Henry Ford invented the automobile assembly line a century ago and his company has been a major automaker ever since. But, how about today? Is Ford a good or bad investment as carmakers need to invest hundreds of millions in new technologies or fall by the wayside? This thought came to mind as we read an article in The New York Times about how Ford and VW are set to cooperate in developing both electric and self-driving cars.
Battery powered, self-driving cars have the potential to eliminate tailpipe emissions and avoid accidents caused by human error. But a rapid shift toward these technologies could be perilous for established carmakers like Ford and Volkswagen.
They must invest hundreds of billions of dollars in coming years or risk becoming irrelevant. And they face new competitors like Google and Uber with access to enormous financial resources. Investors have been much more willing to back Silicon Valley companies than the dinosaurs of Detroit or Wolfsburg, where Volkswagen is based.
Car sales are going down everywhere. This is because cars are more complicated to make and thus more costly to produce than even. Even streamlined assembly processes with lots of robots cannot make automobiles affordable for many people. Detroit’s first response was to lease cars which they have been doing for years. But, now it is so easy to rent a vehicle, even for a few hours, that many folks in cities only use an auto for family vacations and pay for the use of a car for a few hours for weekend shopping.
The end result, if nothing else were going on in the auto industry, would be fewer cars being sold. But, the story is more complicated. Self-driving cars and electric cars are truly the wave of the automobile future. Those who get there first with the best technology will win and others will, painfully, fade away. We recently asked if it is time to invest in GM as they seem to be coping with the issue. But, how about Ford. Is Ford a good or bad investment today?
Investing in Ford
Today Ford stock trades for just over a dollar a share. If you bought a share 40 years ago in 1979 you paid about $1.79 and you purchased that share in 1981 you paid about $0.81 so today looks pretty good. On the other hand, Ford traded for $34.79 in May of 1999 and traded in the $17 range as recently as the summer of 2014. Then, your $10 for a share does not look so good. Ford, like GM, has thrived over the last decades when gasoline prices were low and they could sell lots and lots of high-end pickups and SUVs. Those vehicles with their healthy profit margins were life-savers. But, when times change, profits go away. And, now the world is changing.
Earlier this year we asked how to invest in artificial intelligence. In that article we looked at how AI can be applied to products that we use in the real world. Self-driving cars are a prime example but companies like Waymo (Alphabet subsidiary) are more likely to attract investment capital than the “Detroit Dinosaurs” like Ford, GM, or Chrysler.
A serious problem for Ford, as well as other large automakers, is that they will need to find the capital to continue funding research in high tech vehicles at a time when more and more people are just using Uber or renting cars by the hour.
We leave it for you to decide is Ford a good or bad investment but from our perspective, the venerable automaker has its work cut out for itself.