Comment Update: Ford
We are long-term investors here at MyWallSt and recommend companies that we believe will have consistent growth for years to come. Updates are an opportunity for us to reaffirm our stance on a company while keeping you up to date on its developments. By renewing our comments with the latest information, we ensure that investors have confidence in our selections, regardless of their start date.
As I've spoken about previously, the Pandemic is functioning as a catalyst for many sectors. It isn't necessarily starting new trends but most definitely accelerating existing ones. Nowhere is that more apparent than the auto industry, which was decimated by the decrease in driving and increase in unemployment. It’s estimated that global car sales declined between 20 to 30% for the year, but in this pause for the sector comes an opportunity to restructure and highlight weaknesses within the business model.
Even before COVID-19, the auto industry was always tricky to invest in. Car manufacturing is a capital intensive business and from design to assembly, companies must spend millions before they can produce a single model. And with a highly volatile sales cycle and redesigns expected every year, profitability can be elusive and debt common.
For years it has been apparent that car companies need to find alternative revenue streams, ones not necessarily based on new car sales but rather on keeping cars on the road updated and interesting. And it would appear that manufacturers are going to borrow some ideas from Apple: enter software-as-a-service and subscription-based models. Tesla has recently announced that its Full Self-Driving (FSD) feature will debut as a monthly subscription in 2021. Eagerly following behind is Ford, which is developing FordPass, hoping to create a digital ecosystem within car ownership and produce recurring revenue. More than that, the company views FordPass as an opportunity to enter new markets through urban car share programs and electric bike rentals. Additionally, Ford is investing heavily in autonomous technology and could compete with Tesla in the coming years.
The pandemic has also represented a refinement opportunity for Ford, which finalized its complete phase-out of its sedan models in the US market. This has allowed the company to focus research and innovation on its very popular F-150 and electric vehicles. While overall car sales have slowed and oil prices have dropped, electric vehicle sales increased in 2020 and should continue to do so due to emissions caps and lower overall ownership costs. Ford's first electric vehicle, the Mustang Mach-E, will debut in 2021, which will be an important measure of the company's technological capabilities and public opinion. This will be followed by an electric F-150 and transport van, providing a wide base of potential customers.
Ford is changing its identity, evolving to be more than a manufacturer. It will be interesting to see if this pivot pays off and helps the company move towards stable growth.
We have updated our comments on Ford to reflect their new strategy. You can check it out by clicking on the stock icon below.