Morgan Stanley wonders how long Ford’s (F) ICE business can cover EV losses; Reiterates Overweight ahead of strategy day

March 17, 2023 8:04 AM EDT
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Morgan Stanley reiterated an Overweight rating and $14.00 price target on Ford (NYSE: F) ahead of the automaker’s Strategy Day.

Next Thursday Ford will host a ‘teach in’ where it will share details of its new segment and financial reporting as well as a Q&A session with their CFO and Controller.

The automaker is expected to forecast its electric vehicle business by reiterating its previous stated views of the company capacitizing to 2M units of EVs by the end of 2026 with positive 8% type margins thereafter. Based on Morgan Stanley’s discussions with investors, such targets will be seen as a highly aspirational bull case. More of a theoretical 'goal' than a conservative forecast.

Morgan Stanley also expects the automaker to preview large losses in the EV sector, and large profits from gas powered vehicles. Analyst Adam Jonas expects Ford’s Model E to have gross margins in the negative 10-20% range with Adjusted EBIT margins in the negative 20-30% range. However, the more negative the EV performance the more positive the ICE profit, in Jonas’ view. Jonas believes the teach in should confirm Morgan Stanley’s view that Ford's ICE business is highly cash flow generative and currently funding their EV business.

Jonas wrote in a note, “Ford will give the market a better glimpse at the scale of losses within its EV biz while showing the significant cash flows of the ICE business. Investors must ponder how long the latter can fund the former as margins fall and cost of capital rises.”

Shares of F are down 0.34% in pre-market trading on Friday.

By Michael Elkins | [email protected]

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