Ford's Q3 2025 Earnings Call: Key Contradictions Emerge on Tariff Impact, Warranty Costs, and EV Strategy

Date of Call: October 23, 2025

Financials Results

• Revenue: $50.5B, up over 9% YOY

Guidance:

• Updated 2025 adjusted EBIT guidance: $6.0B–$6.5B.
• Updated 2025 adjusted free cash flow: $2B–$3B.
• Q4 Novelis impact: adjusted EBIT headwind of $1.5B–$2.0B and adjusted FCF headwind of $2B–$3B.
• Tariffs: now a ~$1B net headwind for 2025 (improved from ~$2B).
• Assumptions: U.S. SAAR ~16.8M, U.S. industry pricing ~0.5%, capex ~ $9B.
• 2026 outlook (preliminary): line of sight to recover ≥$1B Novelis, similar net tariff impact, plan ~$1B additional cost improvements, continued spend on Marshall (LFP) and Louisville ramps.

Business Commentary:

• Industrial System and Quality Enhancements:
• Ford achieved year-over-year improvement in cost and anticipates a net $1 billion improvement for the year.
• The company is focused on enhancing launch quality and long-term reliability, which is expected to improve recall costs significantly in the future.

• AI and IT modernization efforts have been implemented to unlock efficiency and detect quality issues at the source.

• Ford Pro and Market Dynamics:

• Ford Pro reported revenue of $17.4 billion and EBIT of $2 billion, with a robust double-digit margin.
• This growth is driven by a diverse vehicle lineup, service parts penetration, and integrated software and services, particularly benefiting from increased investments in mobile service fan inventory.

• The company is strategically diversifying its revenue streams and focusing on small-to-medium businesses and integrated software solutions.

• Emissions Regulations and Product Mix Optimization:

• Ford anticipates significant benefits from reduced compliance headwinds due to expected modifications in emissions regulations, which will optimize its product mix and reduce reliance on credits.
• The company will adjust its powertrain and trim mix to maximize profits, leveraging its strong lineup of hybrid and off-road vehicles.
• The adjustments will help Ford minimize costs and maximize returns in an evolving global emissions landscape.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized a 'record $50.5 billion in revenue' and $2.6B adjusted EBIT, said the underlying business is 'tracking at the high end' of prior guidance absent the Novelis fire, and highlighted industrial, warranty and cost improvements while outlining mitigation and recovery plans.

Q&A:

• Question from Joseph Spak (UBS): Why do you only think you could recover about $1 billion of the impact from Novelis, and is Novelis' plan to have the plant back up by year-end considered in your outlook? Response: Hot mill expected operational late Nov/early Dec; Ford expects a ~90k–100k unit Q4 loss, will add shifts/line speed to recuperate ~50k in 2026; full recovery depends on Ford capacity and timing.

• Question from Joseph Spak (UBS): Any update on potential disruption from the Nexperia chip impact and your alternative supply/mitigants? Response: This is a political, industry‑wide issue; Ford is maximizing component buys and engaging governments, but resolution timing is uncertain and could risk Q4 production.

• Question from Dan Levy (Barclays): Where are you on breaking the warranty cost curve and when will improvements show up materially in the numbers? Response: Initial quality gains and lower coverage costs should drive down total warranty (coverage + FSAs) next year; Q3 warranty costs were down about $450M YOY.

• Question from Dan Levy (Barclays): With incremental capacity to recover lost volume, how comfortable are you that industry price discipline will be maintained? Response: Management expects pricing to remain strong (industry pricing ~+0.5%), supported by healthy segment fundamentals and a fresh product lineup, underpinning comfort on added capacity.

• Question from Mark Delaney (Goldman Sachs): Is the previously cited multibillion‑dollar emissions opportunity still valid and is it additive to current EBIT or mainly avoidance of future compliance costs? Response: Emissions changes both avoid future credit purchases and enable profitable mix optimization; some purchase obligations (~$2.5B) may be eliminated, producing a material net benefit.

• Question from Xin Yu (Deutsche Bank): With tariffs changing, why do you expect a similar net tariff impact in 2026, and can you comment on Model e/next‑gen EV program direction? Response: Recent proclamation yields a ~$1B benefit for 2025 and management expects a similar net tariff effect in 2026 (partial offsets remain); Model e investments continue with UEV focused on low‑cost, affordable EVs and decisions on program scaling will be addressed later.

• Question from Ryan Brinkman (JPMorgan): How will the Novelis disruption affect retail customers given your inventory positions (e.g., F‑Series days of supply)? Response: Ford believes current inventory is sufficient to insulate retail in Q4 and expects to end the year with leaner retail stock (55–59 days supply), so retail sales should be protected near term.

• Question from Douglas Karson (BofA): Given Ford/FCash strength, what financing strategies are you using to help customers (e.g., subvented financing) without changing risk appetite? Response: Ford Credit ran targeted promotional programs (no tier upgrade) to structure affordable deals without changing risk appetite; high‑risk portfolio remains very small (~3%) and average FICO held steady or improved.

• Question from Itay Michaeli (TD Cowen): To what extent will mix optimization (powertrain/trim) push up ATPs, and can customers bear it? Response: ATPs are above segment averages, giving Ford flexibility to optimize mix (higher‑margin trims and hybrids) while maintaining demand.

• Question from Emmanuel Rosner (Wolfe Research): How large is the opportunity from removing compliance constraints (e.g., selling more Raptor/Tremor and hybrid mix)? Response: Removing compliance constraints frees previously suppressed demand for high‑margin trims and hybrids (notably F‑150 hybrid), offering meaningful upside via mix and pricing levers.

• Question from Colin Langan (Wells Fargo): Clarify Q4 math: how does the ~$1B tariff receivable and the Novelis EBIT hit reconcile with Q4 and 2025 guidance? Response: The ~$1B tariff benefit is recorded as a Q4 receivable following the proclamation; Novelis causes a Q4 adjusted EBIT hit of $1.5–2.0B, and the ~$1B recoveries referenced are largely line‑of‑sight for 2026, not offsetting the full 2025 Novelis hit.