Ford's EV Retrenchment Deepens: Buy F Stock or Stay Away?

Ford (F) is scaling back its EV ambitions by allowing Nissan to use its underutilized Kentucky battery plant, initially part of a $7 billion EV investment. This move comes as Ford faces headwinds including potential $2.5 billion tariff impacts, a projected $5 billion EV loss in 2025, and declining ICE vehicle sales, though its Ford Pro commercial division and strong liquidity provide some offset. Despite a forward price-to-sales ratio below industry averages and a dividend yield over 5%, a 38% drop in 2025 earnings is expected, making Ford a "wait-and-watch" for investors amid an uncertain EV market.

Analysis

Ford is significantly recalibrating its electric vehicle strategy amidst a cooling global EV market and mounting financial pressures, highlighted by its decision to allow rival Nissan to utilize capacity at its underutilized Kentucky battery plant. This facility, initially part of a $7 billion EV investment with SK On announced in 2021, now underscores the industry-wide challenge, as Ford incurred a $5.07 billion EV loss in 2024 and anticipates another $5 billion loss in 2025. Consequently, Ford has suspended its full-year 2025 guidance, citing tariff-related uncertainties. This move to share capacity aims to help Ford absorb some costs, while Nissan, which reported a $4.5 billion loss in its last quarter, benefits from local U.S. production to reduce tariff exposure. The broader auto sector is also adjusting, with Honda notably slashing its EV and software investment target by nearly a third and pivoting towards hybrids. Ford faces substantial near-term headwinds, including an expected $2.5 billion gross impact from tariffs (a $1.5 billion net hit in 2025 after $1 billion in planned offsets) and projected declines in its traditional internal combustion engine (ICE) vehicle sales for 2025 compared to 2024, which, alongside foreign exchange issues, are expected to compress profits. These challenges, coupled with heavy investments in modernization, green mobility, and autonomous driving technology, are exerting pressure on near-term cash flow. On a positive note, Ford's Pro commercial division demonstrates robust demand, particularly for its Super Duty truck. The company maintains a strong liquidity position, exiting Q1 2025 with $27 billion in cash and $45 billion in total liquidity, and is on track to deliver $1 billion in cost savings in the current year, excluding tariff impacts. Furthermore, Ford offers a dividend yield exceeding 5% and plans to return 40-50% of free cash flow to shareholders. Despite these strengths, Ford's stock has declined approximately 11% over the past year, significantly underperforming the industry's 29% gain. Analyst consensus projects a 38% year-over-year drop in Ford's 2025 earnings, with EPS estimates for 2025 and 2026 having been revised downwards in the past 60 days. The company's forward price-to-sales ratio of 0.27 is below industry and its own 5-year averages, earning it a Value Score of A, though this is set against a backdrop of significant operational and financial uncertainty.

Key Decisions for Investors

• Given the substantial ongoing losses in the EV segment, a projected $1.5 billion net tariff impact in 2025, and an anticipated 38% decline in year-over-year earnings for 2025, prospective investors should exercise caution and await clearer signs of improved EV profitability and effective cost management before initiating positions.
• Current shareholders might consider holding their positions, supported by Ford's strong liquidity, an attractive dividend yield over 5%, and the consistent performance of the Ford Pro commercial division, but must remain cognizant of the significant near-term challenges and uncertainties surrounding the EV transition and tariff impacts.
• Investors should closely monitor Ford's execution on its revised EV strategy, progress on its $1 billion cost-saving initiatives, developments regarding tariff resolutions, and trends in ICE vehicle sales, as these factors will be critical in assessing the company's ability to navigate its costly and uncertain business transformation.