Possibility of Ford Shares Mirroring GM's Drop on July 30th?
In the automotive industry, Ford is bracing for the impact of President Donald Trump's auto tariffs, which have already cost the company a significant $1.1 billion in its Q2 earnings, set to be released on July 30. This figure represents a substantial earnings reduction, as Ford expects the annual impact of these tariffs to reach around $4 billion, similar to General Motors' tariff-related losses.
The tariffs, implemented at 25% on foreign-made vehicles and certain parts, have caused a ripple effect in the North American auto industry, causing cost increases, squeezing profit margins, and adding economic uncertainty. As a result, companies like Ford are left with two options: absorbing the higher costs or eventually passing them on to customers.
Ford is also grappling with ongoing quality and recall issues, such as a recent recall affecting approximately 700,000 vehicles, which adds further financial strain to its profitability outlook. The company's CEO, Jim Farley, has a lot to address, including these frustrating recalls and related costs.
The tariffs create long-term strategic uncertainty for Ford. The company is investing in domestic production to mitigate tariff impacts, but new U.S.-made vehicle models from these investments will not appear for another 1.5 years, meaning short- to medium-term profitability continues to face headwinds. The cumulative effect of tariffs and legacy costs may restrain Ford’s profit growth in 2025 and beyond until the company adjusts its supply chain and cost structure.
Meanwhile, the Street is not very optimistic about Ford's prospects. Analysts predict a 2% year-over-year fall in Ford's Q2 revenues to $43.9 billion, with only three analysts rating it as a "Strong Buy." Ford's expected earnings per share (EPS) for Q2 is $0.34, a year-over-year fall of 27.7%.
Other automakers have also felt the impact of the tariffs. General Motors took a $1.1 billion hit from the tariffs in Q2, and Stellantis reported a first-half loss of nearly $2.7 billion, attributing it to President Trump's tariffs and one-time charges.
Despite these challenges, Ford's F-series trucks had their best second-quarter performance since 2019, with a 14.2% quarterly rise in U.S. deliveries, which was around 10 times the 1.4% increase in industry-wide sales.
As the industry navigates these challenges, investors remain cautious. The author believes that much of the damage has already been done to Ford's stock, but the current risk-reward profile is not attractive enough to trigger a fresh purchase given the tariff uncertainty. The author, who remains invested in Ford, does not find the current circumstances conducive for a new purchase.
In conclusion, Ford's Q2 earnings are a bellwether for the impact of President Trump's auto tariffs on the North American auto industry. The tariffs have caused substantial financial strain for Ford, and the company faces significant challenges in the short and medium term. The industry will continue to monitor Ford's progress as it navigates these challenges and adjusts its supply chain and cost structure to mitigate the impact of the tariffs.
In the realm of the automotive industry and general-news, the considerable revenue decline of Ford due to President Trump's auto tariffs has compelled the company to consider absorbing higher costs or passing them onto customers, leading to financial strain and uncertainty for its future profitability. Furthermore, Ford, like other automakers, is investing in technology to lessen the impact of tariffs, but the successful implementation of these strategies may not be realized for another 1.5 years, necessitating immediate solutions.
