Can Ford Stock Finally Break Free From the $10 Trap?

Globe and Mail

2 days ago

Those following Ford stock (F) would likely agree that shares have been languishing near the $10 price level for the last few years. Ford stock rose sharply from its 2020 lows and peaked at $25.87 in mid-January 2022. The stock fell below $20 the same month and hasn't been able to rise above that level since. For the last three years, Ford has been moving in a narrow price channel and tends to bottom near $10 while getting cold feet above $15.
In this article, we'll explore what it would take for Ford to break out from the $10 price level that it has been hovering around for most of this year.
What's Wrong with Ford Stock?
Plenty is going wrong with Ford, both on a macroeconomic level as well as the company-specific level. The tariff uncertainty has taken a toll on Ford's earnings, and the Detroit giant had to withdraw its 2025 earnings guidance in the wake of President Donald Trump's auto tariffs. Apart from the tariffs on vehicles and car parts, Ford – or for that matter, the U.S. automotive industry – received a major jolt when Trump raised steel and aluminum tariffs to 50%.
These tariffs will trigger an increase in U.S. steel prices, which will negatively impact automakers' bottom lines. While Ford hasn't commented on the impact of metal tariffs this time around, in 2018, it estimated that the metal tariffs Trump imposed during his first term would cost it $1 billion in profits between 2018 and 2019. Back then, the tariffs were 25% on steel and 10% on aluminum, so we can be reasonably sure that the impact this time around will be even higher unless the president cuts the tariffs.
Apart from the tariff-related headwinds, not all is well with Ford on a company-specific level. The company's electric vehicle (EV) strategy has faltered, and while deliveries have sagged, losses continued to mount. Last year, the business lost $5.08 billion on a pre-tax basis, and the company guided for losses to be between $5 billion and $5.5 billion this year.
General Motors Has Fared Better Than Ford
Rival General Motors (GM) has done relatively better and sold more EVs than Ford last year. The company's EV portfolio was 'near breakeven' on a variable profit basis in Q1. Unlike Ford, which essentially expects its 2025 EV losses to be similar to the last year, during its Q4 2024 earnings call, GM said that it expects the savings in its EV business to be toward the low end of its previous guidance of $2 billion to $4 billion.
In terms of capital allocation, investors have given a thumbs up to GM's strategy of aggressive share repurchases versus Ford's fat dividends. The 'legacy' issues related to warranties also keep haunting Ford every few quarters and take a toll on its profits.
The price action in Ford and General Motors highlights the divergence in their fortunes. Over the last three years, GM stock is up more than 40%, while Ford is down over 20%.
F Stock Forecast
Wall Street analysts don't expect Ford to break out from $10 price levels, and its mean target price is $9.74, which is slightly below what the stock currently trades at. Of the 24 analysts covering Ford, only three rate it as a 'Strong Buy,' while 16 rate the stock as a 'Hold' or some equivalent. The remaining five rate F as a 'Sell' or lower, as sell-side analysts have turned incrementally bearish on the stock over the last couple of years.
What Would It Take for Ford Stock to Rise Above $10?
In terms of valuations, Ford trades slightly below its book value while the forward price-earnings (P/E) multiple is 8.96x, which happens to be higher than what the stock has traded at over the last five years. I wouldn't harp much on the P/E as Ford's 2025 earnings are expected to be subdued on account of tariffs. However, while Ford seems to have little downside from these levels, for the stock to rise sustainably, the management has to do a lot of things right, as the transformation under CEO Jim Farley hasn't helped much – or at least that's what the stock price tells us.
For Ford stock to rise significantly above $10 levels, the company would not only need an enabling macro environment, but it would also need to execute well. On the macro side, apart from the tariff uncertainty, Ford is also battling an uncertain economy and pricing pressure in the EV segment. The current interest rates are also high as the Federal Reserve has gone slow on rate cuts amid the tariff uncertainty.
To regain the faith of markets, Ford needs to address multiple issues, including those related to warranties and recalls, which I would argue are not 'legacy' issues. For instance, last year, it recalled thousands of F-150 and Maverick pickups. Last month, it again recalled more than 1 million vehicles over a software glitch. What was troubling is that these are recent models (2022-2024), so they can't be brushed aside as 'legacy' issues.
The company's EV losses are too high for comfort and have been eating into the otherwise healthy profits of its internal combustion engine (ICE) business. Overall, the ball is in the court of Ford's management, and the company needs to lower its EV losses while maintaining or increasing the profits from the ICE segment. The stock is trading at depressed valuations for a reason, and markets would like to see real progress in its transformation for the stock to go higher.