The electric Ford Mustang Mach-E, foreground, and the Ford Explorer hybrid.
David McNew/Getty Images
The semiconductor shortage constraining global car production has pestered auto makers—and auto investors—all year. Production is stagnant while postpandemic car demand is soaring. It’s fueling volatility in the sector and holding back shares. Things for one auto maker, however, are looking up even as the shortage continues.
Benchmark analyst Mike Ward argues that Ford Motor (ticker: F) has turned a corner in its own battle with chip shortages. “While the chip shortage will likely remain an issue into 2022, the worst could be over for Ford,” he wrote in a Wednesday research report.
Ford has been hit harder than many other auto makers, missing an estimated 200,000 units of production so far in 2021, according to Ward. That’s about 14% of Ford’s potential 2021 production. The entire industry has missed out on roughly 7% of planned production because of a lack of microchips.
Ford shares were up fractionally in recent trading, at $12.96.
“Several unfortunate events hit Ford at the same time,” Ward tells Barron’s. “Covid hit when the company was launching the Mach E /Bronco and about to launch the new F-150.” What’s more, Ford was overexposed to Renesas Electronics (6723.Japan)—the chip supplier that suffered a fire earlier in 2021.
Things look as if they are improving. In August, Ford’s dealer inventories rose by 50,000 units, hitting about 191,000 vehicles. That’s still below normal. Low dealer inventories have been a problem for auto makers—because of the chip shortage—all year. Still, August vehicle production hit about 93% of planned production, reaching its highest monthly production total since July 2020.
Ford’s recovery is doubly good for Ford stock in two ways. Higher production helps is great. But Ford will make more trucks, which are its most-profitable product. Ward estimates that trucks account for 85% of Ford’s pretax profit in North America. “If the impact from the chip shortage can be contained, [Ford] North American operations should report record financial results,” he wrote.
Ward is a Ford bull, rating shares Buy. His price target is $18 a share. Ward projects the company will earn about 58 cents a share in the third and fourth quarters of 2021 and about $1.80 a share in 2022. That’s roughly in line with the rest of the Street, but if things keep improving, he sees up to 40 cents a share in additional 2022 earnings.
Since GM reported second-quarter numbers and gave financial guidance on Aug. 4, its shares are down about 16%. Ford stock is off 8% since then, and shares in auto parts giant Magna International (MGA) are down 5%. The S&P 500 is up about 2% over the same span.
The GM disappointment has eaten into year-to-date gains for the sector. GM stock is still up about 17% this year, though Ford stock has done better, gaining about 47% so far in 2021.
Write to Al Root at [email protected]
