MORGAN STANLEY: Ford needs ‘profound change’ to turn around its falling stock price

Newly named Ford Motor Company president and CEO James Hackett answers questions during a press conference at Ford Motor World Headquarters in Dearborn, Michigan in May.
Thomson Reuters

Jim Hackett has been CEO of Ford for three months now, and Morgan Stanley is ready to see some changes.

The bank says a deciding moment for the automaker will come next month, on October 3, when management plans to announce a “strategic update” to analysts and investors.

Morgan Stanley hopes that update is a partnership between Ford and Waymo, Alphabet‘s self-driving arm.

“Ford’s strategy towards exploring Auto 2.3 was through taking stakes in a wide range of start-ups to expose the company to new technologies and business models – a strategy not unusual compared to other global OEM’s,” analyst Adam Jonas said in a note Monday.

“Ford has not cooperated at a high level with the larger, more well capitalized tech players looking at Mobility to this point. Alphabet’s efforts to develop sustainable transport networks through its autonomous car division (now called Waymo) is perhaps the most enterprising of the major players.”

Ford and Waymo had reportedly been in discussions that fell apart in early 2016, but Ford’s new leadership “may be better positioned” to negotiate a partnership like this, Morgan Stanley says, and the fact that Waymo CEO John Krafcik worked for Ford for 14 years only helps.

Ford Self Driving Car

A self-driving Ford spotted in Detroit
Screenshot via YouTube

Last summer, Ford’s new CEO Mark Fields laid out a vision for the automaker that includes building a vehicle without a stirring wheel or brake pedal by 2021. Since then, Ford has already invested $1 billion in Argo AI, a robotics company founded by alumni of Waymo and Uber.

Despite the promise self-driving may have, it will take more than good headlines to turn around Ford’s stock, Morgan Stanley says. The bank maintains an underweight rating for the stock, as well as its $9 price target – roughly 23% below current share prices.

“We think Ford Chairman Bill Ford selected Jim Hackett to effect profound cultural and structural change at the company. This may involve a restructuring of the business portfolio, a new reporting structure, new partnerships, and new hires,” the bank said.

“While we cannot rule out success and recognize the opportunity for talented management to bring lasting change, we believe investors are not being compensated for the elevated levels of execution risk.”

Ford stock price

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