Ford Faces A Titanic Perspective While Tesla Reaches The Moon

Ford Motor Company's (NYSE: F) fourth quarter was not a good one. Stock sharply lowered on Wednesday, after the company reported earnings that fell short of expectations and gave weak guidance for the year ahead. Shares plunged 9 percent after results

Benzinga · 02/07/2020 16:14

Ford Motor Company's (NYSE: F) fourth quarter was not a good one. Stock sharply lowered on Wednesday, after the company reported earnings that fell short of expectations and gave weak guidance for the year ahead. Shares plunged 9 percent after results were announced on Tuesday after markets closed.

Fourth Quarter Earnings Report

Operating income has fallen by two thirds, as it slipped 67 percent due to higher costs of new product launches and new labor agreements. The company did warn investor that it will have a one-time charge due to pension plans. It totaled $2.3 billion. An additional $400 million were devoted to restricting efforts across continents, namely Europe, South America and China.

Speaking of China, which seems to be always trending in one way or another for investors, impact of Coronavirus was not addressed nor taken into account for the 2020 guidance. Adjusted earnings were 12 cents per share versus 15 cents per share expected from a revenue of $36.7 billion versus $36.49 billion expected. Overall, the company lost $1.67 billion during the fourth quarter.

New warranty issues in addition to existing ones, raised costs and damaged the bottom line. Again. And this is $1.6 billion worse comparing to the same quarter last year. 67 percent is also the decline of adjusted free cash flow comparing to 2018's fourth quarter.

2019 Results

Revenue declined 3 percent, adjusted EBIT 8.6 percent and despite no change in free cash flow, net income is $3.6 billion worse. On a rare bright note, for the full year, Ford Europe showed great a big improvement since its $398 million loss in 2018, as it lost $47 million.

Also for China, reduced structural costs and improved results from joint ventures with Chinese automakers resulted in loss of $771 million, versus a $1.55 billion loss in 2018. South America was slightly worse than last year but the Middle East and Africa region lost $141 million whereas in 2018, it lost ‘only' $7 million. But at least credit metrics remained solid as Ford Credit earned $3 billion in 2019 which is up from $2.6 billion in 2018.

And There's The Undergoing Restructuring

In 2019, Ford supposedly spent $3.2 billion on its restructuring in 2019, with $900 million being in cash. As for 2020, it expects to spend an additional $900 million to $1.4 billion, including between $800 million and $1.3 billion in cash.

Competitors

Not only Ford, but Detroit giant General Motors Company (NYSE: GM) is also facing slowing demand as Tesla Inc (NASDAQ: TSLA) is taking the stage. On top of that, GM's last year earnings were crippled with a 40- day strike. Tesla is now getting bigger than Ford, General Motors and Fiat Chrysler Automobiles (NYSE: FCAU) combined with market cap of climbed to about $160billion, but still short of Toyota Motors' (NYSE: TM) +1.46% market cap, which is currently at $233.5 billion. It has been officially admitted: there is the auto market and there is the Tesla market.

And guess what, if Musk was to liquidate all his assets, he can actually buy all the outstanding shares of Ford and have a nice chunk of GM aside! Yes, believe it or not, Tesla's roughly $160 billion valuation is nearly five times that of Ford. And who knows, it could even be General Motors in a few days as no one has managed to figure out the phenomenon of Tesla stock. Never mind that this is still not a sustainably profitable company as it did lose money for the year as a whole and makes one car for every 30 produced by its-soon-to-be neighbour in Germany, Volkswagen (OTC: VWAGY). Tesla is climbing to astronomical valuations with some arguing it should not be viewed as an auto but rather a technology company.

Whichever the case, the electric car pioneer possesses massive potential for revenue growth over the coming years. And its stock is already a phenomenon. And none of that is good news for Ford, which has a lot of internal deficiencies to mend.

Intellectual Property Is The Way Forward

Millions of people have been reached and some players even preordered Tesla's Cybertruck. But investors shouldn't forget about the benefits that this trend will also bring to specialized vehicle equipment market, trucks specifically. For example, Franchise Holdings International Inc., (OTC: FNHI) parent of Worksport Ltd which produces light truck tonneau covers generating electricity from solar energy, has reached yet another major intellectual property milestone in January. Its portfolio of intellectual property has been rapidly expanding for several years as the company now has four trademarks all over the world, with two each in Canada, the U.S. and one pending in China. And the auto market is embracing all these kinds of sustainable developments that, in a way, Tesla has triggered when it pioneered with electric cars.

What's In It For Ford

Not a good quarter for sure, but things are not getting better anytime soon as guidance for 2020 was also weaker comparing to what analysts had expected. The CEO Jim Hackett described this time as the company being ‘at a crossroads' with its $11 billion global restructuring plan well under way. But the reality is that with its latest quarter, Ford took another massive write-down, hurting shareholder value, showing poor execution and weak outlook. Many would surely love being in Elon Musk' shoes right now and surely not in those of Ford's James Hackett.

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