Ford Stock: Should Tesla be Terrified of Ford Motor Company?
Ford Stock Goes Big on Driverless Tech
Ford Motor Company (NYSE:F) just went all in on driverless technology. The 113-year old company is betting the farm on self-driving cars, setting up F stock for game-changing returns.
More to the point, Tesla Motors Inc (NASDAQ:TSLA) should feel threatened by the emergence of Ford stock as a driverless tech investment. The Dearborn, Michigan-based carmaker is promising to make an entire line of business-focused self-driving cars.
Ford plans to develop robo-taxis, electric cars, bike-sharing programs, and shuttle vans. (Source: “Ford Rolls Out Business Services Unit, Plans Autonomous-Car Services,” The Wall Street Journal, September 14, 2016.)
The new division is reportedly going to deliver 20% margins in the long term, which is significantly higher than those in ordinary car manufacturing. In the short term, however, the strategy will devour Ford’s cash flow.
“We’ve always thought about the ‘thing’ and how many ‘things’ were sold,” said Chief Executive Officer Mark Fields to investors gathered last Wednesday. “Now, we’re opening up the aperture of the lens.”
Fields took over as CEO in 2014. Ford stock has declined since then, but these shifts could turn the company back into a profit-making machine. Although F stock is expecting some shrinkage on the bottom line in 2017, the positive effects should take effect in 2018. A $3.0-billion cost-cutting plan should help as well.
All in all, these moves must be unwelcome news at the Tesla headquarters in Palo Alto, California. TSLA stock trades at a sky-high earnings multiple, meaning that investors expect unbelievable growth from the company. They can only deliver that expansion by poaching market share from other companies. Namely, existing manufacturers.
In a recent blog post entitled “Master Plan, Part Deux,” Tesla CEO Elon Musk talked about his ambitions for the driverless car market. These plans are crucial for justifying the current price of TSLA stock. (Source: “Master Plan, Part Deux,” Tesla Motors Inc, July 20, 2016.)
“You will also be able to add your car to the Tesla shared fleet just by tapping a button on the Tesla phone app and have it generate income for you while you’re at work or on vacation,” he wrote. This would be “significantly offsetting and at times potentially exceeding the monthly loan or lease cost.”
Musk’s vision of the future was panned by some critics, but it’s clear that the car industry is taking him seriously. Ford is going to build robo-taxis and robo-trucks, General Motors Company (NYSE:GM) is ramping up production on the Chevy Volt, and Toyota Motor Corp (NYSE:TM) has signed a deal with Alphabet Inc (NASDAQ:GOOG) to master driverless tech.
Of the lot, F stock has been the most transparent about its embrace of technology. However, Fields is trying hard to toe the line between growth and stability. “We’ve given you clear evidence that Ford is a solid investment with an attractive upside,” he said to investors.
Ford stock jumped two percent after the news was announced on Wednesday.
Better still, Ford stock isn’t the only big-name ticker doing well these days. In fact, the industry is moving toward consolidation. That tends to favor the existing heavyweights, so I’m looking closely at large-cap tech stocks that could double or triple in the next few years. Here’s what I found.