Managers at Ford Motor Co. (NYSE: F) were all smiles last Thursday at the official reveal for the Lightning, an electric version of their famous F-150 pickup truck.
The grins were warranted. This is the new Ford.
That the stock price shot almost 7% higher the following day shouldn’t be surprising. And there’s even more growth ahead: A major transition is underway as all of the leading manufacturers shift from internal combustion engines (ICE) to electric power plants.
It’s a big deal — one that’s going to cause a major shake-up among current industry practices. Electric vehicles require less maintenance than their ICE counterparts. Providing that maintenance is a big part of the current business model for dealerships scattered across the country.
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Business managers at Ford — and the rest of the automotive world — need to figure out a way to make the transition to EVs without starving their affiliated dealers and repair shops.
The solution seems to be transition EVs.
When it arrives in 2022, the new Lightning will sit side by side with the gas- and diesel-powered F-150s that have been the best-selling vehicles in America since 1981. Yet Lightning, starting at less than $40,000, will clearly be the best of the breed in terms of towing capacity, torque and flat-out acceleration. Even with its massive 6,500-pound bodyweight, Lightning is still capable of bolting to 60 mph in a sportscar-like mid-four second range.
The vehicle will have all of the advanced features of supercars, too. Product managers said the truck will come equipped with level-2 autonomous driving, bringing handsfree highway lane changes and over-the air-software updates for future new features like better acceleration and longer range.
It looks enough like the beloved F-150 to not spook traditionalists … yet its EV foundation is sufficient to put Ford into the discussion about future technology. The Verge, a popular tech media outlet for millennials, gushed about Lightning, calling it an electric truck for the masses. You know it’s gone mainstream when you see “Tonight Show” host Jimmy Fallon fawning over it in his comedy sketch.
The oddity of the transition to EVs is that, despite their digital foundation, next-generation plug-ins are less reliant on the chips responsible for the current tumult in the global automotive sector. Those processors are mostly older configurations that convert analog signals to digital.
And that new freedom from semiconductors is Ford’s ace up its sleeve in the face of a massive, ongoing chip shortage. There are thousands of unfinished, traditional F-150s sitting at the Kentucky Speedway. They’re all just about good-to-go … other than missing the chips that control their speedometers and legacy antilock braking systems.
In a press release in February, CEO Jim Farley said the chip shortage could cost the company up to 20% of first-quarter production, or $1 billion to $2.5 billion in profits. And a Bloomberg report noted that auto sector analysts expect the shortage may last until the third quarter, resulting in 700,000 fewer vehicles sold and lost industry profits of $61 billion.
Lightning’s reveal is the reason for the disconnect between the negative projections and share prices.
Lightning represents where Ford is headed. EVs, even transitory ones that are a year away and look similar to existing ICE vehicles, represent important digital transformation at the Dearborn, Michigan-based company.
It means analysts will shift to new valuation metrics that will make the old industrial giant assessed more like a tech company: on revenue and progress toward the EV goals, rather than just earnings. Each inevitable bump is likely to be richly rewarded with higher share prices.
There is recent precedent in a different sector.
Two years ago, The Walt Disney Co. (NYSE: DIS) managers began the transition from theme parks, summer movies and sports broadcasting to subscription video on demand (SVOD).
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Their timing was perfect. One year into the new business model, the global pandemic forced the shuttering of their traditional businesses. Meanwhile, work-from-home initiatives had millions lining up for the fledgling Disney+ SVOD service.
Despite nine quarters of weaker sales and sagging profitability, Disney shares soared higher on SVOD growth.
The same metric shift is happening with Ford shares in real time.
On Friday morning, Farley noted that new orders for the Lightning topped 20,000 in only one day. Ford shares closed the session at $13.34, a near 7% gain and the highest price in a decade.
That is what hot tech stocks achieve, not old cyclicals.
Everything has changed … and investors should take note. The share price is now a reflection of new technology development metrics like EV plant conversions, partnerships for charging networks, batteries and autonomous driving.
Ford is transforming from a boring Rust Belt car company to a digital tech titan.
Savvy long-term investors should consider buying.
Best wishes,
Jon D. Markman
