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Ford (F) Falls 6% on F-150 Lightning Price Cut: Buying the Dip?
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In a bid to offer a more accessible choice for customers in the competitive electric vehicle (EV) market, Ford (F - Free Report) has significantly reduced prices of its electric F-150 pickup truck. Prices for the F-150 Lightning Pro base model have been slashed by 17%, from $59,974 to $49,995. Pricing on its Platinum model has been cut by $6000, from $98,074 to $91,995.
Ford's price-slashing strategy, however, was not met with much optimism. The company’s shares took a 5.94% hit yesterday to close the session at $14.09 per share as investors worried over the impact this price cut might have on profits.
At current price levels, Ford trades at 8.01X forward earnings, which is significantly below its decade-long high of 81.99X and just slightly above the median of 7.57X.Shares are trading intriguingly below the industry’s 42.43X forward earnings and also beneath the S&P 500’s average of 19.9X. Even with respect to P/S metric, F appears quite undervalued. The stock is currently trading at 0.35X forward 12-month sales, below 2.01X for the Zacks sub-industry, 1X for the Zacks sector and 3.85X for the S&P 500 index.
So, should you consider parking your cash at Ford given the attractive valuation metrics? Before that, let’s delve deeper into Ford’s latest price-cut strategy and its potential impact on the stock.
Behind Ford’s Bold Move
While Ford's latest price cuts are an attempt to strengthen its position in the market, investors have reacted negatively. But a few analysts also argue that this move mirrors Tesla's (TSLA - Free Report) successful playbook of starting with higher prices and gradually reducing them as economies of scale are achieved. Tesla's pricing strategies have consistently applied pressure on other manufacturers in the EV space, forcing companies like Ford to reassess their pricing models to stay competitive.
Ford's ability to cut prices significantly can be attributed to lower battery costs and economies of scale. The automaker states that it has more room for price adjustments due to these factors. Last year's price hikes were largely driven by high commodity costs and supply crunch. Now, with improved cost efficiencies, Ford is better-positioned to offer more competitive prices and attract a wider consumer base.
While the company's decision reverses about half of the price hikes it imposed over the past year, it still positions the electric version of F-150 — the bestselling vehicle in the United States — at a price point considerably above its gasoline counterpart.
The price cuts are meant to preempt intensifying competition from General Motors’ (GM - Free Report) electric GMC Hummer and Chevrolet Silverado as well as Tesla's Cybertruck. Just a couple of days back, Tesla announced that it built its first Cybertruck, signaling its entry into the e-pickup market. Ford is preparing itself for a market wherein a competitive price point might be the defining factor in consumer choice.
In addition to price reductions, Ford has introduced new incentives to further stimulate sales. The company now offers a $1,000 discount for customers who configure their truck online, along with favorable financing options at a low rate of 1.9% for 36 months. These incentives aim to entice potential buyers and create a more appealing value proposition for F-150 Lightning.
In line with the pricing changes, Ford has also announced plans to increase its production capacity. It has temporarily shut down its Rouge Electric Vehicle Center in Michigan to expand production of F-150 Lightning models to 150,000 vehicles annually starting this fall.
Impact on Ford’s Financials & Implications on the EV Market
While these price cuts may create uncertainty around CEO Jim Farley's goal of an 8% return on Ford’s EV business by the end of 2026, Ford is banking on the long-term effects of this strategic move. Notably, Ford has already projected a $3 billion loss in its EV unit this year. While near-term margins may be negatively impacted by the price cut, the auto giant aims to improve its margins as it scales up its electric offerings and relies on volume sales to compensate for the decreased prices.
Ford's price cuts on the electric F-150, along with the introduction of Tesla's Cybertruck and the forthcoming electric version of GM’s Chevrolet Silverado, highlight the rapidly evolving EV market. Lowering prices and increasing competition among automakers will eventually benefit consumers by providing more choices and encouraging greater price competitiveness.
For consumers, the price reduction might be a welcome change. The electric version of the F-150, previously priced akin to luxury vehicles, may now seem more affordable. The reduced prices of Ford's Lightning models could make them eligible for the $7,500 tax credit under President Biden's Inflation Reduction Act, further incentivizing consumer adoption of electric vehicles.
As pointed out by Brian Moody from Kelley Blue Book, the barrier to EV ownership has primarily been their high prices. These cuts might open up new opportunities for potential buyers and further accelerate EV adoption.
Buy Ford Now
Ford is a solid bet for several reasons, especially if you have a long-term horizon. The company boasts a strong vehicle mix, including popular models such as the F-series trucks, Maverick pickup, and a range of SUVs, including Escape, Explorer, Expedition, EcoSport, and Edge. The company’s robust lineup of electric vehicles, including the Mustang Mach-E, E-Transit and F-150 Lightning, is further bolstering deliveries.
Ford's aggressive electrification efforts, outlined in its Ford+ plan, have positioned it well for long-term growth. With a planned investment of around $50 billion by 2026 and a target production of more than 2 million EVs by the end of that year, Ford is set to solidify its position in the booming EV landscape.
Furthermore, Ford Pro, with its strong order books and successful product launches, is poised for significant growth in the future. Ford's ample liquidity, investor-friendly moves, and commitment to shareholder returns through dividend reinstatement demonstrate its efforts toward achieving financial stability and generating value for investors.
While the Zacks Consensus Estimate for Ford’s 2023 earnings currently suggests a 5% year-over-year decline, the company is seeing northbound estimate revisions. So, there could be a change in this situation. The 2023 and 2024 EPS estimate has increased 4 cents and 3 cents, respectively, in the past 30 days. Notably, Ford has grown its earnings over 3.1% in the last five years and is expected to grow at least 6% in the next five years.
Image: Shutterstock
Ford (F) Falls 6% on F-150 Lightning Price Cut: Buying the Dip?
In a bid to offer a more accessible choice for customers in the competitive electric vehicle (EV) market, Ford (F - Free Report) has significantly reduced prices of its electric F-150 pickup truck. Prices for the F-150 Lightning Pro base model have been slashed by 17%, from $59,974 to $49,995. Pricing on its Platinum model has been cut by $6000, from $98,074 to $91,995.
Ford's price-slashing strategy, however, was not met with much optimism. The company’s shares took a 5.94% hit yesterday to close the session at $14.09 per share as investors worried over the impact this price cut might have on profits.
At current price levels, Ford trades at 8.01X forward earnings, which is significantly below its decade-long high of 81.99X and just slightly above the median of 7.57X.Shares are trading intriguingly below the industry’s 42.43X forward earnings and also beneath the S&P 500’s average of 19.9X. Even with respect to P/S metric, F appears quite undervalued. The stock is currently trading at 0.35X forward 12-month sales, below 2.01X for the Zacks sub-industry, 1X for the Zacks sector and 3.85X for the S&P 500 index.
So, should you consider parking your cash at Ford given the attractive valuation metrics? Before that, let’s delve deeper into Ford’s latest price-cut strategy and its potential impact on the stock.
Behind Ford’s Bold Move
While Ford's latest price cuts are an attempt to strengthen its position in the market, investors have reacted negatively. But a few analysts also argue that this move mirrors Tesla's (TSLA - Free Report) successful playbook of starting with higher prices and gradually reducing them as economies of scale are achieved. Tesla's pricing strategies have consistently applied pressure on other manufacturers in the EV space, forcing companies like Ford to reassess their pricing models to stay competitive.
Ford's ability to cut prices significantly can be attributed to lower battery costs and economies of scale. The automaker states that it has more room for price adjustments due to these factors. Last year's price hikes were largely driven by high commodity costs and supply crunch. Now, with improved cost efficiencies, Ford is better-positioned to offer more competitive prices and attract a wider consumer base.
While the company's decision reverses about half of the price hikes it imposed over the past year, it still positions the electric version of F-150 — the bestselling vehicle in the United States — at a price point considerably above its gasoline counterpart.
The price cuts are meant to preempt intensifying competition from General Motors’ (GM - Free Report) electric GMC Hummer and Chevrolet Silverado as well as Tesla's Cybertruck. Just a couple of days back, Tesla announced that it built its first Cybertruck, signaling its entry into the e-pickup market. Ford is preparing itself for a market wherein a competitive price point might be the defining factor in consumer choice.
In addition to price reductions, Ford has introduced new incentives to further stimulate sales. The company now offers a $1,000 discount for customers who configure their truck online, along with favorable financing options at a low rate of 1.9% for 36 months. These incentives aim to entice potential buyers and create a more appealing value proposition for F-150 Lightning.
In line with the pricing changes, Ford has also announced plans to increase its production capacity. It has temporarily shut down its Rouge Electric Vehicle Center in Michigan to expand production of F-150 Lightning models to 150,000 vehicles annually starting this fall.
Impact on Ford’s Financials & Implications on the EV Market
While these price cuts may create uncertainty around CEO Jim Farley's goal of an 8% return on Ford’s EV business by the end of 2026, Ford is banking on the long-term effects of this strategic move. Notably, Ford has already projected a $3 billion loss in its EV unit this year. While near-term margins may be negatively impacted by the price cut, the auto giant aims to improve its margins as it scales up its electric offerings and relies on volume sales to compensate for the decreased prices.
Ford's price cuts on the electric F-150, along with the introduction of Tesla's Cybertruck and the forthcoming electric version of GM’s Chevrolet Silverado, highlight the rapidly evolving EV market. Lowering prices and increasing competition among automakers will eventually benefit consumers by providing more choices and encouraging greater price competitiveness.
For consumers, the price reduction might be a welcome change. The electric version of the F-150, previously priced akin to luxury vehicles, may now seem more affordable. The reduced prices of Ford's Lightning models could make them eligible for the $7,500 tax credit under President Biden's Inflation Reduction Act, further incentivizing consumer adoption of electric vehicles.
As pointed out by Brian Moody from Kelley Blue Book, the barrier to EV ownership has primarily been their high prices. These cuts might open up new opportunities for potential buyers and further accelerate EV adoption.
Buy Ford Now
Ford is a solid bet for several reasons, especially if you have a long-term horizon. The company boasts a strong vehicle mix, including popular models such as the F-series trucks, Maverick pickup, and a range of SUVs, including Escape, Explorer, Expedition, EcoSport, and Edge. The company’s robust lineup of electric vehicles, including the Mustang Mach-E, E-Transit and F-150 Lightning, is further bolstering deliveries.
Ford's aggressive electrification efforts, outlined in its Ford+ plan, have positioned it well for long-term growth. With a planned investment of around $50 billion by 2026 and a target production of more than 2 million EVs by the end of that year, Ford is set to solidify its position in the booming EV landscape.
Furthermore, Ford Pro, with its strong order books and successful product launches, is poised for significant growth in the future. Ford's ample liquidity, investor-friendly moves, and commitment to shareholder returns through dividend reinstatement demonstrate its efforts toward achieving financial stability and generating value for investors.
While the Zacks Consensus Estimate for Ford’s 2023 earnings currently suggests a 5% year-over-year decline, the company is seeing northbound estimate revisions. So, there could be a change in this situation. The 2023 and 2024 EPS estimate has increased 4 cents and 3 cents, respectively, in the past 30 days. Notably, Ford has grown its earnings over 3.1% in the last five years and is expected to grow at least 6% in the next five years.
F currently carries a Zacks Rank #1 (Strong Buy) and has a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.