JPMorgan: Europe Looks Good For Ford, Bad For Tesla

A European tour of continental auto operations left a sell-side analyst increasingly bullish on Ford Motor Company F and bearish on Tesla Inc TSLA.

The Rating

JPMorgan analyst Ryan Brinkman maintained an Overweight rating on Ford with a $14 price target.

The Thesis

European car manufacturers are making “significant investments” in trends in which Tesla has staked its future, Brinkman said in a Monday note. (See the analyst's track record here.) 

“German automakers, in particular, have been sounding more and more aggressive in our visits with regard to their plans for fielding battery electric vehicles, which we expect to provide more significant competition for Tesla,” Brinkman said.

Daimler is accelerating and expanding its EV production targets, with 10 models set for release by 2022; BMW developed a luxury electric sedan concept to compete with the Model S; and Audi is preparing to roll out a vehicle akin to the Model X, according to JPMorgan. 

At the same time, they’re affirming the vehicle category will yield lower margins than internal combustion engine models do, which does not bode well for the EV-focused Tesla, Brinkman said. By JPMorgan’s assessment, EV profitability will be stunted until battery packs decline to $100 per kilowatt — a milestone Tesla targets for 2020, but Mercedes forecast for 2025.

While reaffirmed in his Tesla bearishness, Brinkman said he left Europe increasingly bullish on Ford, which is advancing its electrification strategy with the release of 48-volt mild hybrids as soon as 2019 and a battery electric crossover in 2020.

The European division is also set to increase pricing power by emphasizing crossovers over multi-activity vehicles and cars, and it could profit from new vehicle launches, diminished warranties and FX headwinds, Brinkman said.

“While we do not believe Ford is quite on track to realize 6-percent margin, we do believe it is on track to realize a higher degree of margin in Europe than many investors suspect and we have been modeling."

The analyst doubled his 2018 margin estimates to 1.6 percent and increased the 2019 metric from 1.4 percent to 2.4 percent.

Price Action

Tesla was down 2.7 percent at the time of publication Monday and Ford was up nearly 1 percent. 

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Photo courtesy of Ford.