- Both companies posted solid Q1 results.
- Chip shortages are weighing on car manufacturers, but one has an advantage in that regard.
- While there are obvious similarities in the two, the differences in the companies may determine which is the better investment.
It goes without saying that Ford Motor Company (F) and General Motors Company (GM) have much in common.
Both have a Financial Services segment that provides around a tenth of total revenues.
The companies are the two largest motor vehicle manufacturers in the United States: in 2020, GM held 17.1% of US sales, while Ford captured 13.7% of the US market. However, those totals represent a marked decline over the last two decades, as the companies’ combined US market share was over 50% in 2000.
Ford and GM provided solid Q1 results, and like all other vehicle manufacturers, they are experiencing difficulties due to a global chip shortage. Both are expanding in China at a marked rate, with 42.5% of GM’s vehicle sales coming from that country in 2020, while 14.7% of Ford’s total sales originated in the Middle Kingdom.
Although the two have much in common, it is essential to understand the differences that exist if one is to weigh their value as investments. GM is moving more aggressively in terms of its conversion to electric vehicle manufacturing, while Ford is transitioning to an all-truck/SUV portfolio.
Perhaps of greatest importance is that there is a significant gap regarding analysts’ growth projections for each firm.
General Motors and Ford Motors: What’s the difference?
Deloitte forecasts EVs will constitute 32% of new car sales by 2030, which translate into a CAGR of 29% over the next 10 years
One of the primary differences between Ford and GM is that the former company has set a goal of hitting 40% of sales through electric vehicles by 2025, while GM plans to end sales of gas-powered vehicles by 2035. Not only are the timelines and percentage of sales devoted to EVs different, but the strategy employed by the two firms is at variance.
GM targets $27 billion to invest in autonomous and electric-vehicle product development initiatives by 2025 with plans to debut 30 EV models within the next half decade.
Ford is devoting over $30 billion to develop EVs and battery technology through 2025.
Both firms have made notable advancements.
GM has a partnership with LG Chem (OTCPK:LGCLF) to design and produce Ultium batteries. GM stated the batteries have up to 450 miles of range, and that spawned a number of headlines heralding GM’s product as superior to Tesla’s (TSLA).
One can refute those claims by pointing to Tesla’s Cybertruck and Roadster, with 500 mile and 620 mile ranges respectively.
However, the range provided by a battery is but one consideration when assessing claims to superiority. One barrier to widespread EV adoption is battery costs, so the price of a battery can be a pivotal concern. Here is where GM may have a real advantage.
In 2010, lithium-ion batteries cost $1,100 per kWh. In 2020, the market average hit $137/kWh. GM expects costs for Ultium to fall below $100 kWh, but management has set no timeline for that development, while hinting that it is on the near horizon.
The lower cost is driven by a significant reduction in cobalt content in Ultium batteries. Investors should also consider that 59% of all cobalt production is from the Democratic Republic of the Congo.
Meanwhile, Ford is well behind GM in terms of developing an in-house battery. However, just last month, the company announced a plan to partner with Korea’s SK Innovation to develop its own line of EV batteries. The two firms opened a research and battery lab devoted to producing the IonBoost battery at a cost of $185 million.
Ford is also investing in EV battery start-up Solid Power. That company makes solid-state batteries. While they are more costly than lithium-ion batteries, they are lighter, have greater energy density, and have greater range than lithium-ion batteries. The hope is that research can result in lower costs.
Solid Power currently produces its second-generation battery cells on a pilot production line, and Ford plans to test Solid Power’s prototype third-generation 100 Ah battery cells next year.
GM also stole a march on Ford when it inked a deal to supply FedEx (FDX) with the BrightDrop EV600 battery-electric commercial van. With a range of 250 miles and 600 cubic feet of cargo space, the EVs will be powered by Ultium batteries.
FedEx is also purchasing GM’s BrightDrop EP1 electric pallet-mover. The EP1 will be used in warehouses and to aid in the delivery of heavy packages to customer’s doors. Results from a pilot program determined the EP1 enabled employees to move 25% more packages per day.
Even so, Ford arguably has the lead in its current lineup of EVs.
When the F-150 Lightning debuted, the company recorded 20,000 reservations for the vehicle in the first twelve hours after they were available and 70,000 reservations within a week.
With a starting price a hair below $40,000, the EV has a range of 300 miles, can accelerate from zero to 60 in 4.5 seconds, has a payload capacity of 2,000 pounds, can tow up to 10,000 pounds, and can be used as an emergency backup power supply to your home for up to three days.
At the end of 2020, Ford launched the Mustang Mach-E. In the first full month that the car was available in Norway, it ranked as the #1 car in terms of sales. In fact, it garnered 10% of that country’s total new car sales in May. In comparison, Tesla’s Model 3 landed in sixth place on the top sellers’ list.
Why is that of importance? Battery-powered vehicles comprise 60% of all new cars sold in Norway. Consequently, some view that nation as a bellwether for trends beyond its borders.