Ford May Face a Potential New Challenger
Ford Motors is currently grappling with numerous challenges, including struggles in China, soaring warranty costs, and astronomical losses in its electric vehicle division. The last thing the company needs is an unpredictable administration causing uncertainty, especially with potential tariffs looming over Canada and Mexico.
The Potential Threat
The Trump administration's talk of imposing a 25% tariff on imported goods from Mexico and Canada is causing turmoil in the automotive industry. It's a real concern because automakers simply don't have time to adjust to such dramatic changes. They face the difficult choice between absorbing these additional costs or passing them onto consumers, potentially losing market share.
If car manufacturers opt to pass the extra costs onto consumers, the average cost of a vehicle sold in the U.S. market could increase by around $3,000, according to Wolfe Research. However, Baird analysts estimate the damage to be more severe, pushing up the cost of imported vehicles by approximately $10,000, which could result in a significant drop in demand for around 900,000 units.
S&P Global reports that about 17% of EBIT profits are at risk if the Trump administration imposes tariffs. Such a substantial loss of profitability might be too much for investors to bear.
A Sticky Situation
Baird analyst Luke Junk claims that the economic impact on the auto industry would be significant and could potentially lead to a "near-term sell-off" in the stocks. Additionally, the complex political landscape raises the possibility of retaliatory tariffs, which could further hurt automakers' bottom lines.
Some may view this situation as an opportunity, particularly since Ford's stock has plummeted by 50% over the past three years. Ford's lucrative 6% dividend yield and largely safe and consistent payout could attract income investors. However, current circumstances make it challenging for Ford to overcome the obstacles it faces in the near future, including quality improvement, lowering costs while scaling up its electric vehicle business, and navigating the intensely competitive China market.
So, while potential tariffs and trade disruptions pose a serious threat to Ford and its investors, it might be wise for some to keep their distance from this volatile company until things settle down.
The potential tariffs could significantly impact Ford's finance, as S&P Global suggests that about 17% of EBIT profits are at risk. Furthermore, the increase in vehicle prices due to tariffs might affect investing decisions, as potential investors may be deterred by the financial instability caused by such losses.
