2 takeaways from Ford CEO Jim Farley that boost our confidence in the automaker's stock

Published Thu, Feb 15 20243:56 PM ESTUpdated Thu, Feb 15 20245:09 PM EST

Ford CEO Jim Farley discussed a range of topics Thursday from hybrid and electric vehicles to how the automaker is dealing with international competitors. The remarks from a Wolfe Research investor conference left us feeling better about Ford's future. Wall Street seemed to agree, pushing the Club stock up more than 2% in afternoon trading. Farley struck a bullish tone on the future of the automaker's Pro business, made up of a commercial fleet vehicles that includes software and services for businesses. He also said a focus on hybrids will be a key strategy to offset electric vehicle losses. Hybrids, he explained, can attract customers on the fence about EVs but who would want improved fuel efficiency. Ford Pro "If you're looking for the future of the automotive industry stop looking at FDS [full self-driving] and Tesla , look at Ford Pro," Farley said. "We haven't gotten to the top in Pro yet." The CEO pointed to the business' half a million subscribers that bring in 50% gross margin, multiyear order banks, and the fact that they are at max capacity in all Pro vehicle lines due to "huge pent-up demand" in the U.S. and Europe. The transformation of Pro, Farley said, has been a notable success for the company. "We always had a super successful Pro business … but there was no focus on it." Despite the success of Pro, Ford continues to lose money in its Model e business, which hosts its fleet of electric vehicles. EV adoption has slowed as customers hesitate to make the transition from gas to electric. But Ford is in a unique position because of its in-demand and higher margin hybrid vehicles. We have pushed for the automaker to focus more on hybrids. EVs and hybrids "Customers don't have to change their habits on hybrids and they can immediately do the math on the efficiency of the fuel economy," Farley said. "The math on EVs is more complicated" since customers question what the energy cost savings is compared with gasoline, he added. The economics of owning an EV can be "opaque for someone who hasn't driven an electric car." Farley said that success in EVs is being able to compete with Chinese automakers whose vehicles have saturated the market in China and in Europe. Chinese competitors include Nio , Li Auto , and BYD, still a small position in Warren Buffett's Berkshire Hathaway . BYD was once a bigger part of the Berkshire portfolio. F 1Y mountain Ford 1 year "If you're in our business, even if you have Pro, if you cannot compete fair and square with the Chinese around the world. Then 20% or 30% of your revenue is at risk," Farley said. "EV adoption on Pro is going much better than we thought," he added, given the high demand for vehicles like E-Transit vans or Pro versions of the F-150 Lightning pickups. "The operating cost advantages on the energy side are much better. … That is what's really exciting for us." While hesitant to give updated guidance on EV losses, Farley noted that gross margins will improve during the year and will get close to breakeven. (Jim Cramer's Charitable Trust is long F. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.