(Tech stock columnist Jon D. Markman publishes Strategic Advantage, a lively guide to investing in the digital transformation of business and society. Click here for a trial.)
Thousands of unfinished pickup trucks are piling up at a Kentucky speedway, a testament to a global chip shortage. Investors should not worry. It’s yesterday’s news.
Managers at Ford ( (F) - Get Report) were all smiles last Thursday at the official reveal for the Lightning, an electric version of their famous F-150 pickup truck. The grins were warranted. This is the new Ford.
It’s no surprise that on Friday the stock price shot almost 7% higher. There is more ahead.
The auto sector is in a strange place. A major transition is underway as all of the leading manufacturers shift from internal combustion engines to electric power plants. It’s a big deal. Electric vehicles require less maintenance than their ICE counterparts, a big part of the business model for the new car and truck dealerships scattered across the country.
Business managers at Ford and the rest of the automotive world need to figure out a way to make the transition to EVs without starving their affiliated dealers and repair shops.
The solution seems to be transition EVs.
When it arrives in 2022 the new Lightning will sit side by side with the gas and diesel powered F-150s that have been the best selling vehicles in America since 1981. Yet Lightning, starting at less than $40,000, will clearly be the best of breed in terms of towing capacity, torque and flat out acceleration. Even with its massive 6,500 pound bodyweight Lightning is still capable of bolting to 60 mph in a sportscar-like middle 4 second range.
The vehicle will have all of the advanced features of supercars, too. Product managers said the truck will come equipped with level-2 autonomous driving, bringing handsfree highway lane changes and over the air software updates for future new features like even better acceleration and longer range.
The oddity of the transition to EVs is that despite their digital foundation, next generation plug-ins are less reliant on the chips responsible for the current tumult in the global automotive sector. Those processors are mostly older configurations that convert analog signals to digital.
The F-150s sitting at the Kentucky speedway are good-to-go other than a chips that control their speedometers and legacy antilock braking systems.
Jim Farley, chief executive, said in a press release in February the chip shortage could cost the company up to 20% of first quarter production, or $1 billion to $2.5 billion in profits. And Bloomberg report noted that auto sector analysts expect the shortage may last until the third quarter, resulting in 700,000 few vehicles sold and lost industry profits of $61 billion.
Clearly there is a disconnect between what is happening on the ground and share prices. There is good reason.
Lightning represents where Ford is headed. EVs, even transitory ones that are a year away and look similar to existing ICE vehicles, represent important digital transformation at the Dearborn, Mich.-based company. It means analysts will shift to new valuation metrics that will make the old industrial giant assessed more like a tech company – ie on revenue and progress toward the EV goals, and not just earnings. ach inevitable bump is likely to be richly rewarded with higher share prices.
There is recent precedent.
Two years ago Disney ( (DIS) - Get Report) managers began the transition from theme parks, summer movies and sports broadcasting to subscription video on demand. Their timing was perfect. One year into the new business model the global pandemic forced the shuttering of their traditional businesses. Meanwhile work-from-home initiatives had millions lining up for the fledgling Disney+ SVOD.
Despite 9 quarters of weaker sales and sagging profitability, Disney shares soared higher on SVOD growth.
The same metric shift is happening with Ford shares in real time.
Farley noted on Friday morning that new orders for the Lightning topped 20,000 in only one day. Ford stock closed the session at $13.33, a near 7% gain, and the highest price in a decade. That is what hot tech stocks achieve, not old cyclicals. It’s a new day daddy-o.
Lightning is a clever vehicle by design.
It looks enough like the beloved F-150 to not spook traditionalists yet its EV foundation is sufficient to put Ford into the discussion about future technology. The Verge, a popular tech media outlet for millennials gushed about Lightning, calling it an electric truck for the masses. You know it’s gone mainstream when you see “Tonight Show” host Jimmy Fallon fawning over it in his comedy.
Investors should be aware that everything has changed. The share price is now a reflection of new technology development metrics like EV plant conversions, partnerships for charging networks, batteries and autonomous driving.
Ford is transforming from a boring rustbelt car company to a digital tech titan.
Investors, start your engines.