Ford Changes EV Strategy to Boost Profitability: What You Need to Know

Ford engine (F) announced Wednesday that it is changing its electric vehicle (EV) strategy to deliver profitable and capital-efficient growth, including offering a broader range of electrification options at lower prices and rising ranges. Wall Street is taking the news in stride, sending Ford shares higher in intraday trading.

Ford’s plan is to delay production of the all-electric pickup until the second half of 2027. Production was initially expected to begin next year.

The company is also canceling plans for its three-row sport utility vehicle (SUV) and will instead prioritize hybrid models and electric utility vehicles, according to CNBC. Ford will take a special non-cash charge of about $400 million because of the adjusted plans, which could also result in additional expenses and cash outlays of up to $1.5 billion.

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The automaker also said it will change how it sources batteries in the U.S. to reduce costs and increase efficiency in current and future production. “An affordable electric vehicle starts with an affordable battery,” Ford CEO Jim Farley said in a statement. “If you’re not competitive on battery cost, you’re not competitive.”

“We are committed to creating long-term value by building a competitive and profitable business,” said Ford Chief Financial Officer John Lawler. “In light of pricing and margin compression, we have made the decision to adjust our product and technology roadmap and industrial footprint to achieve our goal of achieving positive EBIT (earnings before interest and tax) within the first 12 months of all new models.”

Are Ford shares worth buying, selling or holding?

Ford Motor has fared poorly on the 2024 price charts, down more than 4% in total return (price change plus dividends) compared with a 30% return for the S&P 500. That puts Wall Street on the sidelines when it comes to consumer discretionary stocks.

It is true that the average target price among 26 analysts following the shares of company F, followed by S&P Global Market Information is $13.43, implying an implied upside of about 24% to current levels. However, the consensus recommends a Hold.

“We believe the market still lacks confidence in Ford’s EV and software strategy, which is compounding the issue of a higher cash balance and lack of higher cash returns as investors are concerned about the return they will see on that cash,” says UBS Global Research analyst Joseph Spak (Neutral, equivalent to Hold). While the analyst believes electrification is where the market is headed in the medium term, investors are currently looking for profits from internal combustion engine (ICE) vehicles.

However, there are some bulls in Ford’s corner. For example, financial services firm BofA Securities has a Buy rating and a $20 price target on Ford shares.

BofA analyst John Murphy recently went on the road with Ford’s CEO and CFO. “The conversation focused on Ford’s efforts to reduce warranty costs, the opportunity to increase earnings in Ford Pro and the company’s progress in reducing electric vehicle costs,” Murphy said, with the executives reiterating that the company plans to make “no changes to its capital allocation strategy” and “pay out 40% to 50% of free cash flow in dividends and use capital to grow the business.”