Where will Ford stock be in 10 years?

It has returned next to nothing over the last 10 years (even if dividend payments are included), Ford Motor Company (F 0.48%) it was a pretty pathetic investment in the long run. For context, S&P 500 returned 241% over the same period, while the upstart automaker adze increased by 1,100%.

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While past performance does not predict the future, it can provide some clues. Let’s explore what the next decade might hold have flax store for Ford as it seeks to strengthen and improve its business.

The EV boom has become the EV bust

Like many legacy automakers, Ford was swept away in the much hyped transition to electric vehicles (EVs), which promised to transform its stodgy internal combustion engine-powered business into something more exciting and innovative. But while the company is quickly adopting new technology, it hasn’t been a boon to the bottom line.

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In the second quarter, Ford’s new electric vehicle segment, the Model E, lost $1.1 billion — a staggering $46,000 per vehicle sold. That brings total segment losses to $2.5 billion this year, due in part to an industry price war as companies grapple with growing competition and weak demand.

There are several catalysts for market weakness. For starters, high interest rates make cars less affordable because of these large purchases are usually made with the help of credit. Expected rate cuts by the Federal Reserve could help the situation. But Analysts at JP Morgan believe the US economy has a 35% chance of entering recession by the end of the year, which would also affect demand for cars.

What does the next 10 years have in store for us?

In the long term, demand for electric vehicles looks set to return and slowly replace demand for traditional ICE vehicles as battery technology improves and the infrastructure to enable charging stations is built. However, it is not yet clear what this trend will mean for Ford and other industry participants.

The last few years indicate that the production of electric vehicles is becoming less and less profitable. The new technology also shifts the center of gravity of the auto industry to China, where manufacturers like it BYD they can produce electric vehicles at shockingly low prices due to their vertical integration. BYD’s cheapest car, the Seagull, sells for the equivalent of $9,700 in China.

While Washington’s 100 percent tariff on Chinese electric vehicles may keep ultra-competitive products like the Seagull out of the U.S. market, Ford could face margin-crushing price competition elsewhere. in the world.

Is Ford stock a long-term buy?

If there’s one reason for clarity for Ford stock investors, it may be the company’s cash situation. Despite continued weakness in its electric vehicle business, Ford generated about $2.5 billion in the fourth quarter. operating incomewhich is not too shabby. And it boasts $25 billion in cash and cash equivalents on its balance sheet.

Not only does Ford have enough cash to meet short-term industry challenges, but will still have a lot to return to investors. The company is known for implementing special dividends as part of his plan to distribute 40% to 50% of it free cash flow to investors. And the stock boasts a dividend yield of about 5.8% at the time of writing.

That said, dividends don’t automatically make a stock a good investment — especially if the stock price stays flat or falls. The S&P 500 returns an annual average of 10% over long periods, and Ford looks unlikely to beat that over the next decade, even with its massive payout. The company is dealing with too much seriously in the long run challenges to be considered a purchase.