Today’s Market Wrap Up and a Glimpse Into Thursday

Stocks finished the day mixed after the Fed revealed that the economy is on track for employment and inflation. The Dow Jones Industrial Average and S&P 500 were each down fractionally, while the tech-heavy Nasdaq added 100 points to end modestly higher.

As the economy continues on the path to recovery, the Fed tipped its hand, saying it would begin to pull back from its asset purchasing activity. The major indices still remain close to all-time high levels.

One winner in the Dow was Boeing, which surprised Wall Street by swinging to a profit for the first time almost in two years.

Stocks to Watch

The tech earnings parade rolled on, with Facebook taking the spotlight today. Mark Zuckerberg’s company sees 3.51 billion people flock to its platforms,  including Facebook, Instagram, Messenger and Whatsapp, each month, up 12% YoY.

Facebook’s Q2 revenue came in at USD 29.08 billion, continuing a trend that Google, Microsoft and Apple similarly experienced in the quarter. While Facebook’s Q2 results topped Wall Street’s estimates, revenue growth is not expected to be sustained at these levels, the company warned.

PayPal bucked the positive trend in corporate America after its Q2 results disappointed. Worse, the payments company isn’t expecting things to get much better for Q3. Investors punished the stock in extended hours, sending shares lower by about 6%.

Ford shares found a reason to rally thanks to a stronger than expected Q2 in which the company was profitable. The automaker lifted its Q3 forecast on the heels of robust demand for its Ford Bronco SUV.

Shares of cannabis company Tilray climbed more than 25% in the wake of a profitable fiscal Q4. Tilray CEO Irwin Simon sees a world in which marijuana will become legalized at the federal level in the U.S. in the next 18-24 months.

Look Ahead

On Thursday, an advance look at GDP comes out at 8:30 a.m. ET. Wells Fargo economists predict that the economy grew at an annualized pace of 9.1% in the quarter. The economy has come a long way since last year’s pandemic-fueled contraction, which lasted for two months. The economists forecast that consumer spending and business investments were strong in Q2, while supply chain constraints persisted.

Amazon’s earnings come out on Thursday. Bitcoin investors might be listening to the call to hear if the company addresses the recent crypto-related drama.

Today’s Market Wrap Up and a Glimpse Into Thursday

Another day, another new all-time high for the S&P 500. The broader market index just set its fifth-straight record after finishing the day fractionally higher to just under 4,300. The Nasdaq failed to keep up and ended the day slightly lower, while the Dow Jones Industrial Average tacked on 210 points, with Boeing, Goldman Sachs and Walmart leading the gains.

Now that the month of June is in the rear-view mirror, it’s clear investors have managed to push stocks to impressive gains despite signs of inflation and lofty valuations. The S&P 500 and Dow are up roughly 14% and close to 13%, respectively, year-to-date.

The economy is humming along, with consumers exhibiting signs of resilience. For the back half of the year, however, investors will be weighing whether the economy can stand on its own two feet without the help of a dovish Fed. This will begin with Friday’s all-important employment report.

Stocks on the Move

When you hear that an electric vehicle stock is rallying, you would not be alone to guess Tesla. Today, however, that title went to NIO, a Shanghai-based EV maker. The stock gained nearly 6% on the day amid optimistic investors ahead of the company’s Q2 results coupled with China’s recovering economy. Wall Street analysts are also reportedly turning more bullish on the stock.

Sticking with the auto stock theme, shares of Ford fell 1% today. The company revealed it would suspend operations at some of its North American facilities due to a shortage of chips. The shutdown will cost the automaker upwards of USD 2 billion and slash its production significantly in the interim.

China’s ride-share company Didi made its debut on the U.S. stock market today. The ADR shares came out of the gate strong, rallying by a double-digit percentage, but the enthusiasm didn’t last. Didi finished the day with a gain of 1%.

Look Ahead

The ISM Manufacturing index for June comes out after surpassing estimates and climbing to 61.2 in May. Wells Fargo predicts the reading will stay “elevated” for June amid a strong orders pipeline.

On the earnings front, retailer Walgreens and spice maker McCormick are on deck. McCormick has benefited from rising demand as consumers spent more time cooking during the shift to staying at home during the health crisis.

Could This Be The End? Lordstown Motors Says It Could Go Out Of Business

Startup electric-car manufacturer Lordstown Motors warned that it might be forced out of business as it is running low on cash. The company’s stock has been plummeting since then, and it could sustain further losses in the coming hours.

Lordstown Motors is going bankrupt

Lordstown Motors, an electric vehicle manufacturer in Ohio, has revealed that it could go out of business soon if it doesn’t get additional funding. The company stated that its ability to stay in business depends on completing the development of its electric vehicles, obtaining regulatory approval, starting commercial-scale production and launching the sale of such vehicles. The company can only achieve this with additional funding.

In its SEC filing, Lordstown Motors revealed that it had $259.7 million in cash left as of March 31. The company recorded a loss of $125.2 million in the past three months. When contacted by CNN, Lordstown Motors declined to comment beyond the statement in its SEC filing. The company maintains that it is focused on starting production in a few months.

Analysts have questioned the company’s viability in recent months. Hindenburg Research predicted that Lordstown Motors’ stock price would decline after questioning the validity of the contracts the company was telling investors it had.

Lordstown Motors’ stock price has taken a hit

The company’s stock price has taken a hit since it announced that it could soon go out of business. At the time of this report, Lordstown Motors’ stock price is down by 9%. The stock is currently trading at $9.86 per share, down from $15 yesterday. Overall, the stock price is down by 37% since its announcement yesterday.

<em>Lordstown’s stock chart. Source: </em><a href="https://www.fxempire.com/stocks/ride/chart"><em>FXEMPIRE</em></a>
Lordstown’s stock chart. Source: FXEMPIRE

The electric car industry is becoming more competitive as the traditional vehicle manufacturers are now making their way into the sector. Ford recently launched the electric version of its F-150, one of the best-selling pickups in the United States. Tesla, the leading electric car manufacturer, is also set to start production of its Cybertruck later this year. The massive competition in the electric car industry could affect the performance of startups like Lordstown Motors in both the long and short term.

Ford’s Electric Mustang Tops Norway Car Sales in May

By Terje Solsvik

Battery electric vehicles made up 60.4% of all new cars sold in Norway last month, the Norwegian Road Federation (OFV) said, up from 43.1% a year ago as the country seeks to become the first to end the sale of petrol and diesel engines by 2025.

By exempting fully electric vehicles from taxes imposed on internal combustion engines, Norway has turned its car market into a testing ground for automakers seeking a path to a future without fossil fuels.

A total of 1,384 electric Ford Mustangs were registered in May for a 10% share of Norway’s overall car market, ahead of Toyota’s RAV4 hybrid vehicle and Skoda’s electric Enyaq. Tesla Inc’s Model 3 took sixth place.

“Our realistic goal is to remain prominent in the sales statistics for several months to come,” Chief Executive Per Gunnar Berg of Ford Motor Norway said in a statement.

In 2020, electric cars grabbed a 54% share of the overall Norwegian market, outselling the combined volume of petrol, diesel and hybrid engines for the first time on a full-year basis.

By contrast, cars with diesel-only engines have tumbled from a peak of 75.7% of the Norwegian market in 2011 to just 8.6% last year.

The introduction of new models will frequently give a brand a boost as pre-orders are shipped in large numbers, such as the 2019 launch of Tesla’s Model 3, the top selling car in Norway that year.

Ford first presented its Mustang Mach-E to the public in late 2019, giving the U.S. automaker well over a year to build a backlog of orders before customers could receive them.

Ford earlier this year said its car line-up in Europe will be all-electric by 2030.

(Editing by Gwladys Fouche and David Evans)

Ford Motor Trading at Five-Year High

Ford Motor Co. (F) is trading at a five-year high on Thursday following a well-received Investors’ Day presentation that unveiled a major turnaround plan to address the company’s electric future. A RBC Markets upgrade has added to growing bullishness, triggering a breakout above March resistance at 13.62. The uptick raises hopes the company will play now catch-up with outsized returns at rivals Tesla Inc. (TSLA) and General Motors Co. (GM).

Shift Into Electric Vehicle Era

The automaker will invest more than $30 billion in electric vehicle research and production and is looking for EV to comprise up to 40% of all sales by 2030. It will invest part of those funds in battery technology, creating Ford Ion Park, which will include “more than 150 experts in battery chemistries, testing, manufacturing and value-chain management, who will boost battery range and lower costs to customers and Ford”.

RBC Capital Markets upgraded the stock to ‘Outperform’ and raised their target to $17 after the event, noting the plan addresses long-term concerns about the automaker’s shift into electric vehicles. Analyst Joseph Spak provided upbeat commentary on the long-term outlook, noting “we have more confidence in financial targets, concerns over BEV strategy were addressed, numbers are likely moving higher, and the stock is still not overly expensive.”

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 8 ‘Buy’, 1 ‘Overweight’, 11 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $9.00 to a Street-high $17 while the stock is set to open Thursday’s session about $1.25 above the median $13 target.  There isn’t much wiggle room for traders to book profits in this sleepy configuration but it could mark a major opportunity for long-term investors.

Ford hit an all-time high in the upper 30s in 1999 and rolled into a 9-year decline that ended near a buck in 2008. The subsequent rally stalled in the upper teens in 2011, ahead of persistent downside that cratered to an 11-year low in March 2020. The stock rallied above a massive trendline of lower highs in January 2021, signaling the first uptrend since 2009. However, the advance is now headed toward heavy resistance in the upper teens, limiting upside potential.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Why Ford Stock Is Up By 8% Today

Ford Video 26.05.21.

Ford Stock Gains Ground After Company Announces Ambitious EV Plans

Shares of Ford gained strong upside momentum after the company stated that 40% of its global vehicle volume would be all-electric by 2030. Other electric vehicle stocks also moved higher after this announcement.

Ford plans to invest more than $30 billion by 2025 to reach its goal on the electric vehicle front. The company has also announced the creation of Ford Pro vehicle services and distribution business which will be focused on commercial and government customers.

Ford’s electric F-150 Lightning enjoyed strong customer demand, and the company is ready to bet on the strong expansion of electric vehicles’ market share. The market is pleased with the company’s ambitions, and shares of Ford are gaining more than 8% during today’s trading session.

What’s Next For Ford Stock?

Ford stock started the year below the $9 level but quickly gained upside momentum and is currently trying to settle above the $14 level.

The shares have recently suffered a setback after the company announced that it would lose about 50% of its planned second-quarter production due to chip shortage, but the stock managed to get back to the upside mode after it became obvious that demand for F-150 Lightning was strong.

The recent strategic announcements served as additional bullish catalyst for Ford stock. Analysts expect that the company will report earnings of $1.67 per share in 2022, and earnings estimates have been moving higher in recent months. At current stock price levels, Ford is trading at about 8 forward P/E which is much cheaper than the valuation of its all-electric peers.

If the market sees that Ford’s EV ambitions are achievable, the stock may enjoy significant multiple expansion, which will push Ford’s shares to new highs. I’d note that traders may not start questioning whether Tesla is worth almost 100 forward P/E when Ford is trading at less than 10 forward P/E in the current market environment, but such questions will arise when the interest rates start to move higher.

For a look at all of today’s economic events, check out our economic calendar.

Ford Follows GM, VW With Two New Dedicated EV Platforms by 2025

By Paul Lienert and Ben Klayman

The all-EV platforms are part of an ambitious multi-year, multi-billion-dollar plan the No. 2 U.S. automaker will outline to investors at its Capital Markets Day in an online event.

The dedicated platforms will give Ford common architectures — including shared chassis components, electric motors and battery packs — on which to base many of its future electric vehicles. That will enable it to simplify and reduce the expense of everything from logistics to manufacturing as it transitions from a global lineup of mostly fossil-fueled products.

Ford said it does not comment on future product speculation.

At Wednesday’s investor event, the company also will provide more details on its long-range battery strategy, including a recently announced battery joint venture with Korea’s SK Innovation, as well as broader goals for electric, commercial and self-driving vehicles, said the sources, who asked not to be named.

Ford previously said it will spend $22 billion through 2025 on electrifying many of its vehicles in the Americas, Europe and China. The sources said Ford is planning to launch at least nine all-electric cars and car-based SUVs and at least three electric trucks, vans and larger SUVs, including second-generation editions of the Ford F-150 Lightning and Mustang Mach-E at mid-decade.

What Ford Chief Executive Jim Farley cannot predict, however, is whether — and how many — customers will embrace the newer battery-powered vehicles, even if they are able to match or beat current combustion-engine counterparts in price, performance and operating costs. That concern is shared by nearly all automakers except Tesla, whose lineup is 100% electric.

Ford’s traditional rivals have sprinted ahead, with both VW and GM committing tens of billions of dollars to electrify their fleets in the same markets as Ford, but on more aggressive timetables. VW and GM each will have at least two dedicated EV platforms, on which many of their future vehicles will be based.

VW launched the first of its all-new electric vehicles, the ID.3, last year in Europe, while GM will begin building its new Hummer EV pickup later this year in the United States. Both companies also are rolling out additional EV models that will share key components with those vehicles.

Ford earlier this year introduced the Mustang Mach-E, an electric crossover built on a new dedicated platform with the internal designation GE, the sources said.

A newer version of that platform, designated GE2, will debut in mid-2023, underpinning new Ford and Lincoln SUVs, according to Sam Fiorani, head of global forecasting at AutoForecast Solutions.

The same GE2 platform eventually will be used as the base for replacements for the Mustang coupe and Mach-E, the sources said.

Ford will use a second passenger car platform — a version of Volkswagen’s MEB architecture — in Europe for at least two new models beginning in 2023, the sources said.

In February, Ford said its European lineup will be all-electric by 2030.

The redesigned F-150 Lightning, due in late 2025, is expected to be the first to employ the new TE1 truck architecture, Fiorani said. The first-generation Lightning, which debuts next spring, uses a platform that is heavily derived from the standard F-150.

Ford could also use the new TE1 platform for electric versions of the Lincoln Navigator and Ford Expedition SUVs, the sources said.

In addition, Ford is expected to get a new electric vehicle, possibly a midsize pickup, that would be based on a platform from EV startup Rivian, in which Ford is an investor.

(Reporting by Paul Lienert and Ben Klayman in Detroit; Editing by Dan Grebler)

Biden to Pitch his $174 Billion Electric Vehicle Plan in Michigan

By David Shepardson and Nandita Bose

He will also rule out consumer incentives for high-priced electric luxury models, according to a White House fact sheet, as he argues for dramatic government spending to prod Americans to buy electric vehicles at a preview of Ford’s new EV F-150 pickup truck.

Biden is pushing for electric vehicles in the auto industry’s heartland, and trying to win over auto workers worried that more battery electric cars and trucks will mean fewer jobs.

The White House wants to encourage new battery production facilities, which are key to ramping up U.S. electric vehicle manufacturing.

Biden’s plan “proposes cost-sharing grants to support new high capacity battery facilities in the United States,” the fact sheet said, and backs grants to fund the retooling of shuttered factories “to build advanced vehicles and parts.”

United Auto Workers President Rory Gamble, who has criticized Ford and General Motors plans to build some EVs in Mexico, urged “Biden to make certain that investments to bolster electric vehicle production and sales incorporate strong labor standards and ensure that the vehicles of the future support good union jobs. Taxpayer dollars should be spent in support of U.S. built vehicles, not imports.”

The centerpiece of Biden’s EV plan is $100 billion in consumer rebates, according to an April U.S. Transportation Department email to lawmakers.

The White House fact sheet says Biden’s plan provides “point-of-sale incentives that encourage EV deployment. These incentives will not go towards expensive luxury models and will also incentivize manufacturers who use good labor practices.”

The existing $7,500 EV tax credit applies to vehicles regardless of price but phases out after a manufacturer sells 200,000 EVs. Credits for both Tesla and General Motors expired after they hit the cap.

The White House has declined to say how Biden wants EV tax credits restructured or if he wants to hike credits.

Biden will argue that the United States is falling behind China on EVs. “Despite pioneering the technology, the United States is behind in the race to manufacture these vehicles and the batteries that go in them,” the White House says.

Biden faces resistance from many congressional Republicans on his EV focus. Republicans are set to release a counterproposal to Biden’s $2.3-trillion jobs and infrastructure plan as early as Tuesday.

Biden backs new tax credits for zero-emission medium- and heavy-duty vehicles, which the White House notes “are major contributors to poor air quality” and the administration pegs as costing $10 billion.

Biden wants $15 billion to build 500,000 EV charging stations by 2030 – including in apartment buildings and public parking – and $45 billion to electrify a significant number of school and transit buses. He also wants to fund shifting the federal fleet to more EVs, including for the Postal Service to begin using EV delivery trucks.

(Reporting by David Shepardson and Nandita Bose; editing by Richard Pullin and Nick Zieminski)

Ford Redesigning Parts to Use More Accessible Chips, Weighing Direct Deals with Chip Foundries

By Ben Klayman

Jim Farley, speaking at Ford’s online annual shareholder meeting, also said the company is weighing other strategies for the future, including building a buffer supply of chips and signing supply deals directly with the foundries that make the wafers used in semiconductors.

Automakers typically get their chips through their largest suppliers, not dealing directly with chip makers and the foundries that make the wafers used to assemble the semiconductors.

The chip shortage has caused automakers globally to curtail production. Last month, Ford said the issue would cost it $2.5 billion this year and halve its vehicle production in the second quarter, when the shortage will be at its worst. The shortage has forced Ford at times to idle production of its highly profitable F-150 pickup trucks.

Farley said on Thursday that about 60% of the chips used in Ford’s vehicles are 55-nanometer or larger, what he called “mature nodes”. He said supply of those chips was constrained.

Longer-term changes about how Ford approaches chips are being considered, he said.

“Not only are we redesigning a lot of our components to work with chips that are more accessible … but we think we need to look at buffer stocks, actual direct contracts with some of the foundries,” Farley said. “We think that’s going to be a really critical approach to our supply chain as we get more electronic components.”

Ford Executive Chairman Bill Ford also said on Thursday the automaker will look to reinstate the company’s dividend “as soon as possible.”

Ford’s dividend was suspended in March 2020 after the COVID-19 coronavirus pandemic hit in a move to conserve cash. That saved the company $2.4 billion at an annual rate.

Ford shares were up 3% in morning trading.

(Reporting by Ben Klayman in Detroit;Editing by Elaine Hardcastle)

Why Shares Of Ford Are Down By 9% Today?

Ford Video 29.04.21.

Chip Shortage Hurts Ford’s Production Plans

Shares of Ford found themselves under pressure after the company reported its quarterly results. Ford reported revenues of $36.2 billion and earnings of $0.81 per share, beating analyst estimates on both earnings and revenue.

However, the stock dived as the company stated that it would likely lose 50% of planned second-quarter production due to chip shortage. The chip shortage, which was already a major headache for the auto industry, was exacerbated by a fire at a key chip supplier.

At this point, Ford believes that the “full recovery of the auto chip supply will stretch into fourth quarter of this year and possibly even into 2022”. As a result, the company expects to lose 10% of planned second-half 2021 production.

In total, Ford will lose about 1.1 million units of production in 2021, so it decreased its adjusted EBIT guidance to $5.5 billion – $6.5 billion.

What’s Next For Ford?

While chip shortage is not news for anyone interested in the auto industry, the 50% hit to the second-quarter production clearly took investors by surprise. The recent Tesla report and the subsequent earnings call highlighted problems with chips, but it was hard to expect problems of this magnitude at Ford.

Production problems have spoiled the impression from a solid first quarter, and now the market will focus on forecasts for supply of semiconductors rather than Ford’s first-quarter financial results.

At this point, the negative sentiment is prevailing, and Ford’s established peers like General Motors and newcomers like NIO are all under significant pressure. Ford had a successful start of the year, and the company’s shares were up by more than 40% before the release of the earnings report. In this light, there is plenty of room for a pullback. At the same time, Ford was performing well before chip supply problems hit the company, so it will have a good chance to attract value hunters in case the stock continues to move lower.

For a look at all of today’s economic events, check out our economic calendar.

The Best Trades For The Green Energy Revolution

The great bond bull market of the past 40 years has made millionaires out of many, so has the rise of blockchain, cryptocurrencies and the digitalization of the financial system. Another such paradigm shift upon us is the worlds unified move to decarbonize and green the economy.

What we are witnessing is a worldwide push for industries to move away from excessive greenhouse gas (GHG) emissions. Such unification around a common goal is perhaps unlike anything we have witnessed in the entire history of humanity. With governments and companies worldwide fully committing to the green transition and most aiming for net-zero emissions by the middle of this century, many are taking several significant steps to achieve this goal.

The move from internal combustion engines to electric vehicles (EVs) is the most obvious and popularized move thus far. For example, the EU has announced a target of 30 million electric vehicles by 2030, Britain plans to ban the sale of new traditionally powered petrol and diesel engines by 2030 and so too are the Japanese. California is also adopting a similar goal. Likewise, the automakers themselves are largely embracing the change as they realistically have no option but to do so. Ford, Jaguar and Volvo are some such examples. What is abundantly clear is the climate change goals of nations are no longer within the realm of speculation; the transition is real and it is coming, whether we are prepared or not.

People are now far more open-minded, educated, and aware of the potential damage to both our environment and our economy that global warming can unleash. Our world leaders and notably the Biden Administration are agreeing there is much to be done to green the economy. This is a huge task and is occurring from a global, country, sovereign and individual level. Whilst the evidence above suggests most of the action thus far has centered around the use of electric vehicles and renewable energies, the process of electrifying everything is enormous in scope. Upstream, midstream, and downstream; the way we generate, transport, store and use energy must be revolutionized.

The green energy transition is a once-in-a-lifetime paradigm shift that we can trade and profit from. Much will change during this generational transformation.

Copper

Copper and other metals used in the electrification process are undoubtedly a popular way to trade the green energy transition. Regardless of the rapid price appreciation in such metals over the past 12 months, there are abundant reasons why so many investors are bullish over the long-term. The role these metals will play in the green energy transition is so very important.

Front and center of the electrification metals sits copper; perhaps the biggest winner of the green transition. Its role is critical in all aspects of the push to electrify the economy. With the world’s motor vehicles set to become almost completely electrified over the coming decades and coppers use therein being three to fourfold relative to traditional vehicles, we are going to need a lot of copper.

According to the International Copper Association (ICA), a battery-powered electric vehicle (BEV) uses 83 kg of copper, a hybrid electric vehicle 40kg and an internal combustion engine only 23kg of copper. From just the transition to electric vehicles alone, the demand for copper is set to increase three to four times from its current levels. Indeed, the ICA predicts the number of electric vehicles will rise to 27 million by 2027, a nine-fold increase from the roughly 3 million as of 2017. Such an increase is set to increase copper demand for the production of EVs from 185,000 tons to 1.74 million tons.

Source: International Copper Association - The Electric Vehicle Market and Copper Demand
Source: International Copper Association – The Electric Vehicle Market and Copper Demand

Based solely on the adoption of electric vehicles, we can clearly see the demand for copper is set to increase dramatically over coming decades. What’s more, such projections as those of the ICA are modelled only on coppers use within EVs, the green energy transition will require an immense amount of copper for much more than just its use within electric vehicles.

Indeed, according to the ICA, electric vehicle chargers themselves will require from around 0.7 kg up to 8 kg each, equal to an additional 216,000 tons of copper demand by 2027. Additionally, the adoption of renewable energy sources such as wind and solar are heavily dependent on the use of copper n their construction. According to the Breakthrough Institute, a California based environmental research center, “wind energy requires on average 2,000 tons of copper per gigawatt, whilst solar needs 5,000 tons per gigawatt – several times higher than fossil fuels and nuclear energy”.

The graphic below illustrates coppers use in the generation of electricity from conventional methods compared to wind and solar. Copper will be required to a significant degree in all forms of renewable energy generation.

Source: Kutcho Copper
Source: Kutcho Copper

A hugely underappreciated and at this stage seemingly underfunded part of the green transition for many developed countries, notably the US, is the need to rebuild, or at the very least significantly improve their electrical grid. For the most part, the electrical grid does not have the ability to store electrical energy. One of the major issues with wind and solar-generated power is their intermittency, that is, their inability to constantly generate power. The sun is not always shining nor is the wind always blowing. Thus, the ability to be able to store the electrical energy created from such sources for future use becomes paramount.

What’s more, the United State’s electric grid as is currently constructed is not able to provide and transmit the necessary electricity to power an entirely electrified economy. If the majority of the population came home from work in the evening and were to plug their EVs in to charge, the grid would simply be unable to support such demand and would shut down. In some parts of the US, the electrical grid is nearly a century old. It was designed and built from a completely different era. Those living in Texas can no doubt attest to the limitations of the grid.

Rebuilding the electric grid will require astronomical amounts to copper and other important metals. The importance of this enormous task will only become more prevalent in the minds of policymakers as we continue down the road to electrification.

What makes copper so useful is its ability to conduct electricity and transmit heat. It is roughly twice as conductive as aluminum, making it far more efficient in its use. Copper is the primary source of conductors in wires and cabling, electrical equipment and renewable energy infrastructure. Whilst silver is another such metal that can serve a similar purpose, it is simply too expensive and not as abundant.

Precious metals aside, pound-for-pound copper is the best conductor of electricity and heat. It is also one of the few commodities that cannot be feasibly replaced by any alternatives in the electrification process in the way that battery technology is susceptible to innovation. Additionally, copper itself is also renewable and is one of only a few materials that is fully recyclable.

Also favoring copper is its long-term supply dynamics. In spite of this huge forthcoming growth in copper demand, copper itself is notoriously difficult to source. As detailed by energy and commodity experts Leigh Goehring and Adam Rozencwajg in their Q4 2020 market commentary; “a structural deficit has crept into global copper markets that will become increasingly obvious to investors as the decade progresses. Confronting this strong demand is copper mine supply that will show little in the way of growth over the next five years.

Few large copper mining projects are slated to come online over the next five years”. They also note that “the lack of massive new copper mining projects, coupled with an ever-accelerating copper mine depletion problem, means growth in mine supply should remain minimal over the next five years. Global copper consumption exceeds copper mine supply and recovered copper scrap by about 500,000 tons per year presently and will get worse”.

Whilst an increase in the price will of course lead to further capital injected into the sector to source further supply, the process of getting this new supply online to meet demand is not as simple as it may appear. Clearly, there is a structural supply shortage of copper. This presents an incredibly favorable demand and supply dynamic for copper over the comin years, one in which the copper price and the miners themselves will benefit enormously.

Finally, turning to the technicals, lovers of a long-term chart will find it hard not to appreciate the recent bullish breakout from copper’s near two-decade wedge pattern.

Source: StockCharts.com
Source: StockCharts.com

Whilst much of the rapid price appreciation we have seen over the past 12 months can somewhat be attributed to the COVID-19 lockdown induced supply shortages and rampant speculation, it is important to remember this is a long-term trade. Though the immediate risk-reward may not be as attractive, any significant dips in the price of copper and the copper miners should be bought with earnest for those who believe in the long-term viability of this trade, as I do.

Copper and copper miners are the simplest long-term play on the green energy transition.

Uranium

With so much focus and capital being directed towards renewable sources of energy in wind and solar, there is relatively little thought given to the limitations of these as sources of clear energy. Due to such limitations I will endeavor to detail below, herein lies the inevitability of nuclear power’s role in electricity generation as we progress through this green revolution.

The limitations of renewables

Whilst renewable energies will play a significant and important role in the green energy transition, they are not the panacea for carbon reduction as one might initially believe. There are significant limitations to the sole use of renewables as a means to reach net-zero emissions.

Both solar and wind are inefficient generators of electricity. This is primarily a result of their intermittency and energy density, as I have only briefly touched on. According to Goehring and Rozencwajg, who have also released some excellent research on the limitations of renewables, note that a standard solar panel is likely to only generate between 12-20% of its capacity due to intermittent sunshine, whilst a wind turbine is only marginally better at around 25% due to the intermittency of wind.

Goehring and Rozencwajg have developed a metric to track the efficiency of energy generation from its various sources, measured as Energy Return On Energy Invested (EROEI), estimating that between 25-60% of the energy generated by renewable sources is consumed internally by the process of actually generating that electricity, meaning the EROEI for renewables is roughly 3 to 1. Compare this to a traditional gas plant, whose EROEI is around 30 to 1, meaning that it internally consumes only 3% of its generated energy. Traditional and less carbon friendly sources of energy are roughly 30 times more efficient in their energy generation compared to renewables.

What’s more, due to the inefficiency of renewables and their need of servicing and maintenance, which in itself is quite impactful on carbon emissions, in addition to the need to overbuild solar and wind farms as well as the ability to store the energy to counter their intermittency, has largely resulted in those countries who have adopted renewables to a significant degree not seeing the reduction in carbon emissions they would have hoped for.

Source: Goehring &amp; Rozencwajg - Ignoring Energy Transition Realities
Source: Goehring & Rozencwajg – Ignoring Energy Transition Realities

As we can see above, much of the gains toward a green economy made by the adoption of renewables will be offset by their inefficiencies and the additional energy requirements to maintain the infrastructure and store their sourced energy. Few people understand how energy intensive the green transition will be.

Whilst they will play an important role in the green energy transition, renewables will not solve problem of global warming to the degree that is desired. This leads to nuclear power, one of the few solutions able to provide the carbon-free, base load power required.

Why uranium?

Uranium is the fuel that powers nuclear reactors which then generates power. Nuclear power is generally misunderstood. On the whole, it is a clean, safe and reliable source of of base-load energy.

If we return to Goehring and Rozencwajg’s Energy Return On Energy Invested (EROEI), “a modern nuclear reactor generates electricity with an EROEI of nearly 100 compared with 30 for gas and 1-4 for renewables. As a result, only 1% of the generated electricity is consumed internally compared with 3% for gas and 25-60% for renewable energy”.

Compared with renewables, nuclear energy is anywhere from 40-100 times more efficient. What’s more, nuclear energy is far more scalable than renewables and completely avoids their intermittency shortcomings. The green energy transition simply must have an increased reliance on nuclear energy, it is one of the few sources of clear energy that has the ability to drive the green energy transition in an efficient way.

Not only is nuclear energy the most efficient source of electricity generation, but it is also less carbon intensive than renewables.

Source: Sachem Cove Partners
Source: Sachem Cove Partners

Perhaps the biggest reason behind the lack of reliance on nuclear as a source of energy is the negative sentiment towards it. Nuclear energy certainly gets a bad wrap. There have been three significant nuclear incidents responsible for this; Three Mile Island, Chernobyl and Fukushima. Despite the actual loss of life being surprisingly less than one might have thought, these incidents have largely left the industry bereft of capital and acceptance as a source of energy over the past 40 or so years. However, what will likely surprise many is that nuclear energy is actually the safest form of electricity.

Source: Sachem Cove Partners
Source: Sachem Cove Partners

The use of uranium within nuclear energy does have somewhat of a dark history. The uranium cycle of nuclear energy creation, as opposed to using the thorium cycle, was chosen as the by-product of creating electrical energy using uranium is plutonium, which was used to make nuclear weapons.

The reasoning behind this choice was because the heyday of nuclear energy occurred during the Cold War, and it was the agenda’s of the worlds governments to create nuclear weapons. However, the Cold War has long since past. It is now time for policy makers to revisit the use of nuclear energy within their climate goals. Indeed, this negative view towards nuclear energy has created a huge mispricing for the sector. The math no longer is equal to the narrative.

Convincing environmentalists that the positive impacts of nuclear energy do indeed significantly outweigh the negative impacts will likely be a game-changer for how the world produces energy. Likewise, an education of the general public is needed in regards to nuclear energy. We cannot meet our climate objectives without nuclear energy in the mix.

Indeed, we now are seeing sentiment towards nuclear slowly begin to change. The pressure of governments to meet their green energy objectives will ultimately lead to nuclear power having an ever increasing role as a source of carbon free base-load energy. On the whole, nuclear energy is actually very clean, safe and reliable. Nuclear energy simply must be a part of policy makers plans should they wish to achieve their green objectives.

The industry fundamentals for nuclear energy and uranium is quite different to most other commodity and energy markets. As the sector has been in a bear market since the Great Financial Crisis, it has largely been bereft of capital. This seemingly paints a positive picture for the price going forward. Due to the lack of capital and investment, there is very little in the way of new production set to come online in the next few years in order to meet the increasing demand for uranium. This lack of new capital has been beneficial for the sector, as only the strongest, most profitable and best-run producers have survived.

Likewise, the production of uranium is a highly concentrated industry, with the two largest miners, Kazatomprom in Kazakhstan and Cameco in Canada, accounting for roughly 60% the the worlds uranium production. With both producers significantly reducing their production over the past 12 months due to COVID-19, a structural supply shortfall could well be with us for years to come so long as nuclear energy becomes a significant part of the green energy transition. Furthermore, what could result from such supply shortfalls is the producers themselves entering the spot market in order to fulfill their supply obligations to the various reactors; a bullish outcome to be sure.

From a technical perspective, the spot uranium price appears to be finally bottoming after its prolonged bear market.

Source: TradingEconomics.com
Source: TradingEconomics.com

Due to how the industry contracts uranium supply between producers and users, the spot price is perhaps not the most relevant and is a very thinly traded market. For me, I am happy to invest via the URNM ETF, which is superior to the older URA ETF. URA is more of a nuclear energy ETF than a play on uranium, and as a result there are many constituents of the fund which makes little sense as they are not related to the production of uranium. URNM is a better vehicle for those looking for a purer exposure to the uranium miners.

However, similar to copper, it is important to keep in mind the uranium trade is for those with a long-term time horizon. Given the near doubling of the price of both URA and URNM since the reflation trade took off in November of last year, the risk-reward for the immediate-term is perhaps skewed to the downside. Of course any significant pullbacks should be bought in earnest for all those who buy into the long-term bull case for uranium, as I do. The 38.2% Fibonacci retracement of the Novembers lows looms as one such attractive entry point.

Source: StockCharts.com
Source: StockCharts.com

The case for uranium is simple; nuclear energy will ultimately be required in order for governments to meet their carbon goals.

European Carbon Credits

What are European Carbon Credits?

European carbon credits, or perhaps what are more accurately defined as carbon allowances, are part of the European Union’s Emissions Trading Scheme, or EU ETS. The EU ETS is at its core, a market-based approach to controlling carbon emissions introduced by the EU as the cornerstone of their efforts to control emissions and meet their carbon goals. The Emissions Trading Scheme is what’s referred to as a ‘cap and trade’ system, which attempts to set a maximum limit of emissions certain companies and industries involved in the scheme are allowed to emit during a certain period of time. The EU ETS is the worlds first and largest ‘cap and trade’ system aiming to reduce GHG emissions.

The system works by setting an emissions cap and issuing a certain number allowances, which are referred to as EU Emissions Allowances (EUAs). The cap is set by the EU, and all the companies within the scheme are required to accumulate a certain amount of allowances (EUAs) for every ton of CO2 they emit each year. These allowances are issued via auction each year (or issued for free to various industries where there is considered to be a potential risk if they were required to pay the full cost of the allowances they need to cover their emissions), and are tradable between companies. At the end of each year, the participants are required to return an allowance for every ton of CO2 they emitted during that year.

Those companies who were unable to accumulate a sufficient number of allowances to cover their emissions (i.e. the more carbon intensive industries), are required to reduce their emissions or buy surplus allowances from companies whose allowances exceed their carbon emissions during the period. These surplus companies are also allowed to accumulate their unused allowances for use in later years.

The following graphic provides a helpful illustration of how the system works.

Source: EU ETS Handbook
Source: EU ETS Handbook

For those companies who fail to accumulate sufficient allowances or reduce their emissions accordingly, they face a fine of approximately 100 euros per excess ton of carbon emitted, as well as being required to accumulate allowances in future years to cover those not covered in past years. The system is structured such that there are significant penalties for the participants who do not meet the emissions goals.

The benefits of using a ‘cap and trade’ system as a means to meet carbon emissions goals is it allows the market to determine how the emissions can be reduced at the lowest cost to consumers and to the economy. What this means is the price of carbon is effectively set through the market via the supply and demand for allowances. Relative to more traditional methods of simply taxing carbon emitters, a ‘cap and ‘trade’ system offers far more flexibility and efficiency, resulting in carbon emissions being cut by companies and industries who will incur the smallest cost for doing so.

First launched in 2005 as a pilot program, the Emissions Trading Scheme is now in its fourth stage, and has undergone several changes throughout its history. Phase 1 (2005-2007), was the testing phase where too many allowances were issued, resulting in the price effectively falling to zero. This oversupply was partly driven by the companies themselves overestimating their carbon emissions on purpose, allowing them access to a greater number of allowances.

Phase 2 (2008-2012), was similarly driven by an oversupply of allowances from Phase 1, and coincided with the Great Financial Crisis, both working to keep prices down. Phase 3 (2012-2020) on the other hand worked to reduce the supply and increase the amount or participants. Phase 3 has been very successful and has established the EU ETS as one of the worlds most effective measures to combat carbon emissions. The system is set to further reduce supply and increase participants throughout Phase 4 (2021 and beyond).

What is important to note in regards to Phases 3 and 4 is the number of allowances available has been declining, along with the number of participants who were previously entitled to free credits is declining, and finally, the number of industries and countries included as part of the scheme is increasing. As it stands, 27 countries within the European Union are part of the scheme, along with non-EU countries Norway, Liechtenstein and Iceland. As I will touch on the in following section, the supply and demand dynamics for the scheme indicates the prices of these allowances is heavily skewed to the upside.

Demand and supply dynamics

The current supply of allowances is what’s referred to as the Total Number of Allowances in Circulation, or TNAC. This is currently set at around 1.4 billion tons of carbon emissions annually. The emissions targets of the scheme is a reduction of emissions by 43% relative to the 2005 levels when the system was initiated. This implies a linear reduction in emissions of 2.2% annually from 2020 to 2030. The TNAC will reduce accordingly in line with the targeted reduction in emissions. Simply put, the supply of allowances will reduce each year.

This creates a simple dynamic within the scheme; a reduction of supply coupled with an increase in demand. The system is skewed towards higher prices. The brilliance of the scheme is it creates incentives for higher prices of the allowances for almost everyone involved. The higher the price (i.e. the higher cost of emitting carbon), the greater the incentive for companies to own credits and thus fewer greenhouses gases are emitted. What’s more, the governments not only have an environmental incentive for higher prices, but as a result of the sovereign governments of the many nations involved in the scheme being the ones who actually distribute the allowances to the participating companies, they directly receive revenue via the auctions for doing so. Again, higher prices equals higher revenue.

To a certain extent, the allowances themselves are being viewed by the participants as a store of value. They are aware the prices are going to rise, they are aware the supply of allowances is going to continue to fall, and they are required to all hold enough allowances to conduct their business as it stands. There is little incentive to sell. Analyzing this supply and demand dynamic from a stock-to-flow perspective as one would gold, bitcoin or other scarce assets again presents a favourable outlook for the price. What’s more, unlike gold or bitcoin, it is in the governments best interests to see the prices rise. The system is being championed by government policy as opposed to an alternative to government policy.

To give some idea of how the supply and demand dynamics of the scheme are set to work within the coming years, Lawson Steele of Berenberg Bank, one of the worlds leading experts on the EU ETS, projects a cumulative supply shortfall of around 99% by 2024! If such projections were to modestly prove true, there is huge upside of the price of allowances in the coming years.

However, it must be noted the EU is somewhat cautious of a too-rapid increase in price, and do have measures in place to combat such a rapid price rise if it were to be too damaging for the companies involved in the ETS. Should it be deemed necessary, the policy makers will (attempt) to intervene via what is known as the Market Stability Reserve (MSR), as well as there ability to alter the supply of allowances as defined by Article 29a of the ETS.

The MSR is basically a feature of the system that helps to control over an oversupply or undersupply of allowances. Introduced in 2019, the MSR works to reduce the supply (i.e. the TNAC) when there is an abundance of allowances, and increase the TNAC when there is a potentially harmful allowances deficit. The idea behind the MSR is to allow prices to rise in a smooth fashion with minimal volatility.

Likewise, Article 29a of the scheme’s directive obliges the policy makers to monitor the supply and demand dynamics and intervene by reducing or increasing supply should this be deemed necessary. Whilst the purpose of Article 29a is again to try to ensure prices rise in an orderly manner, the actual rules therein are cloudy in nature and very much open to interpretation. What’s more, the many different sovereign’s involved will want different prices depending on their industries included in the ETS, thus creating somewhat of a potential conflict of interest between participants and thereby increasing the difficulty of intervention via Article 29a.

Whilst the biggest risk is an excessive rise in prices to the point whereby policy makers deem it appropriate to intervene, such a risk could be considered immaterial given that prices must rise in the first place to warrant such intervention. To be clear, the policy makers most certainly want higher prices. These measures are more so designed to achieve those higher prices in an orderly manner. At the end of the day, the priority of the scheme is to reduce GHG emissions, and if the price must rise to achieve this then so be it.

Technicals and ways to trade

Capping off the bull case for the EU carbon allowances are the technicals. The allowances themselves can be traded in the futures market. This futures market of EUA’s has a near $300 billion market cap with a significant level of liquidity.

From a long-term technical perspective, the recent breakout of the decade plus basing pattern remains immensely bullish.

Capture.PNG

The allowances can also be traded via the KRBN and GRN exchanges traded funds. The KRBN ETF is made up of roughly 70-80% of EU allowances, with the remaining constituents being that of other, smaller Emission Trading Schemes over the world. The GRN ETF, which is smaller than KRBN, trades nearly exclusively off the EUA futures. I have positions in both ETF’s and intend on adding more as attractive opportunities present themselves. Though the price action over the past 12 months has been near parabolic and I would be more inclined to wait for a pullback of some sort before buying more, the supply and demand dynamics suggest further upside is ahead.

The EU ETS is Europe’s flagship way to meet its carbon goals over the coming years. There remains a vast amount of institutional money yet to make its way into this trade as the ESG incentives for pension funds and institutions to buys allowances will only grow. Remember, a higher price equal fewer emissions.

Final thoughts

What I have discussed here are my favourite trades for the green energy transition. I do not doubt there will be other investments who will benefit significantly over the coming years as the world moves to decarbonize. Whilst EV’s has certainly been the winners to date, the risk-reward for such a trade is not necessarily skewed to the upside as much as one would like.

Geothermal, battery technology and nickel are all themes in which I am sure will receive much investment and whose investors will likely benefit, along with many others.

For a look at all of today’s economic events, check out our economic calendar.

Auto Industry Rethinks Cost-Cutting Playbook as COVID-19, Chip Shortages Disrupt Supply Chains

By Ben Klayman

Many automakers and suppliers like the Ohio maker of axles, driveshafts and other auto parts, are deciding that securing their supply lines is the most pressing order of business.

Dana’s Craig Price, senior vice president of purchasing and supplier development, is pushing companies in his supply network to change the way they do business, stepping away at times from the just-in-time, lean production practices that have guided automotive manufacturers for nearly 40 years.

Dana is sourcing such key commodities as resin, castings, forgings and some electrical components from multiple suppliers, asking suppliers to hold in warehouses a backlog of critical inventory, and building out its software network to better track suppliers, a process Dana hopes to complete this year, Price said.

That cuts against the just-in-time inventory and production approach manufacturers have adopted from Japan’s Toyota Motor Corp since the 1980s. The new catchword in manufacturing is “resiliency,” underscored by Toyota’s February revelation it had built a four-month chip stockpile.

Dana has also moved to help its smaller suppliers recruit workers and secure shipping space on containers to avoid any impact on its operations, Price said.

And in the company’s headquarters outside Toledo, Price is working on suppliers to join a data sharing network that will give Dana a detailed look at how suppliers two or three steps removed are doing – rather than just counting on shipments to show up as provided in a contract. “We are working toward complete supply-chain transparency, which is not typically available at the moment,” he told Reuters of the plans at the $7 billion company. “It’s a journey that we’re on to get as much data as we can, not for any other reason than just security of supply.”

BRITTLE SUPPLY CHAIN Efforts like Dana’s are under way throughout an industry buffeted by a series of unexpected events. The chip shortage is a high-profile problem, but not the only one.

“The whole issue is exposing the brittleness, the fragility of the automotive supply chain,” said Richard Barnett, chief marketing officer of Supplyframe, which provides market intelligence to companies across the global electronics sectors. BorgWarner Chief Executive Frederic Lissalde told Reuters companies are looking at the total cost of any approach instead of simply its upfront price tag.

“We’re trying to dual-source whenever possible critical components,” he said. David Simchi-Levi, a professor of engineering systems at the Massachusetts Institute of Technology, who has worked with companies like Ford Motor Co on strengthening supply chains, said interest has exploded in the last year. “Resiliency is here to stay.” The math is simple. Such approaches may cost more upfront, but they are likely to pay for themselves if they help companies avoid the charges of up to $2 billion and $2.5 billion faced by General Motors Co and Ford, respectively, for the chip shortage.

Ford’s chief product platform and operations officer, Hau Thai-Tang, said the No. 2 U.S. automaker previously altered its approach, but the past year has accelerated the change further. Stockpiling key parts or materials, and using multiple sources are back on the table.

“If you’re down for 30 days at the F-150 plant, what’s the cost to the Ford Motor Co versus paying this insurance to stockpile these chips?” he said, referring to the company’s highly profitable full-size pickup truck. “That’s the way we would think through it.”

Even so, Ford has had to halt F-150 production temporarily at times, and is stockpiling trucks that are missing parts.

Ford is looking at what other parts or materials could face the same pressures in the future, and has already started buying some specialized microchips directly from chipmakers rather than going through its largest suppliers, Thai-Tang said. Ford also is providing a six-month vehicle mix and volume forecast to suppliers instead of just two weeks, and looking at extending that visibility out to a year.

JUST-IN-TIME HERE TO STAY

Automakers cannot afford to abandon the just-in-time system’s down-to-the-penny cost consciousness in a business where profit margins are often less than 10 cents on a dollar of revenue. “The solution cannot be more waste,” said Ramzi Hermiz, a former supplier CEO who advises companies. “The objective needs to be how do we build more simplicity, flexibility and speed in the supply chain.” Answers could include the establishment of more suppliers closer to their final customers, including bringing back work from China and other parts of Asia, and greater use of standardized parts and systems where possible to allow for more supplier options, industry executives said. Bob Roth, co-owner of RoMan Manufacturing, which makes transformers and glass molding equipment in Grand Rapids, Michigan, said the resiliency conversations have accelerated over the past year. However, the answer cannot be simply to shift the burden to smaller suppliers like his $40 million company.

“We’re not going to tie up our working capital just because you think building inventory or stockpiling stuff is a great idea,” he said.

The answer for many companies will be stress-testing their supply chains to find weaknesses much as banks did after the 2008 subprime crisis, said Tim Thoppil, a partner and head of consulting for the Americas at engineering firm umlaut. Raw materials and parts for electric batteries and motors could be the next crisis spot.

Unexpected events like the pandemic and chip shortage are just a sign of the times, said Steven Merkt, president of transportation solutions at TE Connectivity, which makes sensors, connectors and electrical components for automakers.

“This isn’t a series of black-swan events,” Merkt said. “This is a precursor of what life is going to be like.”

(Reporting by Ben Klayman in Detroit, additional reporting by Nick Carey in London; Editing by Joe White and Matthew Lewis)

Ford Motor Ready to Play Catch-Up

Ford Motor Co. (F) posted a four-year high last week, despite a worldwide chip shortage that has forced many automakers to temporarily shut down assembly lines. The stock’s performance has lagged rivals for many years, held back by overly-conservative management and a product line that relies too heavily on truck sales. It’s also failed to announce an aggressive transition into electric vehicles, denying the buying power that’s lifted General Motors Co. (GM) to an all-time high.

Joining The EV Bandwagon

Fortunately for long-suffering shareholders, that’s likely to change in coming months. Some analysts now believe that Ford’s alliance with Volkswagen signals a shift into an aggressive electric vehicle rollout between 2025 and 2030, finally joining GM and other rivals. The Spring Investor Day looks like a perfect opportunity to announce the initiatives, which should be centered on two complimentary platforms. Look for the company to announce the event date during the Apr. 5 earnings presentation.

Barclay’s analyst Brian Johnson upgraded the stock to ‘Overweight’ and raised his price target to $16 on Friday, noting, “While we have liked Ford’s product cycle and profit improvement potential under an energetic new CEO, the lack of a clear, aggressive battery electric vehicle (BEV) strategy kept us on the sidelines. After a deep-dive into Ford Europe and in particular its Volkswagen alliance, we are more comfortable with the margin improvement outlook”.

Wall Street and Technical Outlook

Still, Wall Street consensus remains skeptical, with an ‘Overweight’ rating based upon 6 ‘Buy’, 11 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $9 to a Street-high $16 while the stock closed Friday’s U.S. session about 40 cents above the median target. While this placement suggests Ford is fairly-priced, growing bullish sentiment could ignite a rally into the mid-teens ahead of the earnings report.

Ford posted an all-time high at 38.32 in 1999 and entered a 9-year downtrend that ended at 1.01 in 2008. The subsequent recovery wave failed in the upper teens in 2011, ahead of a steady decline that posted an 11-year low in the first quarter of 2020. The stock broke out above a 21-year trendline of lower highs in January 2021, signaling the first uptrend in a decade. Multiyear resistance in the upper teens looks like a logical price target for this trend advance.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

U.S. Market Wrap and Forecast for Monday

January’s Non-Farm Payrolls report added 49,000 new jobs while the unemployment rate fell from 6.7% to 6.3%. December jobs were revised sharply lower, continuing a bleak employment scenario as the Western world works through the last stages of the winter’s second pandemic wave. The equity market yawned and bonds sold off after the news, squaring positions into the weekend so that short-term options market makers get paid.

Ford vs. Tesla

SP-500 Volatility Index (VIX) fell to the lowest low since early December. GameStop Inc. (GME) shareholders declared their loyalty in a widely read Reuters article, ready to become the bagholders of a new generation. Ford Motor Co. (F) CEO Jim Farley (no relation) declared the new Mustang Mach-E will compete successfully with Tesla Inc.’s (TSLA) Model Y, forgetting that brand is everything in the third decade of the new millennium.

Snap Inc. (SNAP) recovered after a 9% post-earnings decline, lifting to an all-time high. Fitness juggernaut Peloton Interactive Inc. (PTON) fell into the 140s despite beating top and bottom line estimates and raising first quarter guidance. The company has to compete with real fitness centers in coming quarters, lowering expectations about their vertical growth trajectory. Wynn Resorts Ltd. (WYNN) hit an 11-month high despite a 58.5% year-over-year revenue decline, offering shareholders an opportunity to get out with their capital still intact.

Heading into Monday

Fourth quarter earnings season draws to a close next week, with reports from Dow components Cisco Systems Inc. (CSCO) and Walt Disney Co. (DIS) as well as Twitter Inc. (TWTR), and General Motors Co. (GM). Disney is trading near an all-time high even though their wildly successful streaming service has done little to replace income lost from empty movie theaters, dry-docked cruise ships, and socially-distanced theme parks.

Sky’s the limit for U.S. equities, at least until the Biden administration hits a brick wall with their massive stimulus bull. At least to the point, left-leaning politicians have avoided most of the logistical mistakes made by the Obama administration in 2009.  The Republican Party is trying to rebrand itself after the departure of Donald Trump and their infighting has allowed the Democratic-controlled Congress to move aggressively on economic policy.

For a look at all of today’s economic events, check out our economic calendar.

Ford Shares Surge as Truck Sales Drive Q3 Earnings

Ford Motor Company (F) shares added 4.41% in extended-hours trade Wednesday after the Detroit-based carmaker reported a surge in quarterly earnings amid better-than-expected demand during the pandemic.

The company posted third quarter (Q3) adjusted earnings per share (EPS) of 65 cents, more than tripling analysts’ expectations of 19 cents a share. Moreover, the bottom line grew 91% from a year earlier. Revenue of $37.5 billion during the period rose by around $500 million from the September 2019 quarter and came in ahead of the $33.98 billion figure Wall Street had expected. “We executed very well this quarter,” Ford CFO John Lawler told investors during the earnings call, per CNBC. “We saw much higher demand than what we expected,” he added.

Management credited the positive results to a strategic shift several years ago of ramping up production of pickups, SUVs, and commercial vehicles while phasing out unprofitable sedans. The company said earlier this month that it had its best quarter of pickup sales since 2005. It also noted that North American results during the quarter helped offset weaker sales in Europe, South America, and China.

Through Wednesday’s close, Ford stock has a market capitalization of $30.63 billion and trades 15.59% lower on the year. However, price performance has improved over the past three months, with the shares gaining nearly 10%. The company has not indicated when it will reinstate its dividend, which it suspended in March due to the uncertainty of the pandemic.

Wall Street View

This month, Benchmark analyst Michael Ward upgraded Ford to ‘Buy’ from ‘Hold’ with a $10 price target. Ward argues the car marker’s new products and the need to replenish inventories of its full-sized pickup trucks should accelerate momentum into 2021.

Other analysts on the Street mostly remain on the sidelines. The stock receives 4 ‘Buy’ ratings, 12 ‘Hold’ ratings, and 1’Sell’ rating. However, the impressive quarter may lead to a string of upgrades, especially in light of newly minted CEO Jim Farley vowing to provide greater transparency. Price targets generally range between $5 and $10, with Thursday’s implied open at $8.05 sitting 2.5% below the median 12-month price target of $8.25.

Technical Outlook and Trading Tactics

Ford shares broke above an ascending triangle in early October before profit-takers moved in ahead of the company’s earnings. An open today back above the psychological $8 level should help swing momentum back to the upside as bulls scramble to rejoin the recent uptrend. Active traders who buy here should look for a retest of a significant zone of resistance between $9.55 and $10.55 while protecting capital with a stop-loss order placed somewhere below $7.50.

Ford Motor Q3 China Sales Rise 25%, Biggest Jump Since 2016; Target Price $10 in Best Case

Ford Motor Co, an American multinational automaker, said its vehicle sales climbed 25% in the third quarter of this year, the biggest year-over-year increase since 2016, as demand gradually recovered from the COVID-19 pandemic slowdown in the world’s second-largest economy.

Ford and its joint ventures, Changan Ford, JMC and Ford Lio-Ho, sold 164,352 vehicles in Greater China in the third quarter. Sales of Ford, Lincoln and JMC brand vehicles achieved year-over-year growth of 12.5%, 64.8% and 38.3%, respectively, the company said.

Ford Motor shares closed 0.66% higher at $7.62 on Thursday; however, the stock is down about 20% so far this year.

Executive comments

“Ford is strengthening its sales momentum in China by building on growing consumer preference for our iconic brand and favourable product mix of luxury and near-premium utility vehicles,” said Anning Chen, president and CEO of Ford China.

“Our localization strategy to produce in China world-class Ford and Lincoln vehicles, including the newly launched Ford Explorer, Lincoln Corsair and Lincoln Aviator, has further enhanced our competitiveness in delivering the best products and services that Chinese consumers are looking for.”

Ford Motor stock forecast

Twelve analysts forecast the average price in 12 months at $8.03 with a high forecast of $10.00 and a low forecast of $4.90. The average price target represents a 5.38% increase from the last price of $7.62. From those 12 equity analysts, four rated “Buy”, seven rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $8 with a high of $12 under a bull scenario and $4 under the worst-case scenario. The investment bank gave the company an “overweight” rating. Deutsche Bank raised their stock price forecast to $9 from $8 and Benchmark introduces a price target of $10.

Several other analysts have also recently commented on the stock. Barclays lifted their price target on Ford Motor to $7 from $4 and gave the stock an “equal weight” rating in July. Nomura reiterated a “sell” rating in August. Citigroup increased their target price on shares of Ford Motor from $5.50 to $7.50 and gave the stock a “neutral” rating. At last, UBS Group increased their price target on Ford Motor to $6.70 from $4.30 and gave the stock a “neutral” rating.

Analyst view

“Auto market recovery in China – which happens to be Ford’s second-largest market- positions the firm well. The company’s efforts to strengthen product line-up, with more customer-centric products and focus on customer experiences are likely to have yielded results. These measures along with improving economic conditions in China are likely to continue the sales growth in the country, going forward,” noted equity analysts at Zacks Research.

“Ford’s focus on SUVs and trucks along with EV launches are likely to boost its long-term prospects. (But) Depressed demand for vehicles amid weak consumer confidence and elevated leverage is likely to dent Ford’s sales and earnings in the near future,” Zacks Research added.

Upside and Downside Risks

Upside: 1) More detail around restructuring actions. 2) Positive share gains in pickups, Ford’s strongest segment 3) Decomplexification actions. 4) Launch execution. 5) Further announcements around EVs or AVs – highlighted Morgan Stanley.

Downside: 1) US SAAR resiliency (2020 base case 14.0MM). 2) Further COVID-19 impacts. 3) The F-150 pickup truck loses market share. 4) Slowdown in key oil-dependent end markets. 5) Launch / Warranty issues continue to remain a problem.

Check out FX Empire’s earnings calendar

Ford Motor U.S. Auto Sales Recovered in Q3; Target Price $7.54

Ford Motor Co, an American multinational automaker, said on Friday that its third-quarter U.S. auto sales were up 27.2% as the industry recovered at a stronger than expected pace from the COVID-19 demand slowdown, sending its shares up over 2%.

The U.S. producer of cars and trucks said with the help of stronger retail sales and rapidly recovering commercial sales, Ford retail share of the industry grew by an estimated 0.2 percentage points, while Ford’s Q3 total share expanded by 0.8 percentage points. Excluding discontinued cars, Ford retail sales were up 1.3%.

Ford’s overall Q3 pickup sales of combined F-Series and Ranger totalled 249,997 pickups. This represents Ford’s best Q3 pickup sales since 2005, with combined sales up 4.0% over a year ago. F-Series Q3 retail sales up 10.1% over a year ago and are back above pre-coronavirus sales levels. Total F-Series sales of 221,647 for the quarter were up 3.5%, the company said.

The second-largest U.S. automaker, which announces its quarterly sales volumes a day later than the rest of the industry, said it sold 551,796 vehicles in the country in the quarter, down from 580,251 a year earlier. Its sales were, however, up 27.2% when compared with the preceding quarter, Reuters reported.

At the time of writing, Ford Motor’s shares traded over 2% higher at $6.89 on Friday; the stock is also down about 30% so far this year.

Executive comment

“Despite the challenging pandemic environment, our retail unit sales were down only 2% and we had our best third quarter of pickup truck sales since 2005. F-Series finished the quarter on a high note with September sales up 17.2% with over 76,000 F-Series pickups sold. This is a testament to our winning product portfolio and the performance of our great dealers,” said Mark LaNeve, Ford vice president, U.S. Marketing, Sales and Service.

Ford Motor stock forecast

Ten analysts forecast the average price in 12 months at $7.54 with a high forecast of $8.00 and a low forecast of $4.90. The average price target represents an 11.13% increase from the last price of $6.79. From those 10, three analysts rated ‘Buy’, six analysts rated ‘Hold’ and one rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $8 with a high of $12 under a bull scenario and $4 under the worst-case scenario. Evercore ISI raised the price target to $8 from $5; Citigroup upped their stock price objective to $7.5 from $5.5 and Ford Motor had its target price raised by Credit Suisse Group to $8 from $7. The brokerage currently has a neutral rating on the auto manufacturer’s stock.

A number of other equities research analysts have also recently issued reports on the stock. Barclays upped their price objective to $7 from $4 and gave the company an equal weight rating. Royal Bank of Canada dropped their price target to $5 from $6.50 and set a sector to perform rating.

It is good to hold now as 50-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

Analyst views

“We raise our 2020 Ford EPS forecast to ($0.90) vs. our prior forecast of ($1.30), while for 2021 and 2022 our EPS rises to positive $0.75 and $1.25 vs. our prior forecast of $0.30 and $0.80 respectively. On our revised price target of $8, Ford trades at just over 10x our 2021E EPS. Currently, the stock trades at just over 9x our revised 2021 EPS forecast,” Adam Jonas, equity analyst at Morgan Stanley noted in June.

“We raise our 3Q N. American Ford volume forecast to negative 12% Y/Y vs. down 15% previously. Our 4Q volume is revised to down 3% vs. down 5% previously. This slight upward adjustment reflects stronger than expected US SAAR, a rebound in used vehicle prices, and more supportive auto credit vs. our prior forecasts,” he added.

Upside and Downside Risks

Upside: 1) More detail around restructuring actions. 2) Positive share gains in pickups, Ford’s strongest segment. 3) Decomplexification actions. 4) Launch execution. 5) Further announcements around EVs or AVs- highlighted by Morgan Stanley.

Downside: 1) US SAAR resiliency (2020 base case 14.0MM). 2) Further COVID-19 impacts. 3) The F-150 pickup truck loses market share. 4) Slowdown in key oil-dependent end markets. 5) Launch / Warranty issues continue to remain a problem.

Ford Motors to Invest C$1.95 Billion in Canada Operations Under Unifor Union Deal

Ford Motors, an American multinational automaker, will invest 1.95 billion Canadian dollars in its Oakville and Windsor plants in Canada, Unifor union National President Jerry Dias said.

Unifor National President, Jerry Dias said: “I’m very pleased to announce that on behalf of the more than 6,000 members who work at Ford Motor Company, we have negotiated $1.95 billion of investments to retool the Oakville complex to build five models of electric vehicles and bring a new product to the engine plant in Windsor.”

“Today is an historic day. We are not only talking about solidifying the footprint of the auto industry in the short-term but for the long term. I think it’s fair to say that as an organization we hit a home run,” said Dias.

Dias added that up until today, of the $300 billion announced globally in EV investments as the auto industry transforms from combustible engines to battery-electric vehicles, not one nickel had been allocated Canada. But with today’s announcement, that changes.

Ford shares closed 1.31% lower at $6.78 on Tuesday; the stock is down about 30% so far this year.

Ford stock forecast

Eleven analysts forecast the average price in 12 months at $7.46 with a high forecast of $8.00 and a low forecast of $4.90. The average price target represents a 10.03% increase from the last price of $6.78. From those 11 equity analysts, three rated “Buy”, seven rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley target price is $8 with a high of $12 under a bull scenario and $4 under the worst-case scenario. Evercore ISI raised the price target to $8 from $5; Citigroup upped their stock price objective to $7.5 from $5.5 and Ford Motor had its target price raised by Credit Suisse Group to $8 from $7. The brokerage currently has a neutral rating on the auto manufacturer’s stock.

A number of other equities research analysts have also recently issued reports on the stock. Barclays upped their price objective to $7 from $4 and gave the company an equal weight rating. Royal Bank of Canada dropped their price target to $5 from $6.50 and set a sector to perform rating.

It is good to hold now as 50-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

Analyst views

“We raise our 2020 Ford EPS forecast to ($0.90) vs. our prior forecast of ($1.30), while for 2021 and 2022 our EPS rises to positive $0.75 and $1.25 vs. our prior forecast of $0.30 and $0.80 respectively. On our revised price target of $8, Ford trades at just over 10x our 2021E EPS. Currently, the stock trades at just over 9x our revised 2021 EPS forecast,” Adam Jonas, equity analyst at Morgan Stanley noted in June.

“We raise our 3Q N. American Ford volume forecast to negative 12% Y/Y vs. down 15% previously. Our 4Q volume is revised to down 3% vs. down 5% previously. This slight upward adjustment reflects stronger than expected US SAAR, a rebound in used vehicle prices, and more supportive auto credit vs. our prior forecasts,” he added.

Upside and Downside Risks

Upside: 1) More detail around restructuring actions. 2) Positive share gains in pickups, Ford’s strongest segment. 3) Decomplexification actions. 4) Launch execution. 5) Further announcements around EVs or AVs- highlighted by Morgan Stanley.

Downside: 1) US SAAR resiliency (2020 base case 14.0MM). 2) Further COVID-19 impacts. 3) The F-150 pickup truck loses market share. 4) Slowdown in key oil-dependent end markets. 5) Launch / Warranty issues continue to remain a problem.

Will Tesla Stock Price Crash?

Just today, Tesla surpassed Walmart’s market cap – how is that possible? Walmart has 534.66 billion in sales versus just 25.71 billion for Tesla.

TESLA DAILY CHART

The trend in TSLA is overbought. The MACD and the RSI (14) are diverging negatively, suggesting waning momentum. The stock is behaving like a commodity – not a business. I see the potential for a “buy the rumor sell the news” event after the stock splits. I think prices will correct at least 50%, and that is extremely conservative.

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Another way to measure Tesla’s ludicrous valuation is through total revenue – let me explain. Hypothetically speaking, let’s say a company paid 100% of its annual revenue to shareholders as a dividend. Of course, this is not possible, but it helps make my point. In the example below, we will measure how many calendar days it would take to recover your initial investment if each company paid 100% of their profits to shareholders at today’s stock price.

Time to recover initial investments:

Ford Motor Company (F) $6.66

Revenue 130.4 billion

Revenue Per Share $32.87

Time to recover initial investment 74-days

General Motors (GM) $28.56

Revenue 115.79 billion

Revenue Per Share $80.94

Time to recover initial investment 128-days

Walmart (WMT) $131.65

Revenue 534.66 billion

Revenue Per Share $188.23

Time to recover initial investment 255-days

Tesla (TSLA) $2042.41

Revenue 25.72 billion

Revenue Per Share $141.64

Time to recover initial investment 5263-days or over 14-years.

Lastly, the combined market cap of Ford, GM, and Fiat Chrysler (the big three) is 90-billion, and in 2019 they produced 7,470,370 vehicles. Tesla’s market cap is 300% greater than all three (307 billion), and they delivered only 195,000 vehicles – ASTONISHING.

What goes up – must come down. Will Tesla prices crash soon? Maybe – it is hard to say. Whatever the case, I think we will get a generational buying opportunity in TSLA next year or early 2022.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.

Ford Motor’s China Vehicle Sales Rebound 3% in June Quarter as Coronavirus Restrictions Ease

Ford Motor Co, an American multinational automaker, said that its vehicle sales in mainland China rebounded in the June quarter, growing 3% from the same period last year, driven by strong demand following the lifting of COVID-19 pandemic restrictions.

That would be the first time in nearly three years, the automaker has registered a rise in quarterly sales. Total of 158,589 vehicles were sold during the second quarter, representing a 3% growth year-over-year and 78.7% sales increase compared to the first quarter of 2020.

Transit commercial vehicles experienced solid y/y growth of 60.9%, as did Lincoln luxury vehicles on gains of 12.0%, the company said. In the U.S., where business has been hit hard by the coronavirus pandemic, Ford’s sales fell more than 30% during the quarter.

On the other hand, Ford’s rival, General Motors’ sales declined 5.3% during the quarter in the world’s second-largest economy. Ford’s sales plunged 26% in 2019 and 37% in 2018.

Ford outlook and price target

Eleven analysts forecast the average price in 12 months at $6.24 with a high forecast of $8.00 and a low forecast of $3.50. The average price target represents a 2.46% increase from the last price of $6.09. From that eleven, three analysts rated ‘Buy’, six rated ‘Hold’ and two rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $8 with a high of $12 under a bull scenario and $4 under the worst-case scenario. Ford Motor had its price target lifted by UBS Group from $4.30 to $6.70. UBS Group currently has a neutral rating on the auto manufacturer’s stock. JP Morgan raised the target price to $7 from $6. Ford Motor was given a $7.50 price target by analysts at Jefferies Financial Group Inc. The firm currently has a buy rating on the stock.

It is good to hold now as 50-day Moving Average and 100-200-day MACD Oscillator signals a selling opportunity.

Analyst view

“We raise our 2020 Ford EPS forecast to ($0.90) vs. our prior forecast of ($1.30), while for 2021 and 2022 our EPS rises to positive $0.75 and $1.25 vs. our prior forecast of $0.30 and $0.80 respectively. On our revised price target of $8, Ford trades at just over 10x our 2021E EPS. Currently, the stock trades at just over 9x our revised 2021 EPS forecast,” Adam Jonas, equity analyst at Morgan Stanley noted in June.

“We raise our 3Q N. American Ford volume forecast to negative 12% Y/Y vs. down 15% previously. Our 4Q volume is revised to down 3% vs. down 5% previously. This slight upward adjustment reflects stronger than expected US SAAR, a rebound in used vehicle prices, and more supportive auto credit vs. our prior forecasts,” he added.