He has changed his mind.
A few months ago, billionaire George Soros bet on Ford, convinced that the strategy of the legacy carmaker, to close the gap with Tesla in the race to develop electric vehicles, was the right one.
Last year, the financier continued to buy Ford’s debt. In the second quarter of 2022, Soros held $29.5 million in debt from Ford. He continued to massively acquire the group’s debt during the three months that followed.
According to regulatory filings, the Democratic Party mega-donor held bonds with a face value of $78 million as of September 30, 2022. The paper was convertible into shares. Three months later, Soros had bought more debt from Ford (F) – Get Free Report. He held bonds with a face value of $78.7 million.
This investment showed that Soros was seduced by CEO Jim Farley’s strategy, which has made Tesla its main competitor. The company plans to spend $50 billion on electric vehicles between 2022 and 2026. It previously planned to spend $30 billion in the five years ending in 2025. To gain market share fairly quickly, the Blue Oval offers two models in the most lucrative segment of the market: SUVs and pickup trucks; the Ford Mustang Mach-E SUV and the The F-150 Lightning, the electric version of the iconic F-150.
Soros Buys Put Options
Last year, the Blue Oval doubled the number of battery powered vehicles, or BEVs, delivered to consumers. The company delivered a total of 61,575 units, which is a new record. In detail, Ford delivered 39,458 Ford Mustang Mach-E, up 45%, 15,617 F-150 Lightning and 6,500 Ford E-Transit vans.
Production of the F-150 Lightning and the E-Transit van started in 2022. Ford is planning their production ramp up this year. It still said that the F-150 Lightning was already the top fully electric pickup in the U.S.
“The F-150 Lightning was the No. 1 electric truck in America in December and the best-selling electric truck in the U.S. since its launch in May with 15,617 electric trucks sold,” the company said in a statement last January.
The pickup truck had already received more than 150,000 reservations.
But despite Ford’s promises to increase production, Soros has changed his investment strategy on the automaker. As of Mar. 31, he sold all of the Ford debt he held. And the most striking thing is that he acquired 1 million put options, i.e., the right to sell Ford shares at a locked-in price sometime in the future, according to a recent filing with the U.S. Securities and Exchange Commission (SEC).
If the share price of Ford goes down, Soros will make a profit. Basically, the billionaire believes that there is a downside to Ford.
Ford did not immediately respond to a request for comment.
Soros’ bet against Ford comes at a time when the automaker is ramping up production of electric vehicles. This transition significantly affected the first quarter performance of Ford Model e, the division housing the BEV and growth operations.
The Stock Is Up 8%
It appears that Ford Model e recorded a loss before interest and taxes of $700 million. This is $100 million more than in the fourth quarter of 2022. The margins are also in the red. The EBIT margin (Earnings Before Interest and Taxes), which allows investors to assess the true cost of the activity, is -102.1%. This is more than twice as much as in the fourth quarter of 2022, a period during which the EBIT margin was -40.4%.
On the revenue side, the sales of electric vehicles, amounted to $700 million in the first three months of the year, is less than half of the $1.6 billion in revenue generated by Ford Model e in the last quarter of 2022.
One fact is striking: Ford only delivered 12,000 electric vehicles in the first quarter, which means that the carmaker lost $58,333 for each clean car sold during this period.
Ford explained this poor performance by higher costs, mainly higher engineering, and spending-related expenses, commodities and other inflationary pressures. Weak sales volumes are due, the carmaker said, to scheduled downtime at the Cuautitlan assembly plant in Mexico, to increase the Mach-E capacity to 35 jobs per hour.
Production of the Ford Mustang Mach-E is expected to reach 270,000 units in 2023, the automaker had previously indicated. To achieve this, the carmaker had planned to significantly ramp up production at the Mexican plant. But to prepare for it, Ford had to pause production at the Mexican facility starting last January.
“Without pauses in production of the Mustang Mach-E and F-150 Lightning and EV volumes comparable to those in Q4, Ford Model e’s Q1 EBIT margin would have been roughly flat quarter-to-quarter,” a spokesperson said.
Soros seems skeptical about Ford’s near-term performance, unlike other investors, as Ford’s stock is up 8% this year.
Stock market regulations require managers of funds with more than $100 million in US equities to file a document, known as a 13F, within 45 days of the end of the quarter, to disclose their holdings in stocks that trade on US exchanges.
The value of Soros’ US equity portfolio decreased by almost 11% quarter-over-quarter to $6.5 billion. Soros Fund Management is a family office that manages public and private equity.