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Agenda

  • Original Investment Thesis

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  • Company Overview

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  • Industry Overview

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  • Competitor Comps

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  • Recent News

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  • Performance and Analyst Outlook

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  • Stock Performance

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  • Current Outlook

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Industry Overview

  • Highly competitive industry, but differentiation still possible
  • Possibility of major industry shift in next 10-20 years, but stability expected for next 3-5 years
    • Battle for autonomous & connectivity emerging
    • Traditional OEMs vs TESLA vs Big Tech (Google & Apple)
  • Major GM, Ford, Toyota, FCA/Chrysler, Honda, Nissan, Hyundai all with >8% market share by volume
  • Sales of light trucks up; cars down; drivetrain and chassis technology improving
  • U.S. new vehicle volumes expected to plateau barring a recession
  • Global demand for products remains high

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Light truck sales driving Ford’s volume

  • 7.5% increase in sales of pickups, SUVs, and crossovers
  • Car Volume down 9% YTD
  • Trucks accounted for 60% of total U.S. volume for the first nine months of 2016; highest ratio ever
    • GM, Ford & Fiat Chrysler are the most truck-dependent auto makers in the US all with at least 70% of product mix
    • Trucks have additional revenue and profit contribution
    • 16% gas price decline driver towards trucks, but more fuel-efficient drivetrain and chassis tech should prevent the segment mix from tipping back toward cars
  • Ford may see a drop in U.S. revenue if sales of light trucks don’t keep up with their current pace; sold over 4.2 million trucks in Q2

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2016: Light Trucks

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Future of the Automobile

  • Autonomous: Major OEMS investing heavily in autonomous technology with levels 3 and 4 projected for late 2019 and early 2020s
  • Electric Vehicles: OEMs reluctant to embrace EV because of lower margins, but projected battery cost reductions could open doors
  • Connectivity: Android Auto and Apple Carplay are customer expectations moving forward
  • Ride Sharing: Major OEMs partnering with ridesharing giants
    • GM $500 M Lyft investment and attempted acquisition

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Traditional OEMs vs TESLA

Traditional OEMs

  • Nearly all U.S. passenger vehicles sold through dealers
  • Dealers reluctant to embrace higher connectivity and autonomous technology

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TESLA

  • Owns its own dealerships
  • Software-based approach

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Performance and Analyst Outlook

  • Analyst sentiment: neutral (down from buy)
    • Target price range $12.00
    • Limited downside risk, but plateauing expected in revenue and volume
    • Total company profit & margin decline in 2017 with long-term feature investments
    • Follower, not a leader on emerging features

Concerns

  • Volume and pricing trends could be under pressure through 2017. Additionally, Ford is facing stiff competition in the passenger car market from Japanese and European OEMs that can heavily discount due to weak currencies.
  • Total company pre-tax results and automotive FCF likely negatively impacted over the next few years driven by Ford's initiatives in electrification, autonomy and mobility that will likely require considerable R&D and capital spending.

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Low Risk

  • Limited downside risk given high dividend support (~5% currently and anticipated increase to 7%)

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