Morgan Stanley: Ford-VW Alliance Won't Amount To Merger

The market has so far looked favorably on a budding alliance between Ford Motor Company F and VOLKSWAGEN GROUP VLKAF, but a former Ford bear offered more tempered enthusiasm Tuesday. 

The Analyst 

Morgan Stanley analyst Adam Jonas maintained an Equal-weight rating on Ford with a $10 price target.

The Thesis

A June memorandum of understanding between Dearborn and Wolfsburg revealed an intent to collaborate on light commercial vans and “other projects” — which many on the Street interpret to mean the Transit, electric vehicles, autonomous vehicles and cloud services.

Morgan Stanley expects little more.

“A full merger or ‘grand alliance’ is a long shot, in our view,” Jonas said in a Tuesday note. “The precedent for two family controlled companies of economically significant entities with substantial state influence is extremely narrow.”

Nor does the analyst forecast significant capital flow between the two competitors. (See Jonas' track record here.) 

Instead, the analyst anticipates potential resource sharing or joint development, with each party leveraging their geographic specialties for a mutual benefit.

Ford could boost VW in the U.S., while VW could help Ford in Europe, China and Latin America, Jonas said. 

“We see scope for VW collaboration to save Ford between $2 and $4 billion annually (or more),” he said. “Such savings are typically returned to the consumer.”

Recent industry headwinds could incentivize accelerated adoption of any such arrangement. In the end, though, Ford investors aren’t advised to view the VW partnership as a panacea for the blue oval's long-term problems, Jonas said. 

“Alliances can be a good thing and sharing efforts with VW can help, but we think Ford’s biggest challenges must be confronted alone." 

Price Action

Ford shares were down 0.69 percent at $9.34 at the time of publication Tuesday. 

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Ford Executive Chairman Bill Ford, left, with CEO Jim Hackett. Photo by Dustin Blitchok.