Same Industry, two increasingly different companies

Jim Farley, CEO, Ford, left, and Mary Barra, CEO, General Motors

Reuters; General Motors

DETROIT – “Same industry. Two different companies.”

Adam Jonas, the influential Morgan Stanley auto industry analyst, recently described it this way General Motors and Ford Motor – bitter rivals for more than a century.

The two have consistently tried to outdo each other in new car sales, performance and styling. GM has gained an advantage in recent years thanks to better financials and an early move to electric and autonomous vehicles. GM recently reported third-quarter results that knocked it out of the park compared to Ford.

The investment case for America’s biggest automakers is increasingly divergent as the companies, with market capitalizations of only $1 billion, take different steps around electric and autonomous vehicles.

GM is diversifying as much as possible around its emerging battery and self-driving car businesses, along with a plan to offer only electric vehicles by 2035. Ford is also moving to electric cars, but at the same time it is continuing to invest in its traditional businesses. Ford expects at least 40% of its global sales to be electric vehicles by the end of this decade.

(Both companies, meanwhile, continue to rely heavily on traditional sales of high-margin pickup trucks and SUVs, focusing on the segment and using billions of dollars in profits to invest in both autonomous and electric vehicles.)

Wall Street analysts say they are watching the emerging segments for when or if one of the Detroit automakers can differentiate itself.

“It’s a very competitive industry, and they’re all pretty fast followers in that regard,” Edward Jones analyst Jeff Windau said. “It becomes difficult to really stand out over the long term.”

Ford is undergoing a major restructuring as part of CEO Jim Farley’s turnaround plan, called Ford+. Meanwhile, GM cut costs years ago under CEO Mary Barra.

“GM is certainly running at a higher rate right now with the big difference in margins between the two companies,” Morningstar analyst David Whiston told CNBC. “GM went through a lot of this pain a few years ago.”

GM is quick to point out its differences from Ford, and will likely do so again during Thursday’s investor event. But the message is never received.

Wall Street maintains an average “overweight” rating on both stocks, according to analyst reports compiled by FactSet. Both automakers have shed more than 30% this year amid investor concerns that their earnings will lag amid rising interest rates, inflation and recession fears amid the coronavirus pandemic.

Both stocks have a market cap of about $54 billion β€” although GM trades at about $40 a share and Ford at about $14 a share β€” and seemingly trade with each other.

Autonomous investments

Late last month, Ford announced that it would be spinning off its Argo AI autonomous vehicle division, citing lack of confidence in the business or its potential to make money in the near future.

“It’s clear that profitable, fully autonomous vehicles are still a long way off,” Ford’s chief financial officer, John Lawler, told reporters on Oct. 26. let’s create this technology ourselves.”

Ford reported a 10% year-over-year decline in US sales in October

A day earlier, GM Cruise CEO Kyle Vogt offered high comments about the growth of his company’s robotaxi business, including a “rapid scaling phase” with “meaningful revenue” starting next year.

“We’re seeing a growing divide between the company’s commercial driverless services that are working and those that are still stuck in the pit of frustration,” Vogt said, practically foreshadowing Ford’s announcement that it would scrap Argo. “What’s happening here is that the companies with the best products are moving forward and accelerating.”

Cruise recently said it expanded its robotaxi service to cover much of San Francisco. It comes months after the company commercially launched a fleet of self-driving cars during limited hours at night.

“GM clearly sees this as a longer-term opportunity that they want to be a part of,” said Sam Abuelsamid, senior analyst at Guidehouse Insights. “Ford says we think they’ll get there eventually, but it’s going to take longer and we’ve got other fish to fry right now.”

Ford’s other “fish” include billions spent on electric vehicles, as well as lower-capacity driver assistance technologies such as the automaker’s hands-free BlueCruise highway driving system.

‘Infill’ and sales

GM was among the first automakers to announce billions of dollars in new electric vehicle investments and aims to end sales of internal combustion engine vehicles by 2035.

But Ford has easily outpaced GM in EVs, while GM favors luxury models with newer battery technologies, including $100,000 Hummers and Bolt EVs with older battery technology.

“As with the AVs, GM got in earlier,” Abuelsamid said. “But if you look outside the automotive industry, for example, to the technology industry, being first to market doesn’t necessarily guarantee success in the long run.”

Ford sold 41,236 all-electric models in the first nine months of this year, while GM sold 22,830, most of which were older Bolt models.

Ford benefited from its EV strategy, which allowed it to ramp up production faster than GM and get more cars on dealer lots. The company has taken popular cars with traditional gas engines and turned them into electric cars by “stuffing” battery packs into them.

GM, on the other hand, built a specific EV architecture. Ford plans to follow suit eventually, but this near-term approach has given it a head start on sales, and consumers don’t mind. Ford also continues to produce hybrids and plug-in hybrid electric vehicles, which GM has decided not to do except for the potentially “electrified” Corvette.

GM is the only car manufacturer in addition to being the industry leader Tesla It manufactures its own battery cells through a joint venture in the United States. The company has announced plans for four joint battery plants in the United States, including one in Ohio that began commercial production of cells earlier this year.

Ford has similar plans, committing $5.8 billion to build twin lithium-ion battery plants in central Kentucky through a joint venture with South Korea-based SK, but production is not expected to begin until 2026.

Edward Jones’ Windau said that while GM may overtake Ford in the short term, others may catch up in the coming years.

β€œIt’s an advantage to be able to go a little faster. “It seems like a lot of players are still taking a similar approach.”

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