Ford’s Stock Climbs on AI and Energy Prospects
Ford Motor Company’s stock (F) saw a significant increase for a second consecutive day on Thursday, buoyed by investor enthusiasm for the company’s emerging energy sector, particularly its advancements in artificial intelligence (AI). Following a remarkable 13% rise on Wednesday, Ford’s shares experienced an overall boost of 19% after Morgan Stanley highlighted the automaker’s potential competitive edge in battery technology.
Investors view Ford as an attractive investment opportunity, likening its energy storage business to a data centre adjacent hyperscaler play. The focus has been particularly on Ford’s battery energy storage system (ESS), which analysts believe positions the company favourably within the energy market.
In a note released late Tuesday, Morgan Stanley analyst Andrew Percoco expressed optimism regarding Ford’s $2 billion investment in battery storage, suggesting the ESS sector could potentially be valued at around $10 billion independently. This bullish perspective stems primarily from Ford’s strategic partnership with Chinese battery manufacturer Contemporary Amperex Technology Co., Ltd (CATL). Analysts argue that Ford’s collaboration with CATL grants it an often-overlooked strategic advantage, establishing Ford as one of the few semi-vertically integrated domestic ESS suppliers with access to superior lithium iron phosphate (LFP) technology.
Morgan Stanley assesses the enterprise value of Ford’s energy division at $10 billion, applying a 17.5x multiple to roughly $588 million in earnings before interest and taxes (EBIT), assuming the unit achieves an annual production capacity of 20 gigawatt-hours. With potential growth, the valuation could conceivably escalate to $31 billion, according to the bank’s projections.
Challenges remain for Ford Energy, however, with Morgan Stanley anticipating a 25% gross margin only achievable when the business scales up. The initial stages of the ESS venture are expected to incur negative EBIT. Percoco projects that the energy segment won’t contribute positively to EBIT until 2028.
Despite the hurdles, Morgan Stanley forecasts a robust 38% annual growth rate for domestic energy storage deployments through to 2030, driven primarily by rising demand from data centres related to AI.
Ford’s agreement with CATL is significant. By leveraging CATL’s advanced LFP technology to manufacture batteries in the U.S., Ford can comply with requirements stipulating that 55% of battery content must come from Foreign Entity of Concern (FEOC)-compliant suppliers. This compliance enables the company to qualify for a 30% Investment Tax Credit, which Percoco describes as a “competitive advantage.”
Should these compliance measures prove effective and Ford secures a significant hyperscaler client, the $10 billion forecast could indeed be conservative. For reference, Tesla Energy is currently valued at $140 billion based on a projected 30x EBIT multiple for 2028.
While Morgan Stanley has not adjusted Ford’s Equal Weight rating or its $14 price target, any leaps in the energy segment or securing a major client could prompt a reevaluation of the stock’s potential.
Percoco anticipates imminent catalysts, suggesting that ESS supply agreements with large commercial entities and hyperscalers are likely to emerge in the coming months. Competitors like Tesla boast around 40 gigawatt-hours of Megapack capacity in the U.S., with plans for an additional 50 gigawatt-hours in Houston. Other companies, like LG Energy Solution and Samsung SDI, are also ramping up production to meet growing demand.
In summary, Ford’s positioning as one of the few domestic suppliers capable of meeting FEOC regulations and qualifying its clients for tax credits stands out as a potential growth driver. As the automaker continues to innovate and expand its energy business, many investors are keeping a close eye on how developments in this arena will shape Ford’s future in the stock market.
