Motley Fool Hidden Gems Investing - Ford Takes $19.5 Billion EV Hit. Is the EV Revolution Over

Starting point is 00:00:00 Has the EV revolution ended before it even really got started? Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Travis Hoyum, joined by Lou Whiteman and Rachel Warren. As a big topic this week is electric vehicles, and Ford is really the one that is the impetus for this conversation, even though you don't necessarily think about them as an EV company, but they are getting more or less getting out of the EV game, taking a $19.5 billion write off. Look, Lou, EVs were the future of the auto industry just a few years ago. Every single

Starting point is 00:00:46 company said that they were going to basically go 100% to EVs. You have Tesla, Rivian, Lucid, and others were thought to be disrupting Detroit. It's only been four years since a lot of those bets were made, and now we're really backing off. Tesla's sales are in decline. GM has pulled back. Now Ford is doing the same. Were EVs overhyped, or what changed in the last few years? Because this seems like a huge about-face. Yeah, what changed? Four years and one administration, shall we say, right? But look, I am hesitant to say it was overhyped, but I do think we definitely got ahead of ourselves. I still believe EVs are the future. I believe that that is where we're going. But I think the timeline was probably likely always

Starting point is 00:01:29 going to be longer than we had hoped, and honestly, that we priced in. And there was a new administration, and some of the incentives did change, which I think is kind of part of the what happened now. Look, I don't want to put too much on this, on the administrations. The subsidies, they were nice. But I think that if we're to take from this that the subsidies were the only reasons that these were selling, that dependency is what makes EVs work. That's the wrong lesson. The subsidies were necessary because the tech just isn't ready for prime time. It's not ready for anyone except the early adopters now. Is it the tech or is it the cost? Because one of the things that I kind of always go back and forth on is people talk about range

Starting point is 00:02:12 anxiety and infrastructure and things like that. I actually think those are pretty good for 99% of travel. And now we've got fast charging and things like that. But when I go look at an EV and go, could we replace our Volkswagen Atlas, a three row SUV for a family of five with a dog, it just doesn't make any financial sense. So is it the technology or is it that the cost structure just isn't quite there yet? And really the comparison in the industry is not to cars, it's to SUVs and trucks. And that's what people buy when they buy ICE vehicles today. I think you're splitting hairs on cost versus tech, because I think part of the answer on cost is tech. Solid-state, yes, will alleviate range anxiety. I think you're overly dismissive on that.

Starting point is 00:02:54 I think whether or not it is practically a problem, I think if you could sit down and talk people through it, it's less of a problem than people think. But I do think it is the big bugaboo in people's heads why they dismiss it. But look, part of what solid-state or whatever next-generation batteries can do is mean that you can pack more storage-dense energy density into them, fewer batteries, less cost. So I think technology is the answer to the cost problem. So, you know, it's, it's, it's kind of pick your flavor, but I think it comes down to the fact that the technology as we have it today is not sufficient for mass market sales in and of itself. Rachel, when you look at these companies kind of stepping back from electric vehicles,

Starting point is 00:03:39 What are you thinking about? Because these big trends, we're talking about trillions of dollars in value that is up for grabs for investors, either on the plus side or the downside. Yeah, I do think it is a combination of tech and cost. There's regulatory elements here too. I mean, we want to think about this from a holistic perspective. We know that EVs generally remain more expensive than comparable internal combustion engine vehicles. And I think at a time as well with high interest rates, affordability, it's a major barrier for the mass market. And that's on top of the existing challenges we've seen. I do think range anxiety is a real thing. There is a real lack of confidence in the current public charging networks reliability and

Starting point is 00:04:17 availability. But I think it's really important to note, I mean, these automakers are not giving up on EVs entirely. They're really recalibrating their strategies. And I think that's to align with current market realities and consumer demand. It doesn't spell the end of EVs, but I do think that there is a certain extent to which we have to recalibrate our expectations for where this industry is going to grow in the next five to 10 years. I mean, we look at Ford, right? You've mentioned that nearly $20 billion write down. That's a massive charge to cancel several pure EV models. You have a fully electric version of the F-150s being fully discontinued. They're going to be working on the F-150 Lightning extended range electric vehicle. It uses a gas-powered

Starting point is 00:04:59 generator to recharge the battery. And that's really the trend is towards hybrids instead of pure EVs. Absolutely. And a lot of that, again, is really focusing on that lower-cost universal EV platform. Ford now expects their EV division is going to reach profitability by 2029. That is a three-year delay from their previous 2026 target. But I think that this is a trend that we're seeing across the industry. And don't discount the impact of regulatory elements either. I mean, one major one was the $7,500 federal consumer tax credit that expired on September 30th. I think that that is having an impact. So, it's really a perfect storm in some ways. But I also think that this means that we're just seeing shifts in where the EV industry

Starting point is 00:05:41 is going, how it's evolving. It's not following maybe the trajectory that some analysts thought. But I do think that there is significant opportunity in this space for investors and for these automakers, both traditional and otherwise, over the next decade. there's a lot of changes going on in electric vehicles but what is detroit maybe getting right we'll talk about that when we come back you're listening to motley fool money stop wasting your nights on a mattress that doesn't get you experience the most comfortable mattress in the world the sleep number smart bed at the touch of a button you can personalize your comfort. Choose firmer or softer. Adjust cooler to warmer. And right now, save up to $2,500 during

Starting point is 00:06:27 our massive Labor Day event. Hurry into your local Sleep Number store today, because we have your number. Welcome back to Motley Fool Money. Detroit has gone from being all in on EVs to backing off. So I want to focus on Detroit here first. We'll get to the full electric vehicle companies like Tesla and Lucid in just a second, but GM was really the first one to step back. They didn't make a big announcement like this Lou, but they did kind of pull back on their ambitions for electric vehicles. They've built their lines to be a little bit more flexible. So you can build an EV or you can build a nice vehicle or a hybrid, anything in between. Ford has essentially said that his future is hybrid, at least for now. So is this a short-term strategy for these companies

Starting point is 00:07:11 or is this long-term the right thing for them to do? I think it's both. I mean, the nice thing about these companies is they have the scale, they have the balance sheets and the resources to do both, to have their cake and eat it too. I think it's right for right now, but it's also the right long-term strategy. Look, at the end of the day, they are trying to sell vehicles for a profit, okay? Whether or not they're, the powertrain doesn't matter. Ford is investing in hybrids because right now, the hybrids is what they can do with the profit. We talked before about the tech. The battery technology works a lot better in conjunction with a gas-burning or a nice engine or at least some sort of lawnmower engine to keep it going. As the tech improves,

Starting point is 00:07:56 as EVs improve, as batteries improve, it's only a half-step to get there. They're not abandoning that. Look, I don't see this as giving up on EVs. I think this is recognizing the reality that we got ahead of ourselves and what we can sell for a profit today is what we're going to focus on. And look, a lot of that effort, a lot of just the integrating batteries and battery powertrains into automobiles, which they have to do with EVs, that is at least halfway there to when EVs are ready. I think they'll be just fine long-term. Rachel, the other piece of this is that Detroit companies are making money. Ford, General Motors, they are profitable. Is this the right thing to say, you know what? That's the profitable piece of the business. We have competitors like Rivian,

Starting point is 00:08:45 but they're losing money. Tesla, their margins are in decline. Volumes are in decline. We just heard that they have a four-month low in sales in the month of November. Maybe this is the right thing. If you were allocating capital today, maybe you would be putting that money into ice vehicles or at least hybrids and not into EVs. So is that the right thing for Detroit? I think so, at least for now. But I also want to note, I mean, Detroit is certainly looking at the future of EVs as different than maybe we thought a few years ago, but they're not giving up on EVs entirely. And I think they're really more recognizing the current limitations of the existing market and putting those financial powerhouses and that manufacturing infrastructure to work rather than just scrapping

Starting point is 00:09:25 that all together. You have to think about that. The market for the initial wave of electric vehicles, it was made up of early adopters. The next phase really requires these companies to win over the more cost-conscious, the more skeptical consumers. But many current models, they're very high-end, they're expensive. I think the current situation we're seeing indicates that the transition to EVs, it's more of a marathon in certain times than a sprint. Sales volumes are still growing globally. I will note this, particularly in China, but the rate of growth has slowed significantly compared to what many analysts were projecting a few years ago. And I think the reality remains that there's a large segment of consumers that are hesitant

Starting point is 00:10:06 about pure EVs. You know, hybrids are more profitable for automakers than many fully electric models. They require less drastic changes to existing manufacturing processes and supply chains. You know, we've heard from Ford CEO Jim Farley in the past that hybrids shouldn't be viewed as just transitional technology, that they're a permanent part of the future lineup. And I think that's the case. It contrasts a little bit from, you know, GM CEO Mary Barra. She said that hybrids are more of an interim solution. But I do think hybrids deserve really significant investment focus for at least the next several years until those next generation EVs become more affordable. And I think that's a reality

Starting point is 00:10:44 we're going to keep seeing from automakers, at least for the near term. I want to get a feeling on whether both of you are bullish or bearish on the future of Detroit, but Lou, I'm going to have you go first. I'm bullish on the future, but don't take that as investment advice because I don't want to own these companies. Even at a 5, 6, 7 PE ratio, they're just not attractive enough. I mean, okay. Go back and find when they did much better than that. I think that there are natural limits to this business. There is not a more complex supply chain in all of industry. I mean, you know, back at Ford back in the day, $10 billion was zero. That way,

Starting point is 00:11:26 if they got below $10 billion in cash from the balance sheet, then, you know, that was, and that is, that speaks to the cashflow, the way money flows between suppliers, suppliers to suppliers. This is just such a complex business, such a tough business. I think they are survivors. But over time, you have not, in the long run, beaten the market with these companies. And I don't see that changing, no matter what they're valued today. I think they are valued based on the complexity of business. And I think there are easier ways to make money than investing in automakers. Rachel, are you bullish or bearish? I would say I'm bullish, but I do tend to agree with Lou. I mean, the economics of these businesses

Starting point is 00:12:07 don't particularly compel me as a long-term investor. And I do think that speaks to a lot of the mechanisms and complexities of how these businesses run. But I do think that there is a role for these companies to play in the long-term, in the EV space. Overall, they are financially sound businesses. So that's something to note. And one other thing, Travis, to note is whether or not we're right or wrong, we are speaking conventional wisdom. And you can be right by yourself, but the market hates automakers. I think part of it is that even if your take is right and they are good values here, I don't trust that a critical mass in the market will agree with you and bid up the shares to make it worth the bet.

Starting point is 00:12:49 Yeah. I think it's a great point. It'll be interesting to see. Over the past year, GM stock, this one that I follow more closely, up 58%. Tesla is only up 2%. Even over the past five years, Tesla's beating GM, but only 124% to 92%. So, you know, depending on your timeframe and how these companies do it, eventually making money seems like it matters. Lou is right that typically the market does not like automakers, but they do still love EV makers. We're going to get to that next. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. As much as EVs may be in decline right now, EV stocks certainly aren't. Tesla is one of the most valuable companies in the world, a $1.6 trillion valuation as we're recording.

Starting point is 00:13:32 Rivian has been on a tear recently. They're worth over $20 billion. Is this segment of the market, can it live up to the hype in these valuations, Rachel? Or does Detroit actually have this right in that EVs maybe aren't the future right now and we should be focusing elsewhere? I think we need to be really careful with some of the hype that's surrounding a lot of these businesses. I mean, we do know that EVs look to be a part of the future. I think that that's very much the case. But it's been kind of interesting to compare these models. I mean, I think a lot of people assume that traditional automakers would have sort of a built-in advantage over these sort of newer entrants to the EV space. That hasn't necessarily been the case. I mean,

Starting point is 00:14:12 traditional automakers have faced their own challenges, even though they are more financially bolstered. And we've seen a lot of these newer entrants, like the Rivians of the world that are, you know, burning through cash. They're not profitable. They're struggling in their own way, but the market seems a lot more excited about them. I think we as investors need to take a really measured approach to understand where the opportunity lies. I think investors are betting on a lot of advancements in things like battery technology, software that could provide some very high margin revenue streams for these businesses in the future. And meanwhile, as we've talked about, legacy automakers, they're really focusing heavily on hybrids. And I think that

Starting point is 00:14:51 one of the things, when we take an example of these companies, you look at Tesla, right? As a sustainably profitable business that essentially created the EV market, Tesla is often valued not just as a car company, right, but as a tech and energy company. You look at Rivian, which has been on quite a tear up over the last year. They're still in the growth phase. They're not yet consistently profitable. They're operating at a net loss. So, I think you look at these valuations, it really represents a belief in the market of a substantial long-term shift in the global auto industry. Will that come to fruition? I think that remains to be seen. Yeah, I think it's really important. Rachel's right. I think it's really important, though,

Starting point is 00:15:30 to separate out Tesla from the rest of these companies, because I do think it's different. Travis, as you said, Tesla sales are down, but they are also gaining market share in the U.S. It sort of makes Elon's case. That's because the EV space overall is shrinking. Exactly. Tesla is taking a bigger piece of a smaller pie. Right. Elon said, we think that actually the subsets go away, it might help us relative to the competition. The reason for that is Tesla is just further along on the growth curve. They have cash in the bank, they have established sales channels, all of that. I do think Tesla is relatively fine. As far as the stock, this is a stock that, like Rachel says, never traded

Starting point is 00:16:10 on current-day automotive. And you cannot begin to justify it based on current-day automotive. It's always been about what is to come. And so, it doesn't surprise me the stock has held up. I still think that there is a compelling bull case that is a long-term case that isn't tied to current-day EV sales. As for the Rivians and the rest of the world, I am surprised the stocks have held up. We talked about before with some of the more diversified automakers, the power of a balance sheet or the need for a balance sheet in this industry. This is a really cutthroat industry. They are younger than Tesla and not as established. They don't have the diverse product line I think they need. I think this could be a problematic year for young companies

Starting point is 00:17:01 that are still cash-starved. I might be selling Rivian short. Cost of good sales is going the right direction. Other metrics are going in the right direction. Maybe the market is right and that they have gotten over the hump and they can get through this time. I think that's possible. I just don't think it's a given. I'm surprised at how excited the investors remain about this, given what I think are risks. You brought up scale earlier with the Detroit automakers. That's one thing that Rivian has really struggled with. Their normal Illinois facility has never run at full capacity. They're upgrading some of their lines to be able to make the R2 there. There's going to be about, I think it's 215,000 units of capacity. Even when

Starting point is 00:17:40 that's completed, that'll be in 2026. It's really hard to run the numbers to them to get to profitability with 215,000 units of capacity. They have to build a new facility in Georgia down the road from you. That's going to add 400,000 units. They don't have the cash to do that. That cash is debt that is supposed to be coming from the US government. This seems like a lot of things need to go right for these companies that, like you said, are not named Tesla because it's not just Rivian. Lucid's in the same boat. A whole bunch of other companies have already fallen by the wayside. Yeah, it seems like scale matters in this business. Detroit has it, and they're choosing to go away from EVs. Yeah. No, I think that's all fair. I will say the one thing, and maybe this

Starting point is 00:18:25 is wishcasting, but there's a lot of sunk costs. You mentioned Georgia. There's a lot of investment from Georgia. These are long-term projects. We could have elections before things really come to shove. And I think in our case with Rivian, the state of Georgia is invested. So there might be more levers than a skeptic who might want to short the stock would think, which is why I wouldn't short it either. But yes, I think if nothing else, I'm surprised it's not trading based on at least some of the potential headwinds or potential risk out there? Because they do look significant to me. Well, Detroit is definitely placing their bets, but investors still think EVs are the future. So we'll see how this one plays out. Obviously, something to watch because

Starting point is 00:19:14 this is a big jobs driver. This is a huge expense for people. So depending on what happens with consumers, 2026 is going to be a big year. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. so don't buy or sell stocks based solely on what you hear. All personal finance content follows The Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Lou Whiteman, Rachel Warren, Dan Boyd, Behind the Glass, and the entire Motley Fool team, I'm Travis Hoem. Thanks for listening

Starting point is 00:19:46 to Motley Fool Money.

Motley Fool Hidden Gems Investing - Ford Takes $19.5 Billion EV Hit. Is the EV Revolution Over

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