Industry Spotlight

Ford and Fiat’s share prices hit speed bumps

After starting the year at $9.26 on 2 January, Ford’s [F] share price plunged to $4.01 on 23 March, as markets turned negative on coronavirus fears. The stock has slowly recovered since then but, at $6.97 (as of 9 September’s close) it is still trading well under its 52-week high of $9.60.

Furthermore, Ford’s share price is also down 26% for the year to date.

Fiat Chrysler Automobile’s [FCAU] share price, meanwhile, started the year at €12.08 on 2 January before falling to €5.32 on 23 March. Like Ford, Fiat’s share price has recovered since then, climbing 81% to €9.61 on through 9 September’s close.

However, for the year to date, Fiat’s share price is down 28.07%.

 

 

 

Both automakers have been battered by a trio of headwinds: the coronavirus pandemic, the exceptional growth of electric vehicle (EV) rivals and accusations of corruption.

The lockdown and resulting economic downturn has reduced demand for new and used vehicles, causing factories and dealerships to close as well as disrupting major global supply chains.

Can Ford and Fiat’s share prices pull ahead, or will they remain stuck on the hard shoulder?

 

Revealing losses

In July, Ford reported a second-quarter operating loss of $1.9bn, compared with a $1.7bn profit the same time last year. Revenue fell by 50% year-over-year to $19.3bn for the quarter.

Fiat also reported a second-quarter loss of €1.5bn, compared with a €1.4bn profit this time last year, while revenues fell 55% year-over-year to €11.7bn.

Furthermore, both automakers also remain under US federal investigation as part of a multi-year corruption probe into the United Auto Workers union.

 

 

 

The companies’ woes are in stark contrast to EV maker and rival, Tesla [TSLA]. Tesla’s share price has surged this year to give it a market capitalisation of $341.3bn as of 10 September, dwarfing Ford and Fiat’s combined valuation of $46bn.

Fiat says its car sales are slowly returning to normal in Italy, with the hope that this will soon be replicated elsewhere. The main factor that will determine its future performance, though, is the proposed $50bn merger with Peugeot Citroen [UG], which would make it the world’s fourth-largest carmaker.

$46billion

Ford & Fiat's combined valuation vs. Tesla's $341.3bn

 

It says that, despite an EU anti-trust probe being launched into the deal, it will be looking to complete the merger early next year. Much is riding on the deal being a success, particularly as it will allow the two marques to pool investment into ramping up EV development.

Ford is also refusing to wait around. It is continuing the $11bn global restructuring programme it launched two years ago by cutting jobs, shutting down factories and building electric vehicles such as its first long-range battery model the Mustang Mach-E — which some analysts believe could give Tesla a run for its money.

Indeed, Ford hopes to release 40 EV models by 2022 as well as a new Bronco to take on off-road competitors.

In addition, Jim Hackett, its chief executive, is retiring in October to be replaced by COO Jim Farley.

Ford is putting wheels in motion. It just needs the economy, pandemic and consumer demand to return to the positive in order to give it the time it needs to complete its turnaround.

40

Number of EV models aimed to be released by Ford by 2022

 

Headed for the fast lane

Adam Jonas, an analyst at Morgan Stanley, is bullish on Ford, raising his rating from equal-weight to overweight and giving it a price target of $12. He believes that Ford has more room for improvement than any other original equipment manufacturer it covers, according to the Fly.

That said, Ford’s share price will continue to suffer from the consumer shift to driving less in the new normal, as well as its high debt levels, according to Larry Sullivan writing in InvestorPlace. “The stock price is cheap but there are plenty of other companies that fare better with less risk,” Sullivan states.

The consensus for Ford among those polled by MarketScreener was to Hold and analysts gave the stock an average target price of $7.19.

In the meantime, analysts seem to be backing Fiat, according to MarketScreener data, with eight giving the stock an Outperform rating and an average target price of $10.98.

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