Ford's Crossroads: Trade Tensions and EV Struggles Threaten Earnings Outlook

The automotive industry is at a pivotal moment, caught between escalating trade tensions and the rapid evolution of electric vehicle (EV) markets. For Ford Motor Company (F), these dual pressures are testing its ability to balance profitability with long-term strategic goals. With trade policies eroding earnings and EV investments draining cash, Ford faces a critical question: Can it navigate these risks without derailing its turnaround plan?

Trade Tensions: A $1.5 Billion Headwind

Ford's earnings are under siege from global trade policies. U.S. tariffs on imported vehicles and auto parts, retaliatory measures from trading partners, and supply chain disruptions linked to China's rare earth mineral exports have collectively cost the company an estimated $1.5 billion in 2025. While 80% of Ford's U.S. vehicles and parts already comply with the U.S.-Mexico-Canada Agreement (USMCA), the remaining 20% of suppliers are under scrutiny. Delays in sourcing components from China—due to export controls—threaten production timelines, forcing Ford to explore costlier domestic alternatives.

The company's CFO, Sherry House, has warned that further tariff hikes or supply chain bottlenecks could worsen these losses. Meanwhile, the 25% tariffs on steel and aluminum—a smaller concern—remain manageable as Ford sources 80% of its steel domestically. The bigger threat lies in EV battery components, where reliance on Chinese suppliers could trigger new regulatory hurdles.

EV Struggles: Losses Pile Up, Strategy Shifts

Ford's EV division, dubbed Model e, reported a staggering $1.3 billion pre-tax loss in Q1 2025, with costs exceeding $64,000 per vehicle sold. This is despite a 12% year-over-year rise in U.S. EV deliveries, driven by the Mustang Mach-E and E-Transit. The F-150 Lightning, Ford's flagship electric truck, saw sales dip 7% as production delays and recalls (e.g., a 2024 seat-belt defect) dented confidence.

To stem losses, Ford is scaling back its $30 billion EV investment target, halting launches of unprofitable models, and focusing on smaller, affordable EVs to compete with Chinese rivals. However, the company's EV strategy faces additional headwinds:
- GOP Tax Reforms: A proposed bill to strip EV tax credits for batteries using Chinese technology directly threatens Ford's $3 billion joint venture with CATL in Michigan. Losing these incentives could kill the project, a linchpin for its EV ambitions.
- Legal Risks: A shareholder investigation into quality control failures and warranty costs adds reputational and financial risks.

Balancing Act: Traditional Vehicles as a Lifeline

While EVs burn cash, Ford's traditional vehicles—trucks and SUVs—remain its profit engine. In Q1 2025, hybrids and internal combustion engine (ICE) vehicles saw a 50.9% sales increase, outpacing BEV growth (88%). Ford is prioritizing these segments to offset EV losses, but rising competition from Tesla and GM's Ultium platform complicates this strategy.

The company's four-day workweek policy, announced in June . aims to boost collaboration and cut costs, but it risks alienating tech talent accustomed to flexibility. Meanwhile, the end of its “Rapid Replenishment Centers” distribution experiment underscores the difficulty of scaling EV sales without disrupting dealers.

Investment Implications: Caution Ahead

Ford's stock (F) trades near $9.39, near its 2025 low, reflecting investor skepticism. Key risks include:
1. Earnings Volatility: Trade-related costs and EV losses could keep adjusted earnings below estimates.
2. Regulatory Uncertainty: The GOP's tax bill and China's export controls could further disrupt supply chains.
3. Competitive Pressures: Tesla's pricing power and GM's scale in EVs leave Ford playing catch-up.

However, there are mitigants:
- Ford's $20.9 billion in cash provides a buffer.
- Its “Ford+” plan aims to cut $1 billion in annual costs by 2025, including trimming middle-management bonuses.
- A potential rebound in EV sales if production issues are resolved and prices stabilize.

Conclusion: A High-Risk, High-Reward Play

Ford's path forward hinges on executing three critical moves:
1. Mitigate Tariff Costs: Accelerate supplier relocations and leverage USMCA compliance to reduce tariff exposure.
2. Turn Around EVs: Achieve profitability in Model e by 2026, as promised, or risk shareholder revolt.
3. Navigate Policy Shifts: Lobby against the GOP's tax bill while diversifying supply chains away from China.

For investors, Ford is a speculative bet. While its dividend (yield: 7.99%) offers near-term income, the stock's recovery depends on resolving its structural challenges. Hold for now, but avoid aggressive allocations until Ford delivers clearer signs of progress in Q2 earnings (July 2025) and supply chain stability. A failure to address these risks could leave Ford stuck in neutral.