Ford Releases Big-Picture Strategy: 5 Things To Consider

Ford Motor Company F has finally shed light on its restructuring strategy, but its Thursday report inspired ambivalence in a newborn bull.

The Rating

Morgan Stanley analyst Adam Jonas, who double upgraded Ford on Wednesday, reiterated an Overweight rating with a $15 price target.

The Thesis

Jonas was encouraged by the standard integration of advanced driver-assistance systems — a strategy he said brings Ford on par with competitors — as well as the shift from cars to pickups and SUVs, which are projected to account for 86 percent of Ford’s U.S. sales by 2020.

“From this perspective, Ford’s retail channel passenger car business would be nearly irrelevant,” Jonas said in a Friday note. “This suggests a positive mix trend and also suggests a great deal of competition and crowding headed to the currently profitable U.S. light truck segment.”

The hybrid bear was less enthused about Ford's push toward hybrid powertrains, which “makes products more vulnerable to obsolescence risk.”

The analyst considers hybrids a temporary bridge from internal combustion engines to electric vehicles that will be obviated throughout the 10-to-15-year powertrain transition. Those remaining at the turn of the trend will suffer regulatory targeting for their tailpipe emissions, he said.

“Why would a consumer pay up for a hybrid today when a pure EV solution may be just one or two engineering cycles away?” Jonas said. The analyst expects hybrids to comprise just 5 percent of Ford sales volume.

Morgan Stanley’s mixed interpretation was further confounded by Ford’s “platitudinous” plan to standardize all vehicles with 4G LTE connectivity by 2020. How this offering will differentiate Ford and be monetized are unclear.

CEO Jim Hackett's announcement that Ford's 8-percent profit goal margin "now has upside" is largely unsubstantiated, Jonas said.

“Given Ford has yet to announce a transformational restructuring plan,has yet to even disclose its fitness teams to investors and that it is still very early stages in securing fundamental financial fitness for the core business, we believe commenting on the achievability or conservativeness of long-term margin targets is premature."