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While topping earnings and revenue estimates for its first quarter, US automaker Ford (F) expects President Trump's tariffs to weigh down its net profits by $1.5 billion. The Trump administration's latest tariffs on foreign-made auto parts went into effect on May 3, allowing partial exemptions for American auto companies.
CFRA Analyst Garrett Nelson comes on The Morning Brief to talk about Ford's suspended full-year guidance, the company's performance nearly five years into Jim Farley's tenure as CEO, and its vehicle pricing.
To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.
Shares of Ford move to the downside after the automaker suspended its guidance for the full year, citing uncertainty due to tariffs. Well, the president limited some of the scope of the tariffs on the auto industry. Ford is still estimating a $1.5 billion hit to its adjusted earnings. During this now with more on how Ford is navigating trade policy, Garrett Nelson, CFRA analyst, Garrett, always great to talk to you. Talk to me about that $2.5 billion gross tariff impact number that Ford came to. How are you thinking that they got to that level of impact, especially given about 80% of the vehicles that they're selling in the United States are assembled here?
Sure, thanks for having me. Um, I think, you know, it's not a surprise that the what they guided for in terms of tariff impact was much smaller than GM guided for, four to five billion, uh, last week. Um, as you noted, you know, a lot more of Ford's production is, is in the United States. Um, but I think what you're seeing today, despite this beat that they reported after the bell yesterday, uh, if you look at the the full year, uh, or or the adjusted ebit that they posted in Q1, it was about a billion dollars. Um, but that was pre, uh, April second tariff. The entire quarter was completed before those tariffs went into effect. And so if you annualize that, uh, that only comes to about four billion in adjusted ebit. Um, and of course, the guidance which they suspended for the full year was, uh, was seven to eight and a half. So, um, you know, just looking at the results, while Q1 is normally, uh, the weakest of the year, uh, due to seasonality, um, the the results were still pretty weak and I think point to some, uh, some larger issues, uh, you know, taking place at Ford, which we don't think is anything new. So, um, you know, we we we think they still have some issues there at the company.
You know, it's really interesting because we heard CEO Jim Farley talk about on the call, transforming forward into a higher growth, higher margin, more capital efficient, more durable business. How much more challenging does that get if you're incurring expenses additive because of tariffs, and then you have to decide which of those you're actually passing through to consumers who are already feeling their own pressure?
Well, I think there's a lot of frustration among investors and shareholders because that same language is a language we've been hearing ever since Farley became CEO of the of the company in October of 2020. So here we are four and a half years later and, uh, you know, they're still struggling to drive down costs and create a, a much, uh, stronger company structurally. So
What do you think that is, Garrett?
I, I just think it's poor management to be frank. Um, they just haven't done a good, as good a job, uh, managing the, uh, the, the portfolio as, as General Motors and others have, others who are picking up market share in the US, uh, such as Toyota, Hyundai, uh, Kia. Um, you know, Ford has lost pretty significant market share over the last 5 to 10 years in the US, its core market, where essentially all of its profits come from.
So talk to me then about the degree to which Ford has pricing power versus some of their competitors in the space. They said that their guidance would include price hikes, and that they'd adjust their prices based on their competitors. That makes me think that they're going to wait until somebody else blinks first on lifting prices.
Well, Ford has had a little bit of a rebound in sales. We know their US sales are up 3% year-to-date, that's through the end of April. So, so that's a positive. Um, but the big problem in our view right now is that, uh, several years back, Ford made a decision to phase out essentially all of their sedan and, and sedan and compact car models. So they, they produce no, uh, passenger cars aside from the Ford Mustang. So it's basically an all, uh, truck and SUV portfolio. Um, because of the affordability issue and the, the, the, uh, the pressures that consumers are under, um, you know, they're, they're, they're struggling, um, you know, with those big ticket trucks and SUVs. So I think, you know, that's why they've really lost market share and, and why they've struggled relative to some of their competitors, is just the lack of, you know, smaller, more affordable vehicles that are really, uh, popular with a lot of consumers right now.
