Forbes Business

Ford isn’t Tesla yet and shouldn’t be trading like an electric vehicle stock, Jefferies says

It’s too early for investors to value and trade legacy automakers such as Ford like electric vehicle stocks, according to Jefferies analysts who recently downgraded shares of the company warning that there is limited upside ahead.

 

Key facts

Surprising fact

Shares fell nearly 8% on Wednesday after Ford disclosed that the $900 million gain from its investment in recently public electric truck maker Rivian will not be included in full-year financial results. The company essentially revised guidance on annual revenue slightly lower because of an accounting change related to the timing of Rivian’s IPO in November.

 

Key background

Ford shares have still risen roughly 230% since auto industry veteran Jim Farley took the helm in October 2020. Beyond helping fix the company’s balance sheet, Farley’s ongoing Ford+ restructuring plan, which focuses more resources into electric vehicles, has been cheered by investors and analysts alike. Ford sold over 27,000 electric Mustang Mach-E vehicles in 2021, while it’s fully electric F-150 pickup truck will begin shipping to customers soon. Amid higher than expected demand for its F-150 Lightning, Ford has already had to double production goals for the vehicle several times in recent months.

 

Crucial quote

“We think it is premature to re-rate legacy [auto manufacturers] for their electric vehicle progress since earnings remain mostly driven by cyclical shortages, returns remain within historical norms and the EV transition is largely a zero-sum-game initially,” according to the Jefferies analyst.

 

What to watch for

Jefferies likes several other automakers that the firm thinks provide more upside for investors looking to capitalize on the transition to electric vehicles. Houchois sees Stellantis, formerly known as Fiat Chrysler, as the “legacy catchup” play and has a “buy” rating on the stock. He continues to see Tesla as the “industry threat,” however, assigning Elon Musk’s electric vehicle maker a “buy” rating and price target of $1,400 per share—implying 35% upside from its current levels.

 

Tangent

After the recent downgrade from Jefferies, less than half of Wall Street analysts covering Ford give the stock a “buy” rating. The average analyst price target is around $22 per share—slightly below where the stock is currently trading.

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