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Ford's Dominance in Commercial Vehicles Can't Last Forever

Motley Fool - Tue Sep 6, 2022

Tesla is widely known as the largest manufacturer of electric vehicles (EVs) in America, selling 228,700 EVs through the second quarter of 2022. But it might surprise you to learn that Ford Motor Company (NYSE: F) is second. That sounds impressive until you learn that the Dearborn-based automaker sold 22,979 EVs through 2022's Q2 compared to Tesla's 259,790 units.

But Ford's number outshines General Motors' (NYSE: GM) 7,674 units, Nissan Motor Company's (OTC: NSANY) 7,622 units, Rivian Automotive's (NASDAQ: RIVN) 5,691 units, Polestar's (NASDAQ: PSNY) 3,696 units, and Lucid Group's (NASDAQ: LCID) 942 units during the same period, according to Cox Automotive. But the Koreans are coming up fast, with Kia Motors selling 17,623 units and Hyundai Motors Corporation(OTC: HYMTF) selling 15,857 units. So far, the bulk of Ford's EV sales come from the Mustang Mach-E, accounting for 17,675 units of 22,979 vehicles.

Ford's dominance of the EV market includes electric vans, where Ford currently holds a 95% market share, selling 3,008 E-Transit electric full-size vans in the first half of 2022. But investors shouldn't expect that massive market share to continue, as the market for commercial vans is about to get more competitive.

Ford's rivals

Given the company's dominance in various segments of the truck market, that's may not be surprising.

Ford's early entry into the electric commercial truck market is wise. A recent report by P&S Intelligence stated that U.S. electric truck market revenue is expected to reach more than $15 million annually by 2030, growing at a 54% compound annual growth rate (CAGR).

But Ford shouldn't get complacent; its lock on the market is due to the lack of competition. That's not going to last.

Consider Rivian. Its Amazon Prime van was the first vehicle delivered to a customer in October 2020, and was created solely for Amazon. Amazon ordered 100,000 units to replace its conventionally powered vans by 2030. Built on Rivian's modular R1 steel skateboard chassis, these electric trucks will come in three sizes and can hold up to 900 cubic feet of cargo. They share their battery pack and rear-mounted electric motor, and have a range of 120 miles to 150 miles, more than the Ford E-Transit's 126-mile range. Whether these vans are offered to other customers remains to be seen. Amazon has a roughly 18% equity stake in Rivian.

Then there's General Motors, which introduced its newest brand, BrightDrop, late last year. The EV600, its first model, is being built for FedEx, which contracted for 500 units. The first batch was delivered late last year. EV600s are built on GM's new modular Ultium EV platform, also used for the GMC Hummer. The EV600 has more than 600 square feet of cargo space and 250 miles of range.

Ford's E-Transit's chief rival, the Mercedes-Benz Sprinter, gets an electrified model, the eSprinter, which is slated to debut later this year in Europe, with U.S. models sourced from the company's plant near Charleston, South Carolina. Its 120-kWh battery pack should give it twice the range of the Ford E-Transit. Expect a variety of body styles, battery options, and roof heights. Mercedes-Benz is also developing a new electric-van architecture slated to debut by mid-decade.

Stellantis, also a major player in the segment with the ProMaster, is preparing to launch an all-electric version in 2023.

There are also start-ups vying for commercial van dominance, although their prospects remain uncertain due to their financial condition. One such start-up is privately held Bollinger Motors, which is dropping development of its all-electric B1 SUV and B2 pickup to concentrate on medium- and heavy-duty electric commercial trucks.

Only two months after telling investors there was a "serious uncertainty" it would have the money to start production later this year, Canoo (NASDAQ: GOEV), another EV company, secured an order from Walmart for 4,500 delivery vans.

A potentially crowded market

The importance of commercial vehicles is often overlooked, but prove to be a source of recurring revenue in service and parts, not to mention new vehicles. According to the automaker, commercial customers turnover between 10-15% of their fleet annually. Increasingly, those vehicles will be battery electric vehicles.

As vehicle fleets electrify, Ford expects that Ford Pro, the new name for its existing commercial arm, to generate $45 billion in revenue from hardware and new services by 2025 – up from $27 billion in 2019. Ford expects to generate the additional revenue from its e-telematics services, including fleet logistics, fleet management, and charging.

More broadly, Ford remains the market leader in gasoline-powered commercial vehicles, with a 40% market share in the U.S., and a 15% share in Europe. It's looking to continue that dominance as vehicle fleets electrify. But given the sheer volume of automakers aiming for a foot in the commercial electric-van segment, its they're all aiming for the market leader in the segment.

Investors should be aware of start-ups sales success in this segment, as it could noticeably impact Ford's future profitability.

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Larry Printz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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