F: Recovery Efforts And Policy Adjustments Will Offset Near-Term Electric Vehicle Challenges

Key Takeaways

• Expansion into digital services and connected vehicle technologies is driving higher-margin recurring revenues and boosting Ford's long-term profitability and earnings durability.
  
• Streamlined manufacturing, cost controls, and a strategic EV realignment are enhancing operational efficiency, closing cost gaps, and increasing competitiveness in key markets.
  
• Heavy reliance on legacy vehicles, trade uncertainties, and slow EV transition expose Ford to mounting cost pressures, competitive threats, and shrinking long-term profitability.

Catalysts

Develops, delivers, and services Ford trucks, sport utility vehicles, commercial vans and cars, and Lincoln luxury vehicles worldwide.

• Ford's ongoing transformation of its Ford Pro commercial platform-emphasizing high-margin, recurring revenues from software, telematics, and aftermarket services-continues to outperform, with paid software subscriptions up 24% year-over-year and aftermarket approaching 20% of Pro EBIT. This shift toward recurring digital revenues supports structurally higher net margins and enhances earnings durability.
  
• Material improvements in operational efficiency-including accelerated manufacturing cost reductions and successful supplier negotiations-are driving sustainable cost savings. This cost discipline, supported by ongoing restructuring efforts, is already closing Ford's competitive cost gap and is expected to bolster margins and long-term earnings growth.
  
• Ford is strategically realigning its electrification investments, shifting focus toward next-generation, U.S.-built EV platforms and leveraging advanced, lower-cost LFP battery technology. This positions Ford to benefit from robust EV adoption, government incentives, and reduced development costs, likely supporting future revenue growth and improved gross margins as new EVs scale.
  
• Recent and pending changes in emissions regulations are affording Ford greater powertrain flexibility and enabling the company to adjust its product mix toward higher-demand, higher-margin ICE and hybrid vehicles without significant compliance costs. This shift unlocks a multibillion-dollar earnings opportunity over the next several years by reducing regulatory burden and costly credit purchases.
  
• The focus on connected vehicle data, OTA software updates, and advancements in autonomous driving (BlueCruise, upcoming Level 3 capabilities) sets the stage for new, high-margin revenue streams from digital services and vehicle fleet management. This positions Ford to capture higher customer lifetime value and recurring revenues, driving top-line growth and long-term profitability.

Ford Motor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ford Motor's revenue will decrease by 0.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.7% today to 3.6% in 3 years time.
• Analysts expect earnings to reach $6.6 billion (and earnings per share of $1.58) by about September 2028, up from $3.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $9.8 billion in earnings, and the most bearish expecting $5.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.3x on those 2028 earnings, down from 14.5x today. This future PE is lower than the current PE for the GB Auto industry at 18.6x.
• Analysts expect the number of shares outstanding to grow by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Ford Motor Future Earnings Per Share Growth

Risks

• Large and persistent tariff headwinds ($2 billion estimated net impact) and ongoing global trade policy uncertainty could continue to weigh on Ford's cost structure and compress margins, particularly given the company's U.S.-centered manufacturing footprint.
  
• Ford's mixed strategy on electrification-including postponing, canceling, or re-scoping EV programs in reaction to regulatory and market shifts-could leave it lagging behind more agile pure-play EV competitors and Chinese OEMs, risking long-term market share and revenue growth.
  
• Ford remains highly reliant on profits from internal combustion engine (ICE) vehicles, especially trucks and large SUVs; as regulations and consumer preferences pivot more aggressively toward EV adoption, this dependence could erode margins and shrink addressable markets.
  
• Recurring high warranty and recall costs, especially from legacy vehicles, create a lag in improving bottom-line results; while coverage costs are trending down, full normalization in recall-related outflows may take years, posing ongoing risks to net earnings and free cash flow.
  
• Rising competitive pressures in both commercial and consumer automotive markets-including EV price competition, input cost inflation (e.g., batteries, materials), and the need for sustained high investment in autonomous/connected vehicle technology-could limit Ford's pricing power and future net margins.

Valuation

• The analysts have a consensus price target of $10.8 for Ford Motor based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $16.0, and the most bearish reporting a price target of just $8.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $183.9 billion, earnings will come to $6.6 billion, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 12.3%.
• Given the current share price of $11.49, the analyst price target of $10.8 is 6.4% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.