Investors feel let down by lack of big deal in Ford and VW alliance
New York — The much-anticipated alliance announcement by Volkswagen and Ford left investors feeling let down as it lacks a big-bucks plan to join forces on electric vehicles and self-driving cars.
Wall Street was hoping for a blockbuster deal, such as the billions of dollars General Motors landed for its self-driving unit from Honda and SoftBank Vision Fund in 2018. There also was some belief Ford would tap into VW’s enormous electric-vehicle development programme, so the companies could jointly take on Tesla’s dominance of that segment.
Instead, VW and Ford merely said they are committed to exploring those areas, and formalised co-operation on commercial vehicles — a project the two companies announced they would pursue seven months ago. The payoff from joining forces to develop trucks and vans will not be peanuts: Ford sees the tie-up adding $500m to its annual pretax profit. But that benefit won’t be felt until 2023.
“This is a toe-in-the-water kind of deal,” said Jeff Schuster, senior vice-president of forecasting for researcher LMC Automotive. “It really wasn’t much of an announcement, frankly. There’s nothing beyond what was already anticipated.”
Volkswagen shares closed up just 0.3% on Tuesday, while Ford fell 1.7%. Both entered the year looking for a lift after their stocks dropped about 17% and 39% in 2018, respectively.
The commercial-vehicle alliance may do more for VW than Ford, as it fills two weaknesses in the German carmaker’s commercial lineup — bakkies and delivery vans — that are already areas of strength for Ford, Jefferies analyst Philippe Houchois wrote to investors. The market continues to wait for more from Ford on how it will improve its fortunes.
“Ford keeps frustrating investors by delivering piecemeal information on its future plans,” Houchois said in a note. He recommends buying the shares and has an $11 price target.
CEO Jim Hackett has been disappointed right alongside Ford investors. Hackett told Bloomberg Television he is not happy about how Ford performed in 2018.
Wall Street would like to see a more detailed plan from Ford on its path forward, said David Kudla, CEO of Mainstay Capital Management in Grand Blanc, Michigan. Whereas GM’s CEO Mary Barra has been articulating a clear vision and comprehensive strategy, “we haven’t seen that from Jim Hackett,” he said.
Ford executive chair Bill Ford elevated Hackett, 63, to CEO in May 2017 and gave him a mandate to speed up decision-making. The great-grandson of founder Henry Ford estimated the company is in the third or fourth inning of transforming itself for the demise of the internal combustion engine or the driver at the wheel.
“The problem is, there’s never a ninth inning because this business keeps reinventing itself,” Bill Ford said on Monday.
“If my great grandfather were to parachute into our business 10 years ago, it would have looked very familiar to him — even five years ago,” he said. “Now, we’re looking at everything being disrupted.”
Charting that future has been challenging as car makers attempt to control their own destiny while seeking to share the burden of tens of billions in costs required to develop self-driving cars and electric vehicles. VW has committed $50bn to its electric vehicle programme, while Ford is investing a combined $15bn on battery-powered cars and driverless cars.
Volkswagen CEO Herbert Diess said on Monday that his company is committed to owning the software stack that controls self-driving cars, and that joining forces with Ford in that regard has not been decided.
“They want to control it,” Schuster said of Diess’s desire for Volkswagen. “And that doesn’t play well in an alliance.”