Ford Faces Tariff-Driven Profit Plunge: Can Its EV Push Offset the Headwinds?

Ford Motor Company reported a stark earnings decline in its first quarter of 2025, with net income dropping to $471 million—down 65% year-over-year—amid a $1.5 billion projected annual financial hit from U.S. tariffs. The automaker’s struggles underscore the escalating challenges facing the automotive sector, even as its electric vehicle (EV) division shows signs of progress.

Ask Aime: What's next for Ford's stock after a major earnings miss?

The Tariff Toll: A $1.5 Billion Overhang

The tariffs, rooted in former President Trump’s trade policies, have become a defining headwind for Ford. While the company initially anticipated a $2.5 billion gross tariff impact in 2025, it expects to mitigate $1 billion through cost-saving measures such as bonded transportation (to shield parts from levies) and supply chain reconfigurations. The remaining $1.5 billion net impact, however, has forced Ford to suspend its 2025 financial guidance, citing uncertainties around retaliatory tariffs, supply chain disruptions, and shifting consumer demand.

Ford’s Q1 alone saw $200 million in direct tariff costs, a figure that contributed to a 63% year-over-year drop in adjusted EBIT to $1.02 billion. The tariffs primarily target non-compliant auto parts and imported vehicles under the U.S.-Mexico-Canada Agreement (USMCA), with steel and component costs rising sharply. To offset these, Ford halted U.S. exports to China, modified China-sourced imports, and optimized logistics—a 35% reduction in Q1’s tariff impact through such measures.

Ask Aime: What impact will the $1.5 billion tariff overhang cause for Ford?

Segment Performance: Blue and Pro Struggle, EVs Hold Steady

Ford’s traditional passenger vehicle division, Blue, faced a brutal Q1, with EBIT plummeting 90% to $96 million amid a 3% revenue decline. The Pro segment (trucks, SUVs, and commercial vehicles) also faltered, with EBIT dropping 58% to $1.31 billion despite robust demand for work vehicles.

Ask Aime: Will Ford's Q1 earnings decline continue into 2025?

The Model e EV division, however, narrowed its losses to $849 million—down from $1.33 billion a year earlier—thanks to higher sales volumes and cost discipline. EVs now account for 13% of Ford’s U.S. sales, with the Mustang Mach-E and F-150 Lightning leading the charge. This progress is critical, as EVs are central to Ford’s “Ford+” turnaround plan, which aims to boost margins and efficiency.

Industry Context: A Tariff-Ridden Race

Ford’s challenges mirror broader industry pressures. Competitor General Motors (GM) anticipates a $4–$5 billion tariff impact—far higher due to its greater reliance on imported vehicles. Meanwhile, automakers like Stellantis and Mercedes-Benz have also withdrawn 2025 guidance, citing tariff-driven volatility. Even retailers and airlines, from Walmart to Delta, face similar headwinds, highlighting the far-reaching economic impact of trade policies.

Financial Risks and Strategic Shifts

Ford’s suspension of 2025 guidance reflects not just tariff exposure but also broader market uncertainties. The company now projects U.S. vehicle sales to drop by 500,000 units compared to earlier estimates, settling at 15.5 million. To navigate this, Ford plans $1 billion in cost reductions (excluding tariffs) and is accelerating supply chain adjustments, such as localizing production to reduce reliance on tariff-hit imports.

The White House’s partial tariff exemptions for automakers offer some relief, but risks remain. Retaliatory tariffs from China or further U.S. policy shifts could worsen the outlook. CFO Sherry House emphasized that Ford’s “Ford+” plan—focused on EVs, cost cuts, and operational efficiency—is intact, but near-term profitability hinges on navigating these headwinds.

Investment Considerations

Ford’s stock (F) has underperformed peers like Tesla (TSLA) and GM (GM) in recent quarters, reflecting investors’ skepticism about its ability to offset tariffs and revive margins. However, its EV progress and cost-cutting efforts provide a foundation for recovery. Key catalysts include:
- EV scaling: The Model e division’s loss reduction and rising market share.
- Tariff mitigation: Success in absorbing costs without hiking prices.
- Supply chain resilience: Adaptation to USMCA compliance and logistical shifts.

Conclusion: Navigating a Rocky Road

Ford’s Q1 results paint a mixed picture. While its traditional segments are under siege by tariffs and declining industry demand, its EV division offers a lifeline. The $1.5 billion tariff overhang is daunting, but Ford’s proactive measures—including cost reductions and localized production—suggest it is fighting to retain profitability.

Investors should weigh these efforts against lingering risks. If Ford can stabilize margins and accelerate EV adoption, its stock could rebound. But with global trade tensions and supply chain fragility unresolved, caution remains prudent. As the automotive industry braces for further turbulence, Ford’s ability to balance short-term pain with long-term growth will determine its trajectory.

In sum, Ford’s story is one of resilience amid a storm—but the storm’s full fury has yet to pass.