CFRA Research Senior Equity Analyst Garrett Nelson speaks with Yahoo Finance about how traditional automakers and new startups are vying for share in the global electric vehicle market.
- Ford, announcing it has 200,000 reservations for the new electric F-150 Lightning pickup and that it will be the number two EV maker in 24 months. Company is also saying there are more prepared than ever for the chip shortage in the coming year. And we want to hear what Wall Street thinks about all of this. And we're going to bring in Garrett Nelson, senior equity analyst at CFRA research. And Garrett, thank you for joining us today.
What are you making of Ford's ambitions here? Stock is up 120%, year-to-date? Looking ahead, can they execute on this plan?
GARRETT NELSON: Sure, thanks for having me. We certainly believe it's possible that Ford could become the second largest EV manufacturer globally. It's certainly going to be a challenge to catch up to Volkswagen, which is currently the number two, and Tesla is, by far, the largest EV manufacturer. But we do think it's possible.
And it's because of the demand for the F-150 Lightning and, also, because we expect the company to roll out electric versions of other popular models, such as the new Bronco and SUVs such as the Explorer, Escape, and Expedition, following the very successful rollout of the F-150 Lightning.
But if you look-- you know, the F-150 Lightning sold nearly 800,000 units in the US last year. So the current reservation count would just be about a quarter of the total sales for that vehicle model last year. So I think what they're doing is trying to expand their production capacity as fast as possible. And we really like their strategy because they're-- they're offering electric versions of some of the existing models and really giving the consumers a choice whether to buy a gas-powered version or an electric version of that specific model, which surveys show is exactly what consumers want.
So we really like what they're doing. And we have a lot of faith in the company under the relatively new CEO, Jim Farley. He's only been in that position a little over a year now.
- And then Garrett, you know, EV is becoming increasingly more competitive. It used to be Tesla by far and wide. Now you say Volkswagen is in the picture.
There's also, you know, its cybertruck, Tesla's cybertruck, and the R1T from Rivian. So what is Ford doing to ensure it can increase its production capacity and meet the goals that it's targeting?
GARRETT NELSON: Sure. So they're investing a lot of money to expand that production capacity, as we speak. They've increased their planned investments in electric vehicles a couple times over the last year or two. So you know, they're really putting their money where their mouth is.
And you know, the reservation count shows that there is significant demand for those electric vehicles. You know, the pickup truck and SUV category is an area where there really hasn't been any-- there haven't been any offerings, and it's an increasingly popular vehicle category in the US.
So you had Rivian, who achieved the first delivery of an electric pickup truck just in the last couple of months. And so, you know, it's amazing that a startup EV player, such as Rivian you know, beat the incumbents such as Ford and General Motors in terms of accomplishing that. But as you mentioned, the cybertruck will be coming soon. You have the F-150 Lightning, the Hummer, and other vehicles, which are coming in the next year or two.
- And Garrett, big picture here. When we think about the traditional automakers-- and I want to bring up the Wi-Fi interactive for our viewers, where I have a heat map of the EV space. But we have market cap on here. So we see Tesla above a trillion, Ford over here-- let me try and circle this. That's about $75 billion; GM, $85. Billion and this is all pricing in the moat, I guess, for Tesla. I'm just wondering-- when you think about these traditional automakers, do they have-- are they going to be able to catch up, at least to the perception, of Tesla being able to be a leader in this space?
GARRETT NELSON: Sure. The valuation disparities are quite remarkable, as your heat map shows right there. You have Ford trading at roughly nine times our earnings estimate for next year. And then you have a company like Tesla at roughly 150 times next year's earnings.
So there's a huge valuation gap between the traditional automakers who are trying to pivot towards electric vehicles and companies like Tesla and Lucid and Rivian, which are much smaller in terms of volume. Some are just starting to deliver their first vehicles, but they're being valued-- some of them-- Lucid and Rivian-- they're know roughly equivalent to GM and Ford.
So we view that as an opportunity in Ford. We have a buy on the stock. Our 12-month price target is $24, but we think that could prove conservative longer term. And we think what you're going to see is a combination of both earnings growth and a rerating multiple expansion as the electric vehicle portfolio grows.
- And Garrett, really quickly want to ask you-- you know, obviously the auto sector has been hit hard-- chip supply issues and then pricing for parts, and inflation has been an issue. One way to address that, analysts are saying, is to get rid of those Trump tariffs. And that's something that Elon Musk has been calling for. He wants an exemption on graphite that's used in batteries to make his cars. How helpful do you think that will be to the entire sector?
GARRETT NELSON: Sure. It would help. But really, they're all struggling with supply chain issues and chip shortages. You know, Ford has done a better job than most recently. They reported a significant beat for the third quarter, relative to consensus, and one of the drivers of that beat was an improvement in chip supply.
So really, it's on a company by company basis in terms of being able to navigate these-- these headwinds that they're facing, which we expect to continue well into next year. These-- these are not going away anytime soon. But it really goes down to the procurement practices of individual companies. And we think Ford has really gotten its act together here in recent months.
- Well, we're going to have to leave it there, but we appreciate you stopping by here. Garrett Nelson, senior equity analyst at CFRA research.