Automaker Ford (F) recently made a play for the electric vehicle market. Given the success of Tesla (TSLA), that’s not a bad idea. Some recent bad news should have soured the market a bit on Ford’s plans, but the company notched up over 1% halfway through Thursday’s trading session. What should have been a hit to the company proved welcome for investors, as CEO Jim Farley went on record about truck prices.
More specifically, the price of the F-150 Lightning, the new electric pickup model from Ford. Farley made it clear that prices would not be coming down soon, this less than a day after Ford revealed a price hike of up to $8,500 per unit depending on the model. The culprit? Elevated battery costs.
However, there are also quite a few signs working against Ford right now that might leave it open to some further losses. Back in February, I was bullish on Ford. A slowing economic environment and rising prices, however, have pulled me back to neutral for now.
Investor Sentiment is Somewhat Mixed
Immediately, an oddly mixed picture of investor sentiment metrics emerges around the company. Ford has a Smart Score of 8 out of 10 on TipRanks. That’s the lowest level of “outperform,” which suggests that Ford has a better chance of outperforming the broader market than it does lagging it.
Insider trading at Ford, however, seems less convinced. In the last three months, there has been one informative sell, coming from Ford Blue president Galhotra Ashwani Kumar. Kumar sold just over $321,000 of Ford shares.
A look at the year in trading for Ford also suggests a sell-weighted environment. The last 12 months feature 19 Buy transactions to 33 Sell transactions.
The Unusual Benefits of Price Hikes for New Technologies
Most observers would figure that when prices go up, demand should go down. After all, who wants to deliberately pay more for something? However, there’s a case where price hikes in the early going don’t have much impact – the early adopter. Early adopters, by definition, are resistant to price hikes. They want to be among the first to use a new technology, product, or service and thus don’t care much about prices.
The value of being first is sufficient to justify higher prices or poorer quality in many cases. Since the electric vehicle market is still a comparatively new market, early adopters are most of the trade here. That serves as a possible explanation for why Ford’s announcement of huge price hikes isn’t torpedoing an entire line of business.
Plus, Ford has a little extra advantage here as well; it’s one of a very few companies actually making electric cars to begin with. While most are willing to cut businesses some slack for huge price hikes owing mainly to the supply chain issues seen over the last few months, it’s a different story in electric vehicles.
Since there are so few companies making them, there are very few valid alternatives. Essentially, customers might want to take their business elsewhere, but there is no “elsewhere” available. Thus, Ford has something of an advantage here. It can hike its prices however it feels it needs to without incident
Ford is also taking steps to improve its perception with the environmentally focused. Ford recently announced a deal between itself and DTE Energy that would see Ford get access to 650 megawatts of solar energy capacity by 2025. The move will reportedly be sufficient to nearly double the amount of solar energy produced in the entire state of Michigan, upping capacity by 70%.
However, with Ford trading close to its average price target, and some signs of trouble still coming out of the supply chain for its standard line of vehicles, this may prompt some issues in the short term.
With an inflationary recession still weighing heavily on consumers’ minds—regardless of White House pronouncements that there is no recession—it’s going to hurt Ford’s sales overall.
Electric vehicles are a great addition to the Ford lineup. However, they’re only just that – an addition. The main line is still clearly internal combustion, and those are purchased by normal people.
People who have been hit very hard at the gas pump and the grocery store lately, and thus may not be so interested in buying a car. People whose chances of getting a car loan are in decline thanks to rising interest rates as well.
What is the Target Price for F Stock?
Turning to Wall Street, Ford has a Hold consensus rating. That’s based on five Buys, 10 Holds, and one Sell assigned in the past three months. The average Ford price target of $16.03 implies 1.52% upside potential.
Analyst price targets range from a low of $10 per share to a high of $23 per share.
Conclusion – F Stock Might Have Limited Upside Potential
Ford has value, if for nothing more than its name recognition alone. Most people know that Ford is a car company, and that’s going to give the company some value, even as it loses some sales to a difficult economy. The company has a solid base in its gas vehicle lineup. It also has a nice offshoot in the making with its electric lineup. Nevertheless, a difficult environment coupled with Ford’s current share price is likely to limit any upside the company sees.
It may be down, but it’s not out. That’s the biggest reason why I’m neutral. Once the recession passes, as they tend to, then Ford can come roaring back with all its new vehicles. However, with one line still producing mostly theoretical results, it’s not exactly a good time to go all-in.