Is Ford About to Turn the Corner?

For Ford Motor Company (NYSE: F), it feels like the hits just keep on coming: poor production efficiency, higher warranty costs, large electric vehicle (EV) development costs, and on and on. But the iconic Detroit automaker has more going for it than many realize, and at least one analyst agrees.

On the rebound

What may surprise some investors is that they might not really know the company they're invested in. Ford's traditional business, Ford Blue, is showing signs of slowing growth, and model-e, the division responsible for its EVs, is posting massive losses. But the best part of Ford that nobody is talking about is its highly profitable, and rapidly growing, Ford Pro commercial business.

More specifically, Ford Pro generated $5.5 billion EBIT (earnings before interest and taxes) during the first half of 2024, while Ford's traditional business, Ford Blue, only generated $2 billion, and Ford's model-e division posted a rough $2.46 billion loss.

Analyst agrees

Goldman Sachs recently made an interesting move in the automotive world as it downgraded many automotive stocks but made the surprise upgrade of both Ford and General Motors.

Not only did the analyst note Ford Pro's blossoming business, but Goldman Sachs noted that software subscriptions have been growing at a 35% to 40% annual rate, and it expects this to continue growing with new offerings in fleet services. For context, Ford is aiming to generate $1 billion of revenue from software in 2025 alone.

Looking ahead

The gears are shifting in quick pace at Ford currently. After disappointing investors with the first half of 2024, the company is pulling back on roughly $12 billion in EV investments, pushing back on an F-150 Lightning replacement, canceling a three-row electric SUV, and looking more interestingly at hybrid options.

But maybe the most important future ambition for Ford and its investors is the low-cost platform the company made a secret gamble on (with a special team initially) to produce an EV with a price target around $25,000. The first vehicle on that platform is said to be a midsize pickup truck. If Ford can churn out a $25,000 EV and make even a slim profit from it, it'll be a game changer for the company's sales, scale, and its mounting EV losses.

What it all means

At the end of the day, Ford shares are sitting at a price-to-earnings (P/E) ratio of only 11, and the stock boasts a vibrant dividend yield of 5.6%. All the negativity surrounding higher warranty costs and production inefficiency is likely priced into the stock, and as the company works through its model-e division growing pains, it stands poised to rebound as its financials feel the relief.