Exxon, Ford and Fossil Fuels

Wednesday’s report of a new hedge fund that controlled far less than 1% of the company’s stock had elected two directors to the board of Exxon Mobil Corp. (NYSE: XOM) was more than just a wake-up call to the fossil-fuel energy industry. It’s a serious warning of impending doom, and perhaps the first that the industry will take seriously.

Shareholders who voted for Engine No. 1’s candidates clearly indicated that they were interested in more than high dividends. At the very least, they want Exxon to stop blustering its way through criticism of the way the company has chosen to act over the past hundred years or so. It’s time for Exxon to develop a plan on what the company will do when the oil stops flowing.

Ford Motor Co. (NYSE: F) has chosen to embrace the switch to electric vehicles (EVs) and, on Wednesday, announced its intention to raise its spending on EVs to more than $30 billion by 2030. Ford’s goal is to have EVs account for 40% of the company’s global sales by that time.

RBC Capital Markets analyst Joseph Spak upgraded Ford stock from Sector Perform to Outperform and lifted the firm’s price target from $13 to $17. Shares responded positively and traded up about 14.6% since Tuesday’s close.

Spak gave several reasons for RBC’s upgrade:

More confidence in 2023 8% margin target. Though to be clear, much of this has to do with our view that the favorable industry NA supply/demand dynamics that aid price/mix will mostly remain in F’s earnings power through then and is more reflective of ICE earnings power. But this does help fund transition to more electric/connected earnings.

Assuaged many of our BEV strategy concerns. Stepped up BEV investment to >$30bn by 2025 and addressed platform commonality/scalability with new platforms; battery sourcing via SK Blue Oval JV. Targets 40% of 2030 sales to be EV.

Ford F-150 Lightning likely a watershed moment for Ford and the industry (it is the best-selling vehicle). For Ford, this not only protects its golden goose, but expands the F-150 franchise opportunity via unique features like Intelligent Backup Power.

When you think Ford, think work. Ford is already very strong on commercial fleet, but now offering a more compelling product via electrification and connectivity that could increase its share in this profitable segment.

Numbers likely moving higher. Ford has more 2Q21 issues than other OEMs from the semi[conductor] shortage, but consensus expectations, esp. for 2022, seem too low (RBC 28% above consensus 2022 EPS). Recall, because semi constraints hitting some very important programs now, more volume gets pushed into 2022.

Ford stock traded up about 5.5% Thursday afternoon, at $14.67 in a 52-week range of $5.57 to $15.05. That high was posted Thursday morning. The consensus price target on the stock is $13.19.

Ford’s plan is aggressive and there will be plenty of doubters. Exxon’s lack of a plan should leave no doubt that the company needs some fresh blood.

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