Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Ford could dominate Electric Trucks and lose Money

Strangely Ford could dominate electric trucks and lose money at the same time. To explain, Ford (NYSE: F) is attracting a lot of attention with a video of an electric F-150 pulling a train.

In the video an all-electric F-150 pulls a 1.25 million pound train while a group of working men in baseball caps watch. The video is a great marketing gimmick, but the stunt is hardly impossible or original.

To clarify, they design trains to be easy to tow. Thus, small locomotives; and even human-powered hand cars, can pull huge trains for short distances. Notably, transit agencies like Denver’s Regional Transportation District (RTD) use trucks to pull heavy light-rail cars and trains all the time.

Plus Road and Track does a great job explaining the physics behind moving a huge load on steel wheels and rails. The stunt is like a magic trick it looks stupendous, but there is nothing extraordinary going on.

How Ford’s Marketing Genius will Rule Electric

Ford’s video is a brilliant marketing ploy because it shows that all-electric trucks are “real trucks that do real truck stuff.” Moreover, it appeals to less-educated working guys who will not care about Climate Change or the environment.

This could give Ford an advantage because it has street cred in Middle America; and middle Canada, unlike Tesla Motors (NASDAQ: TSLA) and the startup Rivian. Importantly, Ford demonstrates it has a working electric pickup, while Tesla’s “cyberpunk pickup” is still on the drawing board.

I think Ford’s marketing genius gives it the advantage in electric trucks. Impressively, Ford sold 214,511 F-series pickups in the first three months of 2019, The Detroit Free Press estimates. Consequently, the Free Press claims the F-series “brand” is worth $50 billion.

Ford Ignores F-150 Critics

Specifically, Ford sold 909,000 F-Series pickups in the United States in 2018, with an average price of $46,700. Moreover, the Free Press estimates Ford made $50 billion from F-series sales in 2019.

Interestingly, Ford’s marketers think the F-150 is so popular, they decline to respond to General Motors’ (NYSE: GM) well-publicized attacks on the vehicle. Incidentally, all new F-150s will go partially electric next year with a new hybrid powertrain. Features of the powertrain could include a generator to power tools on the jobsite for workers.

Ford needs to up its game because Rivian is taking preorders for its R1T electric pickup. Rivian claims the R1T has a range of over 400 miles on a charge, and can from 0 to 60 miles per hour (MPH) in three seconds. They design the stylish R1T will off road capabilities and such amenities as flexible crossbar system.

Is Ford Losing Money?

Ford is having some problems despite the F-Series success. Its’ quarterly gross profit fell from $4.045 billion on 31 March 2019 to $2.815 billion on 30 June 2019, for instance.

In addition, Ford’s quarterly revenues fell from $40.342 billion on 31 March 2019 to $38.853 billion on 30 June 2019. Notably, Ford’s revenue growth fell during the first two quarters of 2019. In the first three months of the year, revenue growth fell by 3.85%, in the second quarter revenue growth shrank by 0.17%.

Dramatically, Ford’s operating income fell from $1.203 billion on 31 March 2019 to $90 million on 30 June 2019. In addition, the quarterly income fell from $1.146 billion to $148 million during the same period.

Ford is not losing money, but it is certainly making less money. Yet, the company is generating more cash than ever.

Ford is generating more Cash

For example, Ford’s operating cash flow grew from $3.544 billion on 31 March 2019 to $6.463 billion on 30 June 2019.

Meanwhile, the free cash flow jumped from $1.911 billion to $4.543 billion. In contrast, the financing cash flow fell from $1.873 billion on 31 March 2019 to -$2.681 billion 30 June 2019. Plus, the investing cash flow fell from -$1.334 billion to -$2.49 billion.

Thus, Ford generates a lot of cash on operations but loses cash on financing and investment. I think these numbers verify The Free Press’s claims about the value of the “F-150 brand.” Ford is clearly running a lot of cash through its till.

Consequently, Ford reported $22.117 billion in cash and equivalents on 30 June 2019 up from $20.848 billion in March. Conversely, Ford reported $15.931 billion in short-term investments on 30 June 2019, down from $16.882 billion in March 2019.

Therefore, Ford had $38.048 billion in cash and short-term investments on 30 June 3019. Thus, Ford has enough cash on hand to finance the development of an electric pickup or to buy Rivian.

Will Ford Make Money from Remote Operated Vehicles?

Ford is using that cash to make notable acquisitions in autonomous vehicle technology.

In particular, Ford is buying Quantum Signal, a military contractor that develops control systems for autonomous vehicles, a Medium post reveals. Importantly, Quantum built software that lets the US military control robotic vehicles and drones from thousands of miles away.

I think Ford could add Quantum’s technology to build remote controlled trucks and vans. Thus, operators could “drive” trucks or vans from hundreds or thousands of miles away.

For instance, an operator could “drive” a truck at a mine in Nevada while sitting on his couch in Michigan. A virtual reality headset could let the driver see what’s happening at the mine outside Elko without leaving his rec room in Flint.

I think such capabilities will add value to Ford. The capacity to switch from autonomous control to a human operator fast will be a selling point for self-driving vehicles. Ford seems to understand this potential and is trying to cash in with the TaaS platform.

Can Ford Develop Full Self Driving Vehicles?

Ford could add Quantum’s algorithms to its planned Transportation as a Service (TaaS) platform, Randy Visintainer writes at Medium. Visintainer is the Chief Technical Officer at Ford Autonomous Vehicles, LLC.

Quantum’s ANVEL modeling and simulation virtual environment will make it easier for Ford test and research autonomous vehicles, Visintainer speculates. Such a simulation could speed up the development of autonomous vehicles at Ford and Argo AI. Argo is the artificial intelligence company Ford invested $1 billion in, back in 2017.

Ford also owns the Israeli machine-learning company SAIPS, Visintainer reveals. SAIPS is developing a visual cognition system that will let vehicles “see” pedestrians and other vehicles on the road.

Such visual cognition is necessary for self-driving cars to achieve Full Self Driving (FSD) capability. Additionally, SAIPS is developing high-resolution 3D mapping systems for urban environments to help vehicles navigate in the real world.

Under Ford, SAIPS has doubled its size to 30 people and moved to a new office in Tel Aviv. However, it is unclear how close Ford is to putting a full-self driving vehicle on the road.

Is Ford Losing Money on Autonomous Vehicles?

Putting autonomous vehicles on the road is expensive, Ford is discovering. In fact, Ford lost $181 million in a cloud computing company called Pivotal Software (NYSE: PVTL), Fortune claims.

Ford owns around $171 million in Pivotal shares. Pivotal reported a net loss of -$31.74 million and an operating loss of -$34.91 million on 3 May 2019. However, Pivotal did report a revenue growth rate of 19.25% for the quarter ending on 3 May 2019, Stockrow reports.

I guess Ford needs Pivotal’s cloud to house its operating systems for autonomous vehicles and the applications Quantum Software creates. In particular, Ford could use the Pivotal Cloud to house the TaaS, which is an operating system for self-driving vehicles.

I think such a system could allow Ford to deploy fleets of FSD vehicles in cities. Ford could make money from FSD fleets by renting them out as taxis or delivery vans. Interestingly, Ford is testing the Agility Robots’ Digit walking robot to deliver packages hauled by its Transit autonomous van, IEEE Spectrum reports.

Losses at Ford could continue because management is committed to launching a fully autonomous vehicle by 2021. To that end, Ford is testing autonomous vehicles in Miami and Washington DC; Ford hopes to have 100 self-driving vehicles on the road by the end of 2019, CNBC claims.

Ford and Volkswagen Alliance

Finally, Ford is building what could be the world’s first factory for autonomous vehicles (AV) in Michigan, CNBC reports. That factory is part of Ford’s autonomous and electric vehicle partnership with the world’s largest automaker Volkswagen AG (XTRA: VOW).

In the partnership, Ford gets access to VW’s electric-vehicle architecture, a press release indicates. In exchange, Volkswagen is investing in Argo AI to get access to that company’s autonomous vehicle systems.

Notably, the electric F150 appeared just after Ford and VW announced an expansion of the alliance on 12 July 2019. Thus, Ford could be using VW technology to power the all-electric F150.

Ford is Still a Value Investment and Dividend Stock

I think Ford is a value investment because of its low price, ability to generate cash, and low price. Notably, Ford (NYSE: F) shares were trading at $9.26 on 2 August 2019.

Unlike Tesla, Ford pays a dividend. Currently, Ford shareholders will receive a 15₵ dividend on 3 September 2019. However, Ford’s dividend has not grown for the past year. The lack of dividend growth at Ford is good because it shows the company is investing its extra cash in new technology to drive future growth.

Despite, the lack of dividend growth, Ford investors received a dividend yield of 6.48%, an annualized payout of 60₵, and a payout ratio of 43.5% on 2 August 2019. Therefore, Ford is a good dividend stock.

If you are looking for an electric and autonomous vehicle stock that makes money Ford is it. If you want to lose money on electric vehicles and self-driving cars, buy Tesla (NASDAQ: TSLA) shares.

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