Ford is more valuable than GM. It is time for General Motors to assert itself.


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David Paul Morris / Bloomberg



Ford engine

had a good year. Investors rewarded the company with a market capitalization greater than


General Motors
,

its main rival. It’s easy to see how this happened – the why is harder to guess.

Ford (ticker: F) closed Tuesday with a market cap of $ 82.962 billion, according to FactSet. GM closed with a market cap of $ 82.916 billion.

With such a small difference, according to FactSet is a necessary modifier. With a spread of less than 0.1%, the exact number of shares is important. And the number of shares is constantly changing based on the exercise of management stock options and other factors.

It all counts, and Ford has suffocated GM. This is the first time that Ford’s market capitalization has exceeded that of GM since 2016, according to Dow Jones Market Data.

The how is easy to understand. Ford’s inventory is up about 136% year-to-date. GM shares have gained around 37% so far in 2021. The two returns exceed the comparable 28% and 20%, the respective gains of the


S&P 500

and


Dow Jones Industrial Average.

GM’s stock performed well, but Ford’s stock simply outperformed its counterpart.

Why it happened is harder to understand. The starting points mattered. It is a factor. Ford is, in essence, in a turnaround led by new CEO Jim Farley. By the end of 2020, at the start of the new year, Ford shares had lost about 30% of their value over the previous three years. GM shares had gained about 2% over the same period.

So Ford was catching up. This does not explain everything, however. Over the past four years, with 2021 added, Ford’s inventory has grown by around 66% overall. GM shares are up about 39%. Ford has taken the lead.

The company appears to be getting more credit for its vehicle electrification plans. Ford caused a stir this year by launching its all-electric Mustang Mach E, developing its all-electric F-150, and announcing plans to spend billions on new battery and electric vehicle assembly capabilities.

GM has done exactly the same, however, announcing billions in spending on batteries, battery materials, and assembly capacity for electric vehicles. GM is now also selling the all-electric Hummer truck and plans to unveil an all-electric Chevy Silverado in the coming weeks. (Remember, GM sells more electric vehicles than Ford in the world, including Chinese joint ventures).

The strategies are similar, but the market is a little uncomfortable with GM. A few factors could be at work. The Chevy Bolt EV has been recalled due to battery defects. However, this defect was attributed to a supplier. There have also been a few issues recently at Cruise, GM’s self-driving company. CEO Dan Ammann left abruptly, likely due to differences between Ammann and GM CEO Mary Barra over the strategic direction Cruise should take.

The market may be right that Ford has had the best year, but underperformance can, under the right conditions, be an opportunity. If GM ships the Bolt and other EVs, successfully launches the Silverado, and makes progress on its own autonomous driving features, then the stock should perform just fine.

Ford stock is trading at about 10.4 times estimated earnings in 2022. GM shares are trading about 8.2 times that number. If GM were to trade 10.4 times earnings, that would be a $ 72 stock and its total return going back to the end of 2017 would be around 75%, which is very close to Ford’s total return.

Write to Al Root at [email protected]


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