Postcards: From the People Who Brought You the Food Pyramid

This morning, Ford Motor Co. (F) hit a 52-week low. Media blamed stagnant EV sales, rising costs, and the hit expected from a new labor contract... but we know where to assign the blame.                                                                                                                                                                                                                                                                                                                                                                                                                 Forwarded this email? [Subscribe here]() for more [Postcards: From the People Who Brought You the Food Pyramid]( This morning, Ford Motor Co. (F) hit a 52-week low. Media blamed stagnant EV sales, rising costs, and the hit expected from a new labor contract... but we know where to assign the blame. [Garrett {NAME}]( Oct 27   [READ IN APP](   Welcome to all new subscribers and those who have transitioned from Midday Momentum and Postcards to a different list. If you are new, please see my promise about [marketing, transparency, and our goals here at the Republic](. Dear Fellow Expat: The first rule of the Florida Republic is simple. “Mind your own business, and keep your hands to yourself.” If only American politicians and regulators could think the same. No matter where you look, there’s always some busybody with a liberal arts or law degree who thinks they know better than us… and they have the power to implement whatever policy idea they doodled on the back of a Georgetown bar napkin. Yet, they ultimately prove how little they know when their policy prescriptions come home to roost. Let’s see an example. From the people who brought you the Food Pyramid… And from the producers of the COVID-19 lockdowns, the Hurricane Katrina response, Bernie Madoff, Vioxx recalls, waterboarding, and bridge collapses… comes the latest face plant in what happens when D.C. puts its thumb on the scale of U.S. industry. Ladies and gentlemen… I give you Friday’s earnings report from Ford Motor Company (F). [Upgrade to paid]( The Ford Snapshot Ford Motor Company ([F]( is a great American business. Its F-Series has been the No. 1 best-selling truck for 46 years. Last year, the company sold an F-Series truck every 49 seconds. Line up every truck it sold in 2022, and the convoy would stretch from Los Angeles to Detroit, according to a [Ford press release](. With numbers like that… how does its stock chart look like this? Shares are down nearly 25% in the last 12 months. And stocks plunged more than 12% today after its Q3 earnings report. The auto giant fell short of profit expectations and pulled its forward profit guidance. What is going on? To start, the company faces higher production costs and losses after the strike by members of the United Autoworkers Union (UAW). The company lost $1.3 billion during the 41-day strike that shut down key plants. The company has reached a new agreement with the union - but the company’s CFO, John Lawler, says the new contract will add roughly $850 to $900 for each new vehicle. Those new costs will cut margins by up to seven-tenths of a percentage point. This strike happened at the same time that the company unveiled its Ford+ strategy in 2023. The company has three reporting segments: its legacy brands, Pro commercial products, and a new EV segment, Model e. We see that the first two categories are doing just great. The EV segment… well… that’s a straight-up disaster. Ford lost an average of $36,000 for every EV it produced last quarter. You read that number correctly. What’s incredible is that they are willingly losing money while boosting EV production. They increased EV deliveries by 44% this year. So, Ford is hemorrhaging money on the great Green transition… because they’re not economical for consumers. The company admitted today that “many North American customers interested in buying EVs are unwilling to pay premiums for them over gas or hybrid vehicles." Based on this quarter, its CFO Lawler says Ford will postpone roughly $12 billion in investment in this EV segment. If they hadn’t postponed it, their entire board should have been forced to get matching tattoos of a lightning bolt on their forearms… What Went Wrong Other things are happening within Ford that I won’t dive into. For example, there are quality control issues that must be addressed. Today, I want to dive into the two factors that captured headlines around the business. Investopedia… home of breaking news… First, the strike. Now, unions and management will always bicker and argue. But this recent round was especially hostile - with politicians joining the commotion and the picket lines. The battle centered around a large number of issues. But I highlight wages and the future of Ford’s efforts on electric vehicles. (In the latter, fewer workers are required to assemble electric vehicles). Well, it’s almost like these workers' wages needed to go up because their living standards were falling. What was it that caused that to happen? What was it that fueled rising food prices? Rising home prices? Rising insurance costs? What’s that thing called… Inflation. And who causes inflation? Go back to the origins of monetary and fiscal policy… and you’ll arrive at the Federal Reserve and Congress, respectively. The government dropped trillions from the sky due to COVID and spent the last two decades doing this to the U.S. money supply. It’s fascinating to me that Washington can get away by making this whole battle about workers and executives. As you might recall, union leaders and politicians took aim at the executive pay of General Motors (GM) CEO Mary Barra at the onset of the UAW strike. Yet, we must remember who poured fuel on the fire that enabled executives to earn such massive paydays in such an illiquid market for senior talent. Congress attempted in 1993 to cap executive pay by limiting tax deductions on those salaries. This decision fueled a rise in stock-based compensation, which is the primary source from where Barra and other executives accumulate their wealth. [It was a bad policy]( idea… and it created bad incentives. That’s always a running theme. Thirty years later, Washington’s terrible automotive policy is now hamstringing the industry and its investors. On Electric Vehicles The second source of Ford’s ugly day comes from the consumers’ preferences around their vehicle choices. According to Pew Research, about 38% of Americans are willing to buy an EV, and that category tends to skew toward younger Americans living in cities. Half of Americans don’t want an EV. The opposition really picks up for respondents over 50 who live in rural areas. (But don’t worry, Psychiatrists are already trying to [blame opposition to Electric Vehicles]( toxic “masculinity.”) America’s a big place once you get out of the coastal bubbles. And most Americans don’t believe that the U.S. government will be able to build the necessary infrastructure to support the EV transition adequately. Regardless, state and Federal governments will try to force a transition. The Federal government has raised gasoline standards to near-impossible levels. California has banned new gas-powered vehicle sales a decade from now, and other states are looking to follow that lead. And governments are happy to throw untold amounts of U.S. taxpayer money at the industry - even though we’ve witnessed incredible amounts of graft and failure across the Green energy transition. (It’s also pretty screwed up that our Department of Energy Secretary made a small fortune on an EV bus stock before it went out of business). And, of course - there’s that small factor that we’ll need an incredible amount of lithium and other rare earth metals. But… either China owns the supply chain for certain materials, it’s farmed from slave labor in the Congo, or [grifting lawyers will do whatever they can to prevent]( the mining of these materials within U.S. borders. How can we have EV manufacturing mandates… when we can’t even source the materials for the vehicles? And with global demand rising (from similar mandates), a finite supply meeting increasing demand does one thing: It makes it more expensive. All of that has a cost - one that the average American isn’t willing to pay for a glorified electric golf cart. In August 2023, the average electric car price was $53,376 (for new cars), according to Kelley Blue Book. According to the BLS, the average American salary in February was $55,640. At a 7% interest rate (at best)… none of this math adds up. Perhaps that’s why I always turn my attention to the people not standing in front of a camera glorifying themselves. Look at the Long-Term Energy Outlook from the Energy Information Administration (EIA), the Department of Energy’s research arm, to understand future EV demand. The EIA willfully acknowledges two critical things in its March 2023 report. First, gasoline demand will remain robust as a transportation fuel… through the 2050s. Oil isn’t going anywhere… no matter how much we hear otherwise. In fact, we might be begging oil companies to drill soon if this calamity continues. Second, despite all the projections that EVs will rule the streets, the EIA puts a conservative estimate that “battery electric and plug-in hybrid electric vehicles” will only comprise 20% of the market share. At some point, more legacy brands will stop appeasing politicians and snap back to the basic reality that it’s a lousy business model, and consumers aren’t flinching. Ford would be better off telling the regulators to take a hike. [While an activist investor]( might be willing to take on Ford’s board in the future, the reality is that they’re taking on Washington and its terrible EV transition. Good luck with that. In Summary In 2011, while attending my first business school class, a classmate and I started talking about the stock market. She was so excited that she had purchased Ford stock at $13 a share in July of that year. Twelve years later - it’s trading under $10.00, although it does pay a nice dividend. But this is a $40 billion business trading at a stunning 6.5 times sales. What happened here? Go back far enough and ask the question “why” something is wrong with the U.S. economy or an industry seems broken. Keep asking the same question over and over again. If you don’t finally get back to an answer that involves “Congress,” “The Federal Reserve,” or “Both Congress and the Fed” - go back to Square One and start over. Anyone who answers otherwise is either naive or in on the scam. It’s rarely anything outside those two categories. Tomorrow, we’ll look back at the week ahead for traders and investors. I’ll also discuss the [big drop in energy stocks]( - and how our Sector Signal [caught this selloff ahead of time](. Stay positive, Garrett {NAME} Secretary of Defense [Upgrade to paid]( You're currently a free subscriber to [Florida Republic Capital](. 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