Morgan Stanley Underwhelmed By Volkswagen's Valuation Of Ford Mobility Unit

Ford Motor Company F hyped investors last June by announcing a Volkswagen partnership. Now, that tie-up has become a drag.

The Rating

Morgan Stanley analysts Adam Jonas, Harald Hendrikse and Armintas Sinkevicius maintained an Equal-Weight rating on Ford with a $10 price target.

The Thesis

The analysts were cautioned by Volkswagen’s reported valuation of Ford’s mobility business. Volkswagen is preparing to take a 50-percent stake in Argo AI with a $600 million equity investment. A $1.1 billion investment in working capital and R&D will follow.

“VW’s reported valuation of Ford’s robotaxi business, while in line with our $1 billion valuation in our SOTP model, is well below many other market estimates, far below GM Cruise, and we believe potentially well below Ford’s expectations for the value of the business,” the analysts wrote in a note.

The rate falls short of the partners’ previously discussed valuation nearing $4 billion, according to Bloomberg. For further comparison, Morgan Stanley values GM Cruise at $9 billion.

“If true, a $1.2 billion value for 100% of Argo would mark a ‘calming down’ moment for investor excitement around the value of autonomous car assets,” the analysts wrote.

To Morgan Stanley, Volkswagen’s investment also demonstrates the limits of Ford’s partnership.

“As our European team expected, the WSJ article suggests VW did not want to invest significant capital into a business it didn’t have full or joint control over,” they wrote. “...There had been a great deal of hype and high expectations for Ford and VW on numerous strategic fronts (CVs, EVs, SVs,and AVs) that overall has not appeared to live up to the bar set by the market.”

Price Action

At time of publication, Ford shares traded down marginally at $8.80.

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