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Why Ford, GM and Lordstown are sharing everything in February


What happened

Ford Motor Company (NYSE:F) and General Motors (NYSE:GM) have been working to make people increasingly see them as viable competitors in the EV market. The problem for shareholders is that investors have treated them that way so far in 2022. Alongside many pure electric vehicle names, Ford and GM shares have plunged 19% and 28%, respectively, since the beginning of the year.

It’s not as bad as the stocks of some start-ups, including Lordstown Engines (NASDAQ: RIDE), which has its own company-specific issues. But stocks of all three had similar returns last month. Shares of Ford, GM and Lordstown were down 13.5%, 11.4% and 14.3% (respectively) in February, according to data provided by S&P Global Market Intelligence.

A generator from a Ford F-150 Lightning charging a Mustang Mach-E. Image source: Ford Motor Company.

So what

Each of these automakers released their fourth quarter and full year 2021 results during the month of February. And the news wasn’t all bad for Ford and GM. Ford increased revenue by 7% for the full year 2021 and returned to profitability from a pandemic-hit 2020. GM also increased revenue and earnings in 2021, but expects earnings to be relatively flat for 2022. But investors are focused on the two companies. transitions to electric vehicles, as many new models are about to be launched.

Now what

Ford plans to be aggressive in its shift to electric vehicles. The company said it aims to double its global capacity to manufacture electric vehicles, to more than 600,000 units per year, by 2023. By 2030, it aims for fully electric vehicles to account for at least 40 % of its product line. Ford announced that it would restructure the company to separate its electric and internal combustion businesses.

While many on Wall Street praised the plan and the exposure investors will have in each specific division, some were skeptical of Ford’s announced profitability targets. The company said it not only plans to produce 2 million electric vehicles a year by 2026, but also expects its operating profit margin to increase to 10% by then. This would represent an increase of 270 basis points compared to 2021.

GM expressed similar optimism for its EV business, but was widely followed Morgan Stanley Analyst Adam Jonas is skeptical of the ability of traditional automakers to achieve their goals. He thinks they will face supply chain challenges, including access to enough raw materials. Jonas said he wouldn’t expect Ford to meet even half of its EV production and operating profit margin targets by 2026.

Startups like Lordstown face different kinds of challenges. With Lordstown shares down nearly 90% in the past year, many investors are unconvinced the company will survive, let alone thrive.

Currently, these stocks are unpopular with investors for a variety of reasons, and February’s decline continued into March. Market sentiment toward established automakers doesn’t show much hope that a name like Ford can reinvent itself as an electric vehicle company, which has driven the recent declines.

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Howard Smith has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

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