When Ford (F) announced its ambitious and aggressive electric vehicle strategy, the stock rallied to multi-decade highs. Shares traded at almost $26 before suddenly plunging. Chances are high that the selling will intensify.
Ford’s EV strategy will cost it billions. Its first-generation MACH-E and F-150 electric must have no quality issues that will damage its reputation. For the last few decades, Ford’s poor reliability and low quality hurt customer retention. It also punished investors who had to endure recall costs that ate profits.
Ford resumed its dividend, which will increase shareholder returns. Yet it must protect its cash flow growth while investing in EV infrastructure. Tesla is the leader in the EV market. Ford is late in entering the market. This suggests that Ford will need to spend aggressively on advertising to build brand awareness for its EVs.
Ford also needs to win back customers who owned poor-quality gas-powered vehicles. It may prove that its EVs are more reliable and better priced than that of a Tesla model. This effort will cost money and will take time. Markets have a short attention span and may not want to wait.
Ford’s forward P/E of around 10 times will cushion the stock’s drop. Furthermore, the company might post a strong earnings report next month that boosts investor confidence.
