
Farley is taking the helm from the seemingly in-way-over-his-head Jim Hackett -- known for running furniture maker, Steelcase (SCS) , whose stock was a dreadful performer for two decades, and acting as athletic director at the University of Michigan, which may not seem like qualifications to run a global automaker. So, the bar is quite low. Farley needs to execute and protect the one thing he has that Tesla's (TSLA) Elon Musk could never even dream of. According to Ford's second quarter earnings release:
The company ended Q2 with more than $39 billion in cash, reflecting, in part, $10 billion in new debt during the quarter. On July 27, Ford repaid $7.7 billion of an outstanding $15.4 billion on its revolving credit facilities, and also extended $4.8 billion of its three-year revolving credit lines. The company's almost $40 billion in liquidity today is expected to be sufficient to maintain or exceed a target cash balance of $20 billion through the second half of this year, even if global demand declines or there is another major wave of pandemic-related plant closures.
That's it, baby.
Even after the worst pandemic in 100 years (it's still not over, obviously), Ford has a fortress balance sheet. Does that mean you divide that $40 billion liquidity figure by the four billion Ford shares outstanding and come up with a "real" Ford share price below zero? The credulous buffoons who in 2020 follow the auto industry on the sell-side -- which I did for 11 years -- have so embarrassed themselves (and me) with their bizarre mathematical gymnastics in attempting to justify Tesla's absurd valuation that it surprises me that none of them has yet been stupid enough to say Ford is trading below zero. Yet.
Ford Motor Credit held $138 billion in debt on June 30, but also $155 billion in assets, so it is not only quite solvent, but it is an incredibly valuable bank.
Of course, Ford Motor Credit happens to be bolted onto an automaker in which Wall Street has lost interest. Thanks to Fed chief Jerome Powell, Treasury Secretary Steven Mnuchin and Co., money is free, and I don't see that changing anytime soon. So, Ford Motor Credit is a valuable profit-center and the engine room of the Blue Oval, and I have always had great respect for Ford's bean counters. They would have never let the "idea guys''--Mary Barra is obviously not a guy, but she is going to "wear" this mistake for a long time in the halls of General Motors (GM) -- make a horrible mistake like GM attempted to with Nikola (NKLA) .
No, Ford should be Ford. The Internet images of the new Bronco are, frankly, bad-ass, and I can't remember the last time I used such an adjective to describe a Ford product. They should take the styling cues from the Bronco and apply them to the redesign of the F-series pickups, as well.
In terms of the future of sustainable and autonomous transportation, Ford's new management should realize they work in Dearborn, not Palo Alto. Ford made an incredibly well-timed investment (their bean-counters are awesome, as I said) in February 2017 in Argo AI, which was confirmed in July when Volkswagen invested in the Pittsburgh-based mobility leader at a $7.5 billion valuation--Ford and VW now have equal 40% stakes in Argo AI.
As far as electrics, Ford executives should look at the bruising Musk is taking in Europe -- where VW's recently introduced ID.3 is dominating Tesla's Model 3 in sales volume in green-heavy markets like Norway -- and realize that the race for mass-market BEVs is already well underway. Ford's BEV strategy in the U.S. and Europe (Ford's business in China has always been embarrassingly uncompetitive) should be: niche, niche, niche. The Mustang Mach-E has drawn great early reviews ahead of its year-end launch. Ford's decision Wednesday to cut the Mach-E's price by $3,000 simply reflects a realization that Musk will keep cutting Tesla prices (including a new 10% price cut on the made-in-China Model 3 that has been reported Thursday) because nobody seems to care if Tesla ever makes a sustainable profit.
Ford shareholders do, as they should. So, Farley needs to walk the fine line of adapting to new realities, maintaining Ford's fortress balance sheet, and keeping the Ford family happy. That also means the Ford holders don't want their ownership stake percentage to balloon and thus Farley can't use that fortress balance sheet to do what he really should: Buy back Stock.
The Ford Estates own substantially all of Ford's Class B shares, which give them 40% of the voting control of the company, even though they directly own less than 1% of the common shares. Common shareholders will always be second-class, behind the family. I learned that truism from very smart analysts who preceded me, and that is why I have never owned a share of Ford stock.
Farley has a tough job ahead of him, and I hope he chooses to do so with a mixture of respect for the tremendous power that technology has exerted (and will continue to exert) on the automobile as a means of human transportation. If he does that without resorting to the West Coast's nauseatingly "woke" virtue-signalling, that would probably make Ford employees happy, as well.
Perhaps someday I will even buy Ford stock. Today is not that day. Good luck, Jim Farley.