Ford at $15: A Value Investor's Assessment of Intrinsic Value and Moat

Ford's recent decision to abandon its costly electric vehicle push is a classic case of a company choosing to preserve capital in order to strengthen its core. The move comes with a steep price tag, as the company expects to take an estimated $19.5 billion hit due to the repositioning. This special charge will impact earnings for years, with $5.5 billion carrying over into FY2027. The scale of this charge underscores the depth of the misstep and the painful reality of writing off multi-billion dollar investments that failed to gain traction.

CEO Jim Farley has framed this pivot as a necessary recalibration, explicitly stating it is "gonna be better for the company's profitability, shareholders". The goal is clear: after years of substantial EV losses, the focus shifts to improving returns. This isn't just a tactical retreat; it's a strategic reset aimed at returning capital to shareholders and building a more durable financial foundation. The move acknowledges that forcing an unpopular product line onto the market, especially under heavy regulatory pressure, was a costly error that eroded the company's balance sheet.

Yet, the pivot is not a retreat from strength. It is a retreat from weakness to protect the core. The enduring power of Ford's fundamental business remains evident. In 2025, the F-Series secured its 49th consecutive year as America's best-selling truck, a remarkable feat that speaks to a powerful, decades-old moat. This truck dominance, driven by a diverse product lineup that includes record hybrid sales, provides the essential cash flow engine. By taking this massive charge now, Ford is choosing to burn cash on a failed bet rather than continue bleeding it into a product that didn't resonate. The capital preserved by halting the EV program can now be redirected to support the proven winners in the lineup, fortifying the very moat that has sustained the company for generations.

Assessing the Economic Moat and Earnings Power

The strategic reset is a necessary step, but the true test for a value investor is the durability of the underlying business. Ford's intrinsic value is anchored in a wide and deep moat, built on decades of dominance in its core segments. The numbers from 2025 are a clear testament to this strength. The F-Series secured its 49th consecutive year as America's best-selling truck, a remarkable feat that speaks to unmatched brand loyalty and product relevance. This dominance extends beyond trucks. The Explorer remains America's best-selling three-row SUV, while the Ford Pro Transit van is the nation's top-selling van. This trifecta of category leadership provides a powerful, diversified revenue stream that is difficult for competitors to replicate.

A key component of this moat is Ford's leadership in the hybrid transition. As pure EV adoption slows, Ford's hybrid approach has proven to be a masterstroke. The company achieved record hybrid sales of 228,072 vehicles in 2025, a 21.7% increase from the prior year. This wasn't a niche offering; it was a mainstream success that drove overall market share gains. The company's strategy of offering a "power of choice" across gas, hybrid, and electric powertrains has resonated with a broad customer base, allowing it to beat the industry on both sales and share fronts. This hybrid leadership provides a crucial bridge, generating strong cash flow while the company recalibrates its electric ambitions.

The growth engine for the future is the Ford Pro segment. This isn't just about selling vans; it's about building a recurring revenue stream. The segment's order book is solid, and demand for commercial vehicles is rising. More importantly, Ford is monetizing its software and services, a classic moat-builder. Paid subscriptions for Ford Pro Intelligence grew by approximately 30% year-over-year last quarter, reaching about 840,000 active users. This software layer creates a sticky, high-margin business that is countercyclical and provides a predictable earnings stream, further widening the company's economic moat.

When evaluating intrinsic value, the massive one-time charge must be separated from the business's earning power. The $19.5 billion hit is a painful write-off of past strategy, but it is a cost of doing business in a capital-intensive industry. The underlying operations, as evidenced by record sales and market share gains, are generating robust cash flow. The company's strong liquidity position, with over $46 billion in available capital, provides the runway to fund this transition and reward shareholders. The moat is wide, the earnings power is real, and the strategic reset is about protecting that foundation, not abandoning it.

Valuation and the Margin of Safety

The stock's current price of around $14.03 presents a classic value investor's dilemma: a deeply discounted multiple juxtaposed with a massive, ongoing earnings charge. The forward P/E ratio of 9.4 is a stark signal. It is three times lower than the S&P 500's, reflecting the market's clear expectation that Ford's earnings will continue to flounder in the near term due to the $19.5 billion hit from its EV pivot and persistent warranty costs. This multiple prices in a period of severe distress.

Yet, the trailing P/E of 12.18 tells a different, more optimistic story. It sits well above the company's 5-year average of 7.54, suggesting some recovery optimism is already baked in. This gap between forward and trailing P/E is the key tension. The market is simultaneously pricing in deep near-term pain while acknowledging the underlying business has strong earning power, as evidenced by record sales and market share gains. The challenge is to determine where the true intrinsic value lies in this chasm.

The high dividend yield, cited as approximately 4.28% in recent data, demands careful scrutiny. A yield above 4% is attractive, but its sustainability is paramount. With the company facing multi-year special charges and ongoing warranty expenses, the payout ratio must be examined. The dividend is supported by the robust cash flow from the core truck and SUV moat, but the massive restructuring costs and recall liabilities create a clear pressure point. A value investor would want to see the payout ratio comfortably below 70% of normalized earnings to ensure the dividend can be maintained through the transition.

The margin of safety, therefore, hinges on the duration and severity of the earnings reset. The $19.5 billion charge is a one-time write-off, but its impact on earnings will stretch for years. The intrinsic value calculation must discount the next several years of depressed earnings due to this charge, then add back the discounted value of the company's durable earnings power once the restructuring is complete. The current price, while low, may not yet offer a sufficient margin of safety if the market is overly pessimistic about the timeline for the core business to fully rebound. The stock's 35% rally in 2025 shows how quickly sentiment can shift, but the path to $15 and beyond will require the company to execute its strategic reset flawlessly while the earnings power of its wide moat reasserts itself.

Catalysts, Risks, and the Path to Compounding

For Ford to transition from a distressed asset to a value compounding machine, investors must watch a clear set of milestones. The primary catalyst is the successful execution of its hybrid-focused strategy, which has already shown strength. Record hybrid sales of 228,072 vehicles in 2025, a 21.7% increase, demonstrate that the company's "power of choice" approach is resonating with a broad customer base. This hybrid leadership is the immediate engine for cash flow, supporting the core business while the company recovers from its EV misstep.

A major, ongoing risk is the lingering burden of warranty and recall costs. Ford is still recovering from a challenging year marked by high EV costs and recalls, and the company leads the nation in auto recalls in 2025. This has created a direct pressure point on earnings, with warranty expenses cutting into profits. While the company appointed a new head of quality to mitigate these costs, the high volume of recalls remains a vulnerability that must be resolved for earnings to normalize.

Investors should monitor two key areas for signs of improvement. First, the growth of the Ford Pro segment is critical. The software layer here creates a sticky, high-margin business, and paid subscriptions grew by approximately 30% year-over-year last quarter. Continued expansion of this recurring revenue stream would signal the diversification of the moat beyond just vehicle sales. Second, watch for any signs of margin improvement in the core vehicle business as the massive special charges from the EV pivot begin to phase out. The $19.5 billion hit will carry over into 2027, but the trajectory of profitability thereafter will determine if the company can return to its historical pattern of strong returns.

The path to compounding is now clear: Ford must leverage its wide moat in trucks and SUVs, monetize its software services, and finally bring warranty costs under control. The current price offers a margin of safety, but the stock's journey to $15 and beyond will depend entirely on the company's ability to navigate these catalysts and risks with discipline.