RE: US car workers strike29 Sep 2023 09:02
Ford Motor Company (NYSE:F) investors who decided to add more exposure in early August (based on my previous update) haven't been hurt. I updated F holders well before the UAW decided to commence its historic strike against the Detroit three: Ford, General Motors (GM), and Stellantis (STLA) in September.
As such, F investors have outperformed the S&P 500 (SP500) since then, suggesting market operators have likely reflected significant pessimism. While I acknowledge that the UAW's decision to strike is a highly significant event, as it upended the pre-strike negotiations, Ford could still emerge with less damage than its peers.
Accordingly, Ford seems to have made more constructive progress with UAW as auto workers expanded their strikes against General Motors and Stellantis. However, Ford investors shouldn't jump to a premature conclusion of a favorable outcome despite the recent progress.
Furthermore, Ford could be more exposed than its peers to UAW demands if UAW President Shawn Fain decides to add more pressure on Ford, as he was upset about the company's decision to pause construction on its $3.5B battery plant. Fain stressed the decision as a "threatening tactic to cut jobs, accusing Ford of not supporting a just transition to electric vehicles."
Despite that, Ford's "better relationship" with the UAW could be a critical factor supporting favorable buying sentiments on F, corroborated by the union's decision not to escalate the labor unrest against CEO Jim Farley and his team. However, with Ford's UAW-linked workforce accounting for about 33% of its total U.S. workforce, the company needs to tread water carefully, given the significant demands from the union.
Tesla (TSLA) CEO Elon Musk indicated bluntly in a recent X post, highlighting the unsustainability of UAW's demands for a "40% pay raise *and* a 32-hour workweek." He believes it's a "sure way to drive GM, Ford, and Chrysler bankrupt in the fast lane."
While the union has reportedly curtailed its pay raise demands from 40% to 36%, it would still be a substantial increase that could be detrimental to Ford's bottom line and EV transition ambitions.
Notwithstanding these challenges, analysts have likely reflected adjusted EBIT headwinds, given the ongoing spat. Accordingly, Ford's automotive adjusted EBIT is estimated to fall by nearly 9% in FY24 before a sharp recovery of 15.3% in FY25.
As such, it seems likely that Wall Street expects Ford's medium-term profitability to remain sound, suggesting a temporary blip in its transition efforts. However, the fluidity of the negotiations with the UAW leadership during the historic strike is expected to keep momentum investors at bay.
Hence, dip buyers considering adding more exposure to F at the current levels must be prepared to hang on tight or even average down if necessary, anticipating downside volatility.
F price chart (weekly) (TradingView)
Interestingly, F's $11 critical support level has held firmly despite the negative
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