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Jun 18, 2012
From the redit guy who brought us $gme is now focusing on Ford $F

Ford vs Ferrari Part 1 - Greasing the Wheels

*From the guys who brought you [The Greatest Short Burn of the Century](The REAL Greatest Short Burn of the Century

> *Oh man, oh man, oh man.*

> *Not again.*

> -Drizzy


Please believe me when I say I really wanted to take this month off and enjoy the snow in Tahoe. But as I was driving, something caught my eye...

Make no mistake. This stock is not going to be nearly as volatile or profitable as GME. In fact, this might be so boring that most of you will ignore me yet again. **And that’s exactly why I like it.** I’ll do my best to make this engaging, but the fact is, this is going to be a slow grind. Both this DD and the stock.

Also, as a bonus, Reddit is currently public enemy #1 in the eyes of the media. Why don’t we do a quick heel-turn and join their side? Are they gonna hate us for buying boring value stocks? They won’t know what hit them. That will be a fun show to watch.

Anyway… let’s take a look under the hood. **As always, not financial advice. Just education. NOTHING IS A RECOMMENDATION. We are just sharing knowledge here. Ok SEC?**


Ford (NYSE: $F -- NOT NASDAQ:$FORD), is another depressed deep value multiple expansion arbitrage play. No short squeeze this time. The GME asymmetry may not be seen again for 10 years.

It might seem boring and unsexy on the surface, but Ford is a fantastic company in the midst of one of the best turnarounds in American history. And with a little help from our friend Mr. Options (or as Buffett called, Financial Weapons of Mass Destruction) we can turn a boring old Ford into a lightning fast Ferrari using the quadruple income option wheel strategy. Don’t try this at home. If you don’t know what CSPs, CCs, or vega are, stick to shares. Those should work just fine.

Let’s break this down into 5 parts: electrification story and leadership, multiples expansion, technical analysis, options, and the trade.

By the way, in 2019, the Ford F-Series was second only to the Apple iPhone, which raked in $55 billion, in terms of total revenue generated. The F-Series generated more revenue than the NFL, MLB, NBA, and the NHL combined, which added up to $40 billion. Just something to think about.

> The wheels on the bus go round and round, round and round...

**Electrification story and leadership:**

Let’s jump into history for a second. Ford had a meteoric rise from 1997 - 1999 from $15 to around $32 at the peak. This was due to $F reporting massive earnings increases each quarter:

* [Dec 1996 - 1997 Ford F-150 - Truck of the Year](https://www.motortrend.com/news/1997-ford-f150-truck-of-the-year/)

* [Jan 1997 - Ford profits up 82 percent](Ford profits up 82 percent - Jan. 29, 1997)

* [Oct 1997 - Ford profits up 64 percent](Ford Earnings Surge 64%)

* [Jan 1998 - Ford profits up 56 percent](Ford's Profit Soars 56% in '97 to a Record $6.9 Billion)

They were just feasting and feasting. Jim Farley looks like the best person alive to revitalize Ford, capable of tripling the stock in 2-3 years. Look at the last two quarters:

* Q3-2020 - Adjusted EPS: 65 cents vs 19 cents expected, Automotive revenue: $34.71 billion vs $33.51 billion expected (due to pent up demand)

* Q2-2020 - Adjusted EPS: A loss of 35 cents per share versus a loss of $1.17 per share expected, Automotive revenue: $16.6 billion versus $15.95 billion expected.

Here are excerpts from the Q3 earnings and some other notable highlights:

> Farley: Now that plan, which was introduced to the Ford team and many stakeholders on October 1, is very straightforward. Among other things, No. 1, we will compete like a challenger, earning each customer with great products but as well services with rewarding ownership experiences. Number two, we're moving with urgency to turn around our automotive operations, improve our quality, reduce our cost and accelerate the restructuring of underperforming businesses.

> And third, we're going to grow again but in the right areas, allocating more capital, more resources, more talent to our very strongest businesses and vehicle franchises; incubating, scaling and integrating new businesses, some of them enabled by new technology like Argo's world-class self-driving system; and expanding our leading commercial vehicle business with great margins but now with the suite of software services that drive loyalty and generate reoccurring annuity-like revenue streams; and being a leader in electric vehicle revolution around the world where we have strength and scale. So now speaking about EVs. To start with, we're developing all-new electric versions of the F-150 and the Transit, the two most important, highest-volume commercial vehicles in our industry. These leading vehicles really drive the commercial vehicle business at Ford, and we're electrifying them.

Quick sidebar here from my buddy M: "Whereas traditional manufact / consumer / industrials are valued on an EBITDA multiple, SAAS has historically been valued on a revenue multiple, which translates to flat out higher valuations. EVs themselves are not necessarily a higher margin product that justifies a higher multiple (at least not that I've seen), but tech services / subscriptions are the real money makers in this game. Hint Hint companies like Apple throwing everything they have at trying to integrate services and subscriptions over the last 5 years"

This further justifies the expansion multiples we expect will catch up to leading EV automakers (see below).

> We own work at Ford. And these electric vehicles will be true work vehicles, extremely capable and with unique digital services and over-the-air capabilities to improve the productivity and uptime of our important commercial customers. The electric Transit, by the way, will be revealed next month, and you heard about it here first, for all of our global markets. **We believe the addressable market for a fully electric commercial van and pickup, the two largest addressable profit pools in commercial, are going to be massive.**

> Now you're going to see our strategy of electrifying our leading commercial vehicles and our iconic high-volume products expand very quickly at Ford.

> When you look at our results, they reflect the benefit of our decision two years ago to allocate capital to our strongest franchise, namely: pickups, a whole range of utilities across the world, commercial vehicles and iconic passenger vehicles. Additionally, we saw higher-than-expected demand for our new vehicles in the quarter.

> Together, these factors, plus the strongest performance from Ford Credit in 15 years, led to a total company adjusted EBIT margin of 9.7%. That's 490 basis points higher than last year.

> As an outcome of all this, we generated $6.3 billion in adjusted free cash flow.

> The strong cash flow in the quarter gave us the confidence and the ability to make a second payment on our corporate revolver, which we did on September 24. So now we have fully repaid the entire $15 billion facility, and we ended the third quarter with a strong balance sheet, including nearly $30 billion in cash and more than $45 billion of liquidity, which provides us with the vital financial flexibility we need.

Check out this credit [downgrade](S&P affirms Ford BB+ rating with negative outlook) weeks before Ford paid off their revolving credit facility. Smells like GME?

Alright. What about Q4-2020 and beyond? Ford is expected to post a loss. TA is signaling a beat (see the TA section). Ford is spending this money in order further restructure and deliver on the following items in their pipeline:


* Within the first month of open reservations, the Bronco had received an estimated 230,000 reservations. 230,000 reservations is an incredibly impressive figure, especially when put into the context of Ford’s total vehicle sales. 230,000 sales would represent 4% of Ford’s total sales.

* [Current estimates place over 20% of reservation holders as first-time Ford buyers.](https://seekingalpha.com/article/4396166-ford-bronco-brands-new-cash-cow)

* [The most expensive trim, the limited ‘First Edition’, has already sold out.](https://seekingalpha.com/article/4396166-ford-bronco-brands-new-cash-cow)

Mach-E vs Tesla Model Y. Just the fact that there is debate between the better car is bullish for Ford.

* [Source 1](https://seekingalpha.com/instablog/...ord-mustang-mach-e-show-tesla-no-secret-sauce)

* [Source 2](

* [Source 3](https://www.motortrend.com/cars/for...ng-mach-e-interior-vs-tesla-model-y-interior/)

The upcoming 2021 F-150 has positive consumer reviews as well:

* [The 2021 Ford F-150 Is So Stuffed With New Tech & Gadgets That Even Tesla Owners Are Impressed!](

* [DeMuro - The 2021 Ford F-150 Is Totally New and Really Impressive](

* Some other nice features: Fold down the shifter, lay seats down completely flat, speakers in headrest, tailgate worksurface (pen/pencil holders, rulers) C clamp, 120V outlet, bottle opener, light), sensing running board, tailgate step and railing, and more. Watch the video.

[Ford Raptor launch](
) (just happened today, customers are excited. Look at the comments on YouTube and IG)

Further potential tailwinds:

* [Ford partnering with Rivian](https://fordauthority.com/2020/10/f...is-going-great-new-ford-model-still-on-track/) in a $500M deal. Product yet to be released.

* [Google partnership](https://media.ford.com/content/ford...1/ford-google-accelerate-auto-innovation.html ) that caused the intraday spike on 2/2.

* Ford is rumored to secure the USPS contract since [deal talks are falling through](https://www.trucks.com/2020/12/01/postal-service-delays-mail-truck-replacement-contract-again) with WKHS.

> The Postal Service told Trucks.com that it expects to reach a contract with one or more of the teams bidding for the business in the federal government’s second fiscal quarter of 2021. That works out to the first quarter of next year.

* There is a historical inverse relationship between gas prices and car sizing. Tell me if I'm reaching here. But as America continues to head towards electrification and energy independence under Biden, larger gas cars will be more in demand. Furthermore, the aftershock of COVID will continue to propagate the dedensification of cities. Less commuter vehicles, and more travel vehicles. And look who is conveniently positioned to take advantage of all of this?

* Dr. Anning Chen is also a killer CEO of Ford China. This is largely intangibles (which Wall Street cannot model), but watch his interviews [here](
) and [here](https://www.youtube.com/watch?v=IALfLxBn9kw&ab_channel=committee100).

* Dr. Chen used the COVID shutdown to improve the operational efficiency of the company. It has not shown on the bottom line thus far, but it will later.

* [CTO Dr. Ken Washington bio](https://media.ford.com/content/fordmedia/fna/us/en/people/ken-washington.html). Ex Lockheed.

* [Kennard on the board.](https://media.ford.com/content/fordmedia/fna/us/en/people/kennard.html). PE guy, on the AT&T board and former FCC chairman.

* [Vojvodich](https://media.ford.com/content/fordmedia/fna/us/en/people/lynn-vojvodich.html). Ex CRM and ADHZ.

* Regarding the above leadership and BOD members, experienced executives are a better fit for running the day-to-day than any other. Add a sprinkle of savvy techfin folk and you have a recipe for a elite transition.

English please? Ford is a strong company. Farley is delivering on his promises and can lead the company towards an operationally efficient turnaround towards electrification. Combine this with a loyal customer base rivaled only by AAPL, and you get another special opportunity. This is the turning point.

**Multiples Expansion:**

Now here lies the crux of the thesis. Amidst all the EV hype, Ford is being unfairly ignored at an extremely depressed multiple compared to the other companies in the EV space. Here are some comparisons (numbers may be slightly outdated, pulled earlier this week, more relative comparison than absolute):

$Ticker - Market Cap - TTM Revenue MM - TTM EBITDA MM - Revenue Multiple - Ebitda Multiple

TSLA - $810B - $28B - $4B - 29X - 202X

NIO - $92B - $12B - ($7B) - 7.6X - (NaN)

GM - $78B - $116B - $18B - 0.7X - 4.3X

F - $44B - $131B - $10B - 0.3X - 4.4X

That’s an eyesore. Let’s focus on just TSLA and Ford, because why not. Assuming Ford can quickly turn towards electrification (from the evidence above), these two companies are fair comparisons. No Tesla is not a software/energy company, look at their automotive % of revenue. Stop it. It has only recently dropped to 80% due to the expansion of their leasing division. Energy is still a tiny part of TSLA.

*Revenue Multiple:*

TSLA = 29X

F = 0.3X

*EBITDA Multiple:*

TSLA = 202X

F = 4.4X

Yes those numbers are correct. Look at them for 60 seconds and tell me what you see. Quick quote from my buddy M:

> Just zoom out and think. TSLA is for sure ahead of the rest on their tech and charging infra right now. But in terms of just overall bottom line infrastructure and manufacturing capability; once the GMs, Fs, and VWs of the world can get the ball rolling, they are way ahead in that aspect. Much more experience in production and retail / distribution channels, as well as logistics sourcing. Plenty of battery makers, and self driving tech makers out there too right now. Small to mid scale M&A will probably be the name of the game if I had to guess.

This is why Burry is short $TSLA, but two scenarios can unfold: either the high-flying stocks drop, or Ford rises. I believe we will land somewhere in the middle, with Ford rising as we begin to enter the optimism phase in the final third of our bull market.

Shorting is a dangerous game anyway... So I’ve been hearing on the news...

**TA, Options:**

[Exhibit A](https://media.discordapp.net/attach...32476530768/Capture.PNG?width=1638&height=895) from our resident chart whisperer J (who will remain unnamed because you monkeys keep bothering him).

[Larger view](https://media.discordapp.net/attach...06959630346/Capture.PNG?width=1804&height=894).

As you can see, the trendline has broken out.

[Exhibit B](https://imgur.com/JqO8rGw) from our resident quant T (also to rename unnamed):

> Starting on 1/4 you'll find right tail distributions into any liquidation which represent large buying. Which has led up to a recent run-up and eventually left tail distributions which represent short coverings which lead into the gaps and thinner distributions where there aren't any major bids. Even with the pullback on 1/22 we see more right tail distribution after the profit taking from the recent run-up, which means someone is buying up the inventory.

> This is unusual for F, where F trades within tight ranges. On 2/1 you can see a bimodal distribution which means a new player has stepped in, which we assume has additional knowledge apart from the larger players that were already in the market. The recent range between 10.70 and 11.20 indicates that the market has accepted this price range as fair value.
Without additional research at first glance we can see that a large player (or players) is buying up a significant amount of inventory.

> On 1/4 we find that the volume increased to 77,559,128 from the previous trading of 34,462,454 (125% increase) and 33,127,776 the day before that. Volume has been higher since.

> On our first major left tail distribution (which represents short covering) since the buying on 1/4 the volume was at 113,707,973.

[Exhibit C](https://gyazo.com/727d8022cbbe176384b2a30a5f4fa653)

250k shares of F 10.92; 100k F 11.04; 3.53m F 9.78; 708k F 9.78; 500k F 9.64; 377k F 9.50; 338k F 9.50; 201k F 9.75; 192k F 9.80; 150k F 9.77

These are blocks of shares bought in the past 7 days

Top OI changes:

+19610 F 02/05/21 11 C 43821 38% 13% 48%

+12904 F 02/05/21 12 C 31929 38% 11% 52%

Top OI positions:

170902 F 02/19/21 10 C +807 26% 49% 25%

112480 F 02/19/21 12 C +3207 29% 29% 41%

The percentages are bid mid ask.

**Someone is bullish on Ford.**

For an earnings play, daily RSI is oversold looking towards an [uptick](https://imgur.com/3fFmtlT).

[Options gamma](https://media.discordapp.net/attachments/769967665493966908/806640400952459324/images_F_gamma.jpeg) is interesting to note as well.

[Open interest](https://imgur.com/yyhwgSc) on 2/5 $13 and $15Cs are also notable. Could be covered calls? Could be someone knows something?

Could be Jeff reading too much into the tea leaves. Not financial advice. Just showing you what I see.

**The Trade:**
The simplest way is just to purchase shares and collect dividends as Ford may reinstate them sometime in 2021. Possibly leaps if you feel adventurous.

For the option junkies like myself, and as a tribute to the greatest company in American history, I will use the wheel(s). The GME trade was a very special and momentous occasion. Now that we have a bankroll, we’ll just quietly play theta gang as we enjoy our lives and spend time with our families and loved ones. [Here’s a good summary.](https://www.reddit.com/r/options/comments/a36k4j/the_wheel_aka_triple_income_strategy_explained/)

This is not for amateurs. I mean, none of this is financial advice anyway, just educational.

But in a nutshell, I will: 1) Buy shares, 2) Sell CSPs 30-45 days out with 0.3 delta, 3) sell CCs with 0.3 delta (will reconsider this if Ford goes vertical) 4) Collect dividends.

The Wheel doesn’t work on everything. Here are the qualifications from the above post, let me know if this sounds familiar:

* Profitable company that has solid cash flow

* Bullish, or Very Bullish, analyst ratings

* Priced around $10 to $50 so that I can afford to take the assignment if needed and I stay away from sub-$10 stocks as a rule

* A stable chart without wild gyrations (especially those caused by CEO tweets!)

* A nice dividend is always a good thing, both that you may collect it if assigned the stock but also that dividend stocks tend to more stable and predictable.



Ford is a massive, complex, multinational corporation so I’ve likely missed very many things, but I wanted to get this out before ER so I can flex again. (No market manipulation here lol. My buddy's multi-million dollar block buys didn't move the needle one iota.) There are many things I haven’t covered, and simply don’t know yet. As more facts begin to unfold, and as I spend more time with the stock, I’ll share the information here. Also, every time I post about an equity, it seems to go down. Lol... (GME). **With all this in mind, this is still a very risky bet.**

Nevertheless, I like what I’ve seen thus far. Ford looks like a fantastically healthy company in the midst of a turnaround towards electrification with a phenomenally depressed multiple according to the market’s appetite. It deserves a multiple trending towards TSLA’s, not a dying auto manufacturer. Jim Farley has shown early to be a great CEO and I think he can continue the transformation. We’ve begun to enter a phase of exuberance, so I’ll choose to long Ford instead of short TSLA.

As a bonus, we have the opportunity to join forces with the boomers and talking heads and bet on one of their favorite companies. Time for America to be on the same side again. We’ve been divided for too long.

I know my GME posts were lucky. I’ll stake my reputation on another bet. One call sure is lucky. What about two? In any case, investing is a marathon, not a sprint. Glad to be a part of this journey with you all. *Note: I will not discuss GME in the comments, which all depends on Ryan Cohen. There is nothing further to add until Q4 earnings.*

And finally, we’ve officially entered the last phase of our very long bull market. This is not necessarily a sell signal yet, as some of the greatest returns can come in this period and can last for a long time. I will do my best to look for the signal and sound the alarm. The world will be celebrating, and I will be bearish. Burry’s passive indexing bubble call in combination with Thiel’s government debt bubble call will lead us into a dark time of unprecedented proportions. Tail risk hedging won’t work as the declines will be slow at first, and then fast and violent and unrecoverable. Be careful. Listen to Ken Fisher. Thank you very much for your time.

Positions: Bullish shares, LEAPS, on-going quadruple income wheel strategy as Ford reinstates the dividend. Timeframe 12-18 months. Watch out VIGILANTLY for macro risks. Bear market is on the horizon. Drop some Fs in the chat to pay respects.

PT: $32 with a chance of $98 if we start to see exuberance in the broader market.

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Well-Known Member
Jul 2, 2013
City of Champions, USA
F Series and SUV/Van variants make a *sugar* load of money. Lincoln variants make a *sugar* load x2 money.

Transit and Explorer(and Lincoln variants) make a little money.

Everything else in the Ford portfolio loses a little money or a *sugar* load of money.

Ford European operations as a whole lose money. Ford operations outside North America as whole lose money.

Healthcare for retirees and Pension cost are an albatross around Ford's neck.

GM is building a 30 GWh/year battery factory in Ohio with option to double size.

Ford isn't building any battery manufacturing capacity itself. It will have to outbid VW, Rivian and everyone else for cells.

Michael Burry? A broken clock is right twice a day.
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