With electric vehicles being all the rage lately, it’s easy to see why some investors might be turned off of Ford Motor Company (NYSE:F).
The company hasn’t taken a good shot at the electric vehicle market like major competitors such as Nissan and General Motors Company (NYSE:GM). In fact, the company said this month it won’t update the Electric Focus in 2014. Furthermore, the company hasn’t made an effort to subsidize costs of the EV as much as other firms. The car costs about $39,000, which is about $10,000 more than the Nissan Leaf and Chevrolet Volt.
But the firm is instead focusing on the major hybrid market, and has seen resounding success as the No. 2 manufacturer in the U.S.
Ford’s focus: wait and see
Many may think that if Ford Motor Company (NYSE:F) wants to continue to be an executor of top vehicles, it will have to start making a bigger push into the electric vehicle market. But that lack of attention the firm has given could be a sign that it will wait until the market for EVs has grown to the point where it would support major investment.
Ford Motor Company (NYSE:F) has released the Focus Electric, which has actually received solid reviews, but because of its price and lack of marketing didn’t manage to make nearly as many sales as the Nissan Leaf or the GM Chevrolet Volt. In 2012, Ford Sold 685 Focus Electrics. That compares to 7,614 Leafs and 7,157 Volts sold in May alone.
The company has a PEG ratio at .57, which makes it in my opinion one of the most undervalued automakers, despite not manufacturing a major EV. The attractive PEG is largely due to high expectations from analysts who look at the company’s increasing quality, superb financial ratios, and fuel efficiency as catalysts for potentially lucrative years ahead.
Nissan finding the path
Nissan has staked itself as a leader in electric vehicles, and the company’s results will help Ford Motor Company (NYSE:F)determine if it really wants to make a plunge into the electric vehicle market. The firm has dropped the price recently of its Leaf by $6,000. And the firm’s overall results so far this year have been stellar, with a 25% sales jump in May on all of its vehicles. The company has recently added a new CEO, who has cut prices. Also, the value of the yen compared to the greenback has dropped, which gives Japanese automakers like Nissan incentives to lower prices to boost sales. Another attractive feature of this company is its decrease in the debt to total capital ratio. That number is just over 54%, which is a significant drop from a year earlier when it was nearly 80%. This shows Nissan is getting its balance sheet in order and could be a sign of even more solid financial numbers in the years ahead.
General Motors is offering incentives
Overall, General Motors Company (NYSE:GM) sold nearly a quarter of a million vehicles in May, which is up by about 3% from the previous year. Retail sales went up by 9% and fleet sales were lower by 10%. The company is planning to release a DC fast charger, which the firm says can charge 80% of the Volt’s battery in just 20 minutes. This could really improve sales, and as the technology improves, Ford Motor Company (NYSE:F) will likely make a move into the market.
GM has also announced it will offer a seven-year interest-free loan on its Chevrolet Volt. This will likely drive up sales, and it shows the company has likely managed to decrease production costs. GM also reduced the price for the Volt by $4,000. Price reductions are a great indicator for Ford, which can see that it doesn’t cost as much to manufacture an EV. According to Reuters, it currently costs GM $75,000 to manufacture a Volt, which means the company is losing about $49,000 on each one that is sold. The firm is likely pricing the car low in comparison to production costs in order to boost sales and increase the appeal of its EV. Waiting and seeing what might happen in the market is a sound strategy by Ford.
What to expect
With the electric car market expected to reach 3.83% in 2013, up from 3.38% in 2012 and 2.23% in 2011, it looks like now might be the time for Ford Motor Company (NYSE:F) to really make a plunge into the electric vehicle market. Its competitors are showing growing sales that are beginning to make a dent in each firm’s total revenue. I expect that given the numbers being released about the appeal of electric vehicles, Ford will concentrate efforts and release an EV that can compete with the big dogs.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Phillip is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Is Ford Playing the Waiting Game? originally appeared on Fool.com and is written by Phillip Woolgar.
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