Ford (F 3.06%) pared back its electric vehicle (EV) production targets on Thursday. The auto giant now expects to achieve an annual manufacturing rate of 600,000 EVs in 2024. Management had previously hoped to reach that pace by the end of 2023.
Ford also warned that its EV business would generate losses of roughly $4.5 billion this year compared to prior guidance of $3 billion. The company cited increased costs related to new product development and production-capacity expansion as reasons for the higher projected losses.
Yet despite these near-term challenges, Ford's stock still looks attractive for long-term investors. Here's why.
1. Ford Blue and Pro are firing on all cylinders
While investors are understandably intrigued by the potential of Ford's EV segment -- and, therefore, concerned about its slower pace of expansion -- traditional gas-powered vehicles remain the company's core profit engine. And these segments continue to perform well.
Ford Blue, the automaker's consumer-focused internal combustion vehicle division, generated an operating profit of $2.3 billion. And Ford Pro, the auto leader's commercial business, delivered operating earnings of $2.4 billion. Both figures were up year over year and above Wall Street's expectations. Strong sales of pickup trucks, sport utility vehicles (SUVs), and commercial vans contributed to the gains.
The solid performances of Ford Blue and Pro helped to drive Ford's revenue higher by 12% year over year to $45 billion. They also more than offset the losses produced by its EV division, resulting in companywide net income of nearly $2 billion.
Image source: The Motley Fool.
Better still, Ford boosted its full-year adjusted-profit forecast to between $11 billion and $12 billion, up from a prior estimate of $9 billion to $11 billion. Management also lifted its guidance for adjusted free cash flow to between $6.5 billion and $7 billion, up from $6 billion.
2. Price cuts should spur EV sales
Earlier this month, Ford slashed the prices of its electric F-150 Lightning pickup trucks. Some models will see reductions of as much as $10,000.
Supply shortages and soaring commodity costs drove Ford to implement multiple price hikes for the F-150 Lightning following the EV's debut in 2021. Now, Ford says its supply chain bottlenecks are clearing, key commodity prices (such as lithium) are falling, and its new production lines are coming online. The automaker intends to pass its cost savings on to consumers in the form of lower vehicle prices.
To be fair, Ford is also trying to fend off competition from the likes of Tesla and Rivian Automotive. Tesla recently announced the start of production for its long-awaited Cybertruck. And Rivian is ramping up production of its popular R1T electric pickup trucks.
It's understandable for investors to be concerned about this intensifying competition and the potential negative impact of price cuts on Ford's profitability. But lower prices should boost Ford's EV sales and help it achieve the scale efficiencies it needs to hit its long-term profit targets.
3. Ford's stock can be had for a bargain price
Moreover, many of these risks are arguably already priced into Ford's shares. The auto titan's stock is currently trading for less than 5 times its projected adjusted-operating profits for 2023 -- and less than 8 times its forecasted free cash flow. That's quite cheap for this venerable and still highly profitable automaker.
