Why Ford Stocks Glowing Green in a Red Market Today

What happened

As trading neared midway on Thursday, the three major indices were all firmly in the red. But one stock in particular is still glowing a comforting shade of green this morning: Ford (F 2.52%)an increase of 2.4%.

If you ask a lot of investors, it could be due to Ford’s performance at the Detroit Auto Show last night, and in particular the excitement of auto enthusiasts over Ford’s unveiling of a seventh-generation Mustang with a powerful 5- liter V-8 engine.

But there’s another reason why Ford shares are rising today and recovering from two consecutive days of stock market losses.

And then

Specifically, at the same time as Ford unveiled its new gasoline-powered muscle car yesterday, Ford unveiled a new action plan for selling electric vehicles (EVs) through its dealer network. In other words, if Ford dealers want to be able to sell Ford EVs, they must earn up to $1.2 million in updates, which include installing EV chargers at their dealerships.

This may sound like something Ford would put at odds with its dealers (and it still could). But also consider that the Biden administration plans to initially allocate $900 million in grants to build EV chargers in 35 states, and $7.5 billion in total grants through the Inflation Reduction Act.

Those subsidies will go to states — not Ford dealers — but they will still encourage sales of EVs that will help dealers use their new chargers. And both Ford and its dealers could further benefit from the government’s plans to require nearly all U.S. government agencies to buy only electric and hybrid electric cars by 2027.

What now

The news gets even better for Ford. As The Wall Street Journal reported yesterday, dealers may not like spending $1.2 million on chargers and other improvements. But Ford is also working to reduce the amount of inventory its dealers hold on their lots, which could lower their inventory costs — a dealer’s biggest operating expense.

Ford wants to move towards a business model where more of its EVs are bought directly from the company, a page of Tesla‘s playbook. This would allow the supply of its cars to better match demand, improving profitability for the company as a whole. With profit margins at Ford already starting to return to historic levels after a monstrous 2021 (with net profit margins surpassing 13%), that’s good news for investors.

Ford shares are currently trading at just 8.3 times projected 2023 earnings, and the 4.1% dividend yield alone justifies half the valuation. So I think investors are making the right decision to offer up Ford stock today.

Rich Smith has no position in any of the listed stocks. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.


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