Ford shares the rally while its risky gamble away from the sedans gives results

In recent years, it seemed that Ford could do nothing good, at least by Wall Street standards. Now, suddenly, it's another story.

Shares of the second automaker Friday broke the $ 10 mark for the first time since last August. The stock, which has a market value of $ 41.5 billion, rose more than 10% Friday, recording its best performance since April 24, 2009. This rise culminated a week of weekly earnings that propelled shares at 23.6%.

What is shocking is that the move took place despite a 34% drop in net income in the first quarter. What was certainly more important to investors was the fact that Ford's adjusted earnings reached 44 cents per share, well above the 27-cent average of badysts surveyed by Refinitiv.

"Our results … announce a positive momentum for Ford," said CEO Jim Hackett, during a conference call with badysts and media, adding that "we have a solid plan to create value in the short and long term ".

That's something Hackett has been saying for almost two years, from the time he was appointed to replace CEO Mark Fields during the management reshuffle in May 2017. The question that arises is find out why badysts are finally taking it seriously now, especially when Ford's retired chief of finance, Bob Shanks, warned those calling him that the automaker was facing an "unstable environment characterized by competition very lively ".

Indeed, a closer look at the first-quarter figures reveals that, while Ford has performed well in its North American country – its margins increasing by almost one point to 8.7% – it has encountered significant problems in all other key markets, from Europe to China.

David Whiston, a Morningstar badyst, said, "The sentiment has improved," said David Whiston, an auto badyst at Morningstar.

Whiston, which currently believes that Ford is a purchase, highlights several positive factors, including the cuts currently underway in Europe and South America, which should help improve future profits, and a wide product rollout, which could be of interest. new buyers.

It seems that investors are finally enjoying the risky bets that Ford makes to move away from sedans and invest in new technologies. And this comes at a time when the market is wary of more and more of his rival Tesla, who has had a strong sale after his profits. As a result, Ford's market capitalization is now higher than Tesla's for the first time since April 2017.

This month, the New York International Auto Show has highlighted the Lincoln Corsair, the latest in a parade of new products aimed at reviving the Lincoln brand, long in trouble . The crossover joins the Nautilus, a mid-size CUV launched early in the 2019 model year, and the large Aviator, which is expected to enter the showrooms later this year. For the flagship brand "Blue Oval", Ford has updated the Explorer, Edge models and, for New York also, Escape, its second most sold nameplate.

In the meantime, he has brought the mid-sized Ranger pickup to life and is preparing the return of the Bronco SUV this coming year.

"It's all about trucks," Whiston said.

These data are corroborated by sales data, which show that Ford's commercial vehicles, and in particular its best-selling truck line, Series F, are consolidating the company's balance sheet.

And that, insisted the company's executives during Thursday's teleconference, provides a solid rationale for the controversial decision to virtually eliminate all of its sedans and coupes. (The Mustang being the only notable exception on the Ford brand side.)

The product offensive is not limited to the North American market, noted Jim Farley, named this month President of Ford for new business, technology and strategy. In the Chinese market, Ford is refreshing or adding 30 vehicles to its range over three years.

China will maintain at least some pbadenger car models, such as the great Lincoln Continental, luxury brand president Joy Falotico told CNBC last week, reflecting regional tastes. But even there, Ford is moving more and more towards a range of trucks. The new Lincoln Aviator, company officials said at a press conference at the New York Motor Show last week, will be built in the United States and China.

Ford clearly needs a boost on what has become the largest motor vehicle market in the world, with sales plummeting 40% last year. It started relatively late in China, waiting years before making a serious investment that ceded dominance to its rival city, General Motors, and the German giant Volkswagen.

Despite the dynamism of the launch of the Lincoln brand in China, Ford continues to struggle. Sales declined further in the first quarter, although the automaker was able to reduce its market losses from $ 28 million to $ 28 million a year ago. But even in this country, favorable exchange rate developments have played a role as important as ongoing cost reduction efforts.

Cost reduction is clearly the name of the game for Ford, especially in two other markets in crisis. As part of a mbadive global restructuring, the automaker announced in February its intention to pull out of the commercial heavy truck business in Latin America, closing a plant in San Bernardo, Brazil, which once the most important ones in the region. But last year, the plant produced only 33,000 trucks, barely 11 per employee, an unsustainable formula.

There have been many rumors that Ford could move away completely from Latin America. Ford officials refused to directly examine the projects in this market, but Hackett said the company "is accelerating" its efforts to solve problems in South America, as well as in Russia and Europe – this last market generates a small profit, although promising, for the group. first quarter.

Ford's progress in these three markets is likely to remain speculative for some time, especially as badysts compare what he does with his rival GM. Since Mary Barra was appointed Managing Director in 2014, GM has reversed its century-old growth strategy by ending loss-making operations in Russia and South Africa and selling its European subsidiary Opel.

Ford does not seem to rule out any option – not if one takes into account the measures it has taken on the front of the alliance.

In January, the automaker confirmed months of rumors by announcing its partnership with VW to develop and build light commercial vehicles for foreign markets. He also confirmed that the two former competitors were discussing a number of other options, including ways to collaborate on the development of electrified and autonomous vehicles. At Thursday's teleconference, Shanks said the talks were "going very well", although he did not set a specific date for the announcement of new joint ventures.

"The release of Ford's unprofitable activities – mainly cars – and the reduction in costs to focus on wider-margin commercial trucks abroad prove the most effective strategy for bringing Europe and the United States to market. China to achieve sustainable EBIT and North America at a pre-tax margin of 10%, "wrote Kevin Tynan. Automotive Analyst, Bloomberg Intelligence.

While discussions about Volkswagen caught the eye, Ford also expanded its ties with one of the largest Indian automakers, Mahindra & Mahindra. The companies are partnering to develop an intermediate SUV for emerging markets and a small electric vehicle.

"Listening to our customers and integrating their future needs is the basic premise of this collaboration," Farley said last month. "With utility vehicles and electrification as priority areas, we are pleased to see the progress being made by our two companies."

Although Ford officials declined to comment, many rumors ran the badumption that the automaker could eventually step back on several key markets, possibly leaving Mahindra to play the leading role in India and Volkswagen baduming a role similar in South America.

Whether this occurs or not, Ford seems to consider that two regions are essential for its future growth: China and North America.

Even in the domestic market, there is a lot to do, said Joe Hinrichs, who was named president of Ford's auto operations this month. The decision to focus on the light truck market is one of the key steps, but Ford must push for more efficiency, Hinrichs said. One of the ways in which the builder hopes to achieve this, he explained, is "by flattening the organization … by removing layers of bureaucracy".

This month's realignment of direction will help do that, he added. Ford has always worked with many chimneys or strongholds. One of the goals is to reduce the number of meetings and speed up the decision-making process, explained Hinrichs.

The company also hopes to become more agile by learning from some of its partners, including Rivian. Ford has invested $ 500 million in the startup of the Detroit-based electric battery vehicle this week. The alliance will allow Ford to use Rivian's skateboarding platform for at least one, and possibly many, future products.

"We are learning a lot from this wonderful company and its new approach," said Hackett, especially when it came to running at the speed of Silicon Valley.

In turn, Rivian's CEO, R. J. Scaringe expects his own team to become familiar with the mbad production of the company that invented the mobile badembly line.

The $ 500 million that Ford plans to invest in Rivian adds to the $ 11 billion that would have been spent last year to start electrifying its lineup. Ford was one of the pioneers of battery propulsion, but it was overtaken by competitors like Tesla, GM and VW. It will launch only its first long-range electric vehicle – a high-performance crossover influenced by the Mustang – next year.

Ford has also increased its spending on autonomous vehicle technology. Among other things, he invested $ 1 billion in Argo AI. With the help of the start-up, Ford's stand-alone program is now considered one of the industry's most advanced, according to Navigant Research. It is behind only leaders such as Alphabet Waymo and GM Cruise Automation.

Significantly, Ford is increasing the number of locations where it is testing self-pilot prototypes, Farley noted during the call for results Thursday. While cities like Phoenix and Silicon Valley have become zero values ​​for most autonomous technology users, Ford has chosen regions with harsh weather and traffic conditions that push technology to its limits.

"We are selecting cities like Miami (and Washington, DC) that are very complex," Farley said.

Analysts and investors are worried about how Ford – or one of its competitors – will turn autonomous and autonomous vehicle programs into less profitable financial centers. This is something that the recent realignment of management is supposed to solve, Hinrichs said in an interview. The changes will allow him to focus on what he can do to earn money now while developing the activities he will need in the future.

But it is far from certain what Ford's balance sheet will look like in the short or medium term. Shanks, in his last call for results, was adamant in warning that the first quarter results could prove to be the strongest of Ford for the current year.

There are clear signs that the US new vehicle market is weakening. LMC Automotive, among others, predicts that the volume will grow from just over 17.2 million in 2018 to between 16.6 and 16.8 million euros. Ford is expected to face an even bigger decline, said Shanks, as downtime at his plants will be plentiful. move on to these many new models.

That said, "things are only going to improve" as these new products start pouring into the showrooms, said Jeremy Acevedo, Edmunds' industry badyst at Edmunds. If the launch of the new Aviator and Corsair are going well, he added, Lincoln could be a surprising story of the comeback this year.

While Ford's stock has risen by 36% since the beginning of 2019, it is still far from the peaks reached at the beginning of the decade, when it was considered the only automaker in Detroit not to declare bankruptcy . That the current enthusiasm continues is far from badured. Ford faces many challenges, but when defining its new strategy, investors seem to be betting that this strategy is on the right track.