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Ford (NYSE: F), with a $80 billion market capitalization, trades at less than 9% of Tesla's (NASDAQ: TSLA) almost $1 trillion market capitalization. The company has seen significant success with its electric vehicle line-up and, as we'll see throughout this article, we expect the company to outperform significantly in the coming years.

Ford has seen significant success with its electric vehicle business by making electrical versions of its most popular businesses. The company launched one of the first large scale electric pickup trucks to significant success.

The company has announced on the back of recent success, it's expanding its electric pickup F-150 to 150 thousand vehicles annually. The company has >200 thousand F-150 reservations highlighting significant demand. For the Mustang Mach-E, the company is also expanding production to 200 thousand vehicles annually, another sign of significant demand growth.

The company is also launching its all electric transit van (E-Transit) soon. All told, in the next 2 years, by YE 2023, the company expects to have the capacity to produce 600 thousand electric vehicles annually. For reference, even if Tesla meets its lofty growth goals, for 2023 the company would be at roughly 2 million vehicles.

That means Ford's rapidly growing electric vehicle business will be 30% the size of Tesla's in 2 years. It's worth noting in the same press release, Ford is aiming for eventually being able to challenge Tesla after becoming the second largest electric automaker.

At the same time, the company has rounded out strong performance for 2021.

The company sold 173k US vehicles in Dec. 2021, with 12k electric vehicles sold. The company was the second highest seller of electric vehicles in the market versus Tesla, although, to be fair, it did sell 10% of the electric vehicles. The chip shortage hurt the company's vehicle sales, however, it still annualized at almost 4 million vehicles sold.

That means the company sells 4x the vehicles of Tesla at <10% of the valuation. The company's strong Dec. 2021 performance highlights the overall strength of its business. Its electric vehicle business is expected to continue growing rapidly, as we discussed above, which should support the company's overall businesses.

Ford's current valuation is $20 thousand per vehicle sold. For perspective, Tesla's is roughly $1 million.

Ford has continued to perform incredibly well financially showing its overall business strength.

Ford Investor Presentation

Ford earned quarterly revenue of $35.7 billion but with abnormally high FCF of $7.7 billion. The company has a strong net cash balance of $5.9 billion and its TTM FCF from the 3Q 2021 was $4.1 billion. That implies a mid-single digit FCF yield for the company. That's strong for a company spending $4.5 billion in annual capital expenditures as it grows its electric vehicle business.

That financial performance has enabled a roughly 2% dividend yield. The company has the ability to continue increasing its shareholder returns, highlighted by its overall financial strength.

In our view, Ford has significant continued potential.

The company's ASP is roughly $35 thousand per vehicle. The F-150 electric vehicle starts at $40 thousand. In the next two years, the company is expanding its production of electric vehicles to 600 thousand vehicles annually, vehicles that tend to have a higher ASP and therefore more revenue potential for the company.

We expect the company to grow its annual revenue from both a higher ASP and increased vehicle margins. At the same time, higher ASP can be expected to support margins and earnings. Overall, we expect the company to earn billions in annual FCF and continue growing that, while maintaining a strong net cash position.

That continued potential will enable continued shareholder rewards. Versus Tesla, Ford has a strong and rapidly growing electric vehicle business, as it scales up electric vehicle production. At the same time, the company has a strong legacy business to subsidize its overall business. All of that together shows the company's continued potential.

The risk to our thesis is the company is spending billions of additional dollars ($10s of billions) on rapidly expanding its electric vehicle business. So far, the company is performing incredibly well, however, there's no guarantee that that outperformance continues in the electrical vehicle business. Until the company proves its success, whether or not it succeeds will remain a risk.

Ford has an impressive portfolio of assets and a unique ability to continue utilizing those assets to generate substantial shareholder rewards. The company generated roughly $5 billion in FCF for the last 12 months while investing heavily in growth, especially EV growth. Additionally, the company has a strong net cash position.

For interested investors, we recommend looking at investing in Ford to invest in the EV space. The company's unique portfolio of assets and long-term brands means it's been able to enter the space in a strong way. We expect its market relevance and success to continue growing, generating substantial long-term shareholder returns.

Read the rest here:

Ford Is A Better EV Investment Than Tesla - Seeking Alpha