Ford

F 0.53%

is embracing digital technology, and talking about it loudly, in an effort to catch up with both Tesla and General Motors. The new approach is boosting the stock, but rising expectations don’t come for free.

The big news in Ford’s fourth-quarter results, reported after the bell Thursday, was a massive acceleration in technology investments. Just over four months into the job, Chief Executive

Jim Farley

pledged $22 billion through 2025 to electric vehicles and the digital technology involved in connecting them to the internet, as well as $7 billion to autonomous driving. This was after the company on Monday inked a far-reaching partnership with Google also centered on “connected” vehicles and the reams of data they will produce.

Mr. Farley promised more detail in the spring, but hinted that the company might invest in battery production, as GM has done through a partnership with South Korea’s

LG Chem.

The car industry is currently struggling to produce as many vehicles as it would like because of a global shortage of semiconductors; Ford “cannot afford” to face the same problems with batteries, Mr. Farley told analysts.

GM CEO

Mary Barra

shifted her primary focus from cost-cutting and efficiency to investment and growth last year—the same move Mr. Farley is now making. The difference is that GM had already tidied up its once-sprawling global empire and improved profitability before changing gears. After years of cost problems, Ford’s core U.S. business is still in the repair shop, raising the question of how it will fund technology investments of $29 billion—a sum equivalent to almost two-thirds of its market value.

The good news is that 2020 will almost certainly mark the trough for Ford’s profits, which have fallen for three consecutive years. The company has just started selling a new version of the F-150, its most important product, and a credible competitor to Tesla in the all-electric Mustang Mach-E. Later this year comes the much-anticipated new Bronco sport-utility vehicle. The company expects between $8 billion and $9 billion of adjusted operating profit in 2021, up from $2.8 billion last year, though its guidance excluded a potential hit of at least $1 billion from the current global chip shortage.

Ford stock is up 29% year to date, in line with GM after years of underperformance. Individual investors have been heavy buyers of both stocks this year, according to data provider VandaTrack. This week’s Google deal in particular prompted a wave of trades, suggesting Ford is starting to receive something of the tech halo accorded to GM last year. Even so, Ford’s valuation remains cheap relative to sales. As long as the new models deliver on their turnaround promise and Ford’s margins improve, there is probably scope for further gains.

The long-term picture remains much murkier. Detroit has as much to lose as to gain from the new automotive technologies. The Google agreement hints at the promise of a high-value data business in the distant future, but for now Ford has lots of real money to spend on innovations that are shaking up competition. The more excited investors get about Ford’s nascent EV business, the less room Mr. Farley has for missteps on a journey fraught with risk.

Gone are the long waits at charging stations: Chinese electric-vehicle startup NIO is pioneering battery-swap systems, challenging Tesla and other rival car makers. Here’s how NIO and Tesla are racing for the world’s largest EV market in China. Photo illustration: Sharon Shi

Write to Stephen Wilmot at [email protected]

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