Ford Falls After Morgan Stanley Downgrade on EV Strategy

Ford's electric-vehicle strategy is unclear to Morgan Stanley, leading the firm to downgrade its Ford rating to equal-weight.
Publish date:

Shares of Ford  (F) - Get Report were downgraded at Morgan Stanley on concern about the automaker's electric vehicle strategy.

Morgan Stanley downgraded Ford to equal-weight from overweight while the investment firm affirmed its $9 price target. 

Ford shares at last check were 4.5% lower at $9.03. 

Ford has the right urgency for electric vehicles, Morgan Stanley's note said, but its strategy is not fully clear to the firm.

"The business remains saddled in Europe (which we value at negative $9 billion) and is subscale in China vs. other major [original equipment manufacturers]," analyst Adam Jonas said. 

"We believe it can ultimately transition to EVs and can leverage strong fleet/commercial positions (F-150, Transit van) but faces substantial headwinds on high-margin [internal combustion engine] products that face de-adoption." 

To reach its $9 price target, Morgan Stanley divided Ford into its electric vehicle and internal combustion engine segments. An expected slower ramp in its EV unit volume through 2030 was enough to keep the price target flat. 

Ford's EV sales are expected to grow at a 40% compounded annual growth rate through 2030, rising to 263,000 units by 2025 and 600,000 units by 2030.

In 2030 EV sales will account for 17% of the company's unit volume, 22% of revenue and 32% of earnings before interest and taxes, Morgan Stanley's Jonas said. 

"At this point, we believe the strategy has to settle on a more salient path of execution that investors understand," he said. 

"Currently, it is difficult for us to model Ford’s EV forecast as confidently as we do GM’s  (GM) - Get Report given the state of flux of its EV strategy, as well as smaller amounts of capital committed to the project," Jonas said.