Stock Analysis & Ideas

Ford: EV Profitability the Key for Investors, Says Goldman Sachs

The auto industry has felt the impact of the past year’s bearish macro developments; the rise in semiconductor prices and the costs of raw materials, supply chain snags and the economic downturn have all been highlighted as ongoing headwinds.

However, the issues do not seem to have dampened demand in the EV sector, as noted by Goldman Sachs’ Mark Delaney.

“At the industry level, we believe that consumer interest in EVs has remained very strong, and key indicators of EV demand, such as Google search trends, remain at a high level,” the analyst explained. “This is consistent with recent commentary from Tesla, and we continue to believe that high gas prices will be a positive factor for EV demand especially in regions where electricity pricing has been more stable (such as the US).”

But it’s not only Tesla noting the strong demand.

Ford (F) recently provided an update on its EV strategy and the auto giant said it is seeing “continued strong demand” for Mach-Es and F-150 Lightnings.

The company reaffirmed its objective to reach a global annual run rate of 600,000 by the end of 2023 and 2 million+ by the end of 2026. Ford provided more information about the breakdown of its 2023 target and said that it will consist of 270,000 Mach-Es for North America, Europe, and China, 150,000 F-150 Lightnings for North America, 150,000 Transit EVs for North America and Europe, and 30,000 of a new SUV model for Europe.

To support the production target with battery capacity of ~60 GWh for ~600,000 units, Ford disclosed several battery supply agreements. The company also said 70% of the battery cell capacity required to meet its 2026 target has also already been sourced.

Delaney expects investor focus will increasing turn to EV profitability, a segment that historically has had “modest to negative” profits. “Ford’s target is to reach an 8% adjusted EBIT margin on EVs by 2026 (and 10% for the company in total), and the combination of scale, lower cost batteries, and purpose built EV architectures will be helpful on this front,” Delaney remarked.

For now, the analyst sticks with a Neutral rating on Ford and his price target of $14 suggests shares have room for modest gains of 6%. (To watch Delaney’s track record, click here)

Looking at the consensus breakdown, 6 Buy ratings, 10 Holds and 1 Sell have been published in the last three months. Therefore, Ford gets a Moderate Buy consensus rating. Based on the $16.63 average price target, shares could climb ~26% in the year ahead. (See Ford stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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