Renowned automaker Ford Motor Co. (F) recently decided to stop its $3.5 billion project to construct an EV battery plant in Marshall, MI. This decision wasn’t a simple one to make and was influenced by financial challenges caused by the autoworker strikes and mounting political pressure from lawmakers.
Earlier this year, Ford unveiled ambitious plans for the plant, aiming to employ 2,500 workers dedicated to producing EV batteries. F‘s choice to collaborate with the Chinese giant, Contemporary Amperex Technology Co. (CATL), the world’s largest battery manufacturer, was a significant factor in its plans.
However, there have since been allegations of CATL being involved with forced labor, which saw Ford (F) catch heat from Congress. The U.S. government had already passed legislation that deemed imports from China subject to verification that they were, or are, NOT associated with forced labor.
With this not only being a socio-political issue but a financial burden, it’s natural for investors to wonder how this will affect Ford’s stock in the near future. Let’s explore this together…
While CATL claims to have rid itself of all its holdings in Xinjiang, a region of China where forced labor is known to be a widespread problem, committee investigators maintain that the company still has ties to mining activities in the area. Ford Motors (F) has clarified that it isn’t procuring materials from CATL but is solely utilizing its technology. Additionally, the U.S.-based automaker has expressed its intention to collaborate with CATL to address human rights issues through its supply chain.
T.R. Reid, a spokesperson for Ford (F), conveyed the company’s stance, stating, “We are pausing work and limiting spending on construction on the Marshall project until we’re confident that we’ll be able to competitively operate the plant.” He also emphasized, though, that a final decision has not yet been made.
In response, Rep. Mike Gallagher, chair of the Select Committee on the Chinese Communist Party, welcomed F‘s decision to reevaluate its partnership with CATL and suggested that it should reconsider the entire Marshall plant project due to CATL‘s alleged ties to forced labor.
The situation has also been on the Senate Finance Committee’s radar. It’s had no problem scrutinizing Ford and other Western automakers for their relationships with Chinese firms (in the context of forced labor in the auto industry).
However, some lawmakers caution against prematurely passing judgment or reacting unreasonably, arguing that it could jeopardize a facility that is pivotal in helping the U.S. compete with China in EV production and bringing much-needed manufacturing jobs to the state of Michigan. These developments come at a time when UAW (United Auto Workers) members are on strike at a Ford plant in Michigan.
President Joe Biden has expressed significant support for the UAW members and the strike’s cause, going so far as to show up at the plant and actually join the workers on the picket lines. This is something that, at least as far as records can tell, has not been done before by a sitting U.S. President.
F had previously underscored the importance of collaborating with CATL with its ambitious global expansion plans for electric vehicle production. However, this relationship is now under a microscope, being watched closely by congressional investigators as policymakers debate which vehicles —
particularly those incorporating Chinese technology — should be eligible for the tax incentives provided by the Inflation Reduction Act, aimed at promoting EV production in the U.S.
This whole situation certainly presents an interesting dynamic for investors to monitor closely, given the potential implications for F‘s future endeavors in the EV market—how ambitious will they be? For now, let’s at least take a look at how the stock has been performing:
F is currently up year-to-date by 6.96%, yet comes with reasonable pricing as it trades between the bottom and middle of its existing 52-week range. With a positive ROE (return on equity), momentum growth, and asset growth on a TTM (trailing twelve-month) basis, F carries an operating free cash flow of $12.82 billion. F has a PEG (price/earnings to growth) ratio of 0.65x, a forward P/E (price to earnings) ratio of 6.33x, a P/S (price to sales) ratio of 0.3x, and a P/B (price to book) ratio of 1.15x. F has a 4.83% annual dividend yield, with a quarterly payout of 15 cents ($0.60/year) per share and a 58.35% payout ratio.
For its Q2 2023 earnings call, F reported an EPS of $0.72 per share vs. $0.54 per share, beating analysts’ estimates by 34.28%, and revenue of $42.43 billion, which was over $1 billion more than what the analysts projected (a 2.68% win). F also reported year-over-year growth in revenue (+11.85%), net income (+187.41%), EPS (+193.75%), and net profit margin (+156.63%). For Q3, F is expected to post $44 billion in sales at $0.36 per share, with a 3-5 year EPS growth rate of 15%; the firm is scheduled for October 25th. With a 10-day average volume of 48.35 million shares, F has a median price target of $14.80, with a high of $23 and a low of $11, representing the potential for an upside potential of nearly 85%.
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