Even though Ford is a quintessential American car company, its stock has taken a significant hit—down more than 15% since the announcement of increased tariffs by President Donald Trump. At first glance, that may seem counterintuitive. Ford manufactures a substantial number of vehicles domestically. But the reality is more complex.
Like most major automakers, Ford operates in a global supply chain. It sources many key components—including electronics, drivetrains, and various sub-assemblies—from outside the United States. So even with domestic manufacturing plants, Ford is still exposed to rising input costs due to tariffs on imported parts and materials. And while it might be less impacted than some international automakers who rely more heavily on foreign assembly, the increased cost of goods sold will undeniably squeeze margins.
So the big question is this: Has the market already priced in the impact of these new tariffs? Or is there an opportunity here for long-term investors to take advantage of a temporary dislocation?
That’s what I’ll address in this article. I’m going to walk you through the key long-term trends shaping Ford’s business, assess the company’s financial health, and then use my proprietary discounted cash flow model to estimate a fair value for Ford’s stock. We'll see if the recent decline presents a buying opportunity—or a value trap.
Ford’s Recent Performance & Revenue Growth
Let’s start by looking at the recent performance. Over the past decade, Ford has been on a roller coaster—dealing with shifting consumer preferences, macroeconomic shocks, and massive industry-wide transformations. That said, the company is currently generating $185 billion in trailing twelve-month revenue. That’s the highest in Ford’s history—even surpassing its 2019 pre-pandemic peak.
That may sound like a win—and in some ways, it is. The auto industry as a whole has seen a lift in average transaction prices, with consumers buying more SUVs and trucks, which come with higher sticker prices and better margins compared to compact sedans. Ford has benefited from this trend, thanks to its strong portfolio of F-series trucks and SUVs.
But here’s where things get more complicated: revenue growth hasn’t translated into strong profitability. In fact, despite that $185 billion top-line figure, Ford’s profitability metrics are still weak. For instance, if you look at the cash flow from operations as a percentage of sales—basically, how much cash Ford is generating relative to its revenue—it’s not impressive. In fact, over the last decade, it’s never been particularly strong.
Why Automakers Struggle with Margins
This ties into one of the key points I always highlight: the auto industry, structurally, is not a great business to invest in—at least not for long-term compounders.
Let’s break that down. The auto industry is capital intensive. Every year, companies like Ford have to pour billions into updating vehicle platforms, designing new models, retooling manufacturing lines, and investing in safety, emissions, and technology improvements. That’s before we even talk about R&D for autonomous driving or electric vehicle platforms.
Not only that, but the industry is hyper-competitive. Companies compete fiercely on price, features, and brand. Consumers are price-sensitive, and there’s little loyalty when competitors offer more value. Meanwhile, employees have strong bargaining power, particularly in legacy automakers with unionized workforces. Add to that the fact that it costs billions to build or modernize manufacturing plants, and you’ve got a high fixed-cost business with very little room for error.
And let’s not forget—you invest those billions up front without knowing what demand will be in 3–5 years. You commit to new platforms today, hoping that the consumer trends don’t shift too far by the time you actually bring the product to market.
Ford’s Return on Invested Capital
All of this shows up in Ford’s return on invested capital (ROIC), which has never crossed 10% over the last decade. In fact, the average ROIC has been under 4%, which is far below the cost of capital and not enough to create shareholder value consistently. Simply put, Ford is not earning strong returns on the money it’s putting back into the business.
Even the recent improvement in its cash flow from operations to sales ratio—currently at 8.34%—is still well below 2018–2019 levels, which hovered around 12%. And even that 12% wasn’t stellar, considering how capital-heavy this business is. It’s a low-margin, low-yield environment for shareholders, even when revenues are hitting all-time highs.
Ford’s Capital Structure & Valuation
Now let’s talk valuation. Based on my discounted cash flow analysis, the fair value I calculate for Ford stock is $5.23 per share. That’s well below the current market price of $8.69, even after the recent 15% drop. This suggests to me that the stock is still overvalued, and the decline hasn’t fully priced in the headwinds the company is facing.
My DCF model incorporates a weighted average cost of capital (WACC) of 9.32%, which includes a cost of debt at 8.5%. That may sound high, but it’s justified given Ford’s financial leverage. The company has over $157 billion in total debt across both its core operations and financing arm. That’s a massive debt load, and it adds to the risk profile, especially in a rising rate environment.
The cyclical nature of the business compounds the problem. As economic conditions tighten, and consumers face higher borrowing costs and job uncertainty, big-ticket discretionary purchases like new cars tend to get delayed or canceled altogether.
EV Transition Challenges
To make things even more difficult for Ford, governments around the world are pushing hard for electric vehicle adoption. But consumer demand just isn’t keeping up. Despite trillions of dollars in subsidies, rebates, and tax incentives, the appetite for EVs remains soft—especially in the U.S.
Yet companies like Ford are being forced to invest aggressively in EV platforms, battery tech, and manufacturing. And these investments aren’t paying off—at least not yet. The EV side of the business is losing billions annually, which drags down overall profitability. Ironically, the internal combustion engine (ICE) vehicles—the ones governments are trying to phase out—are the only part of Ford’s business currently generating meaningful profit.
The Temptation of a Low P/E Ratio
Now, I know what some investors might be thinking. Ford’s forward price-to-earnings ratio is just 5.46—the lowest it’s been in years. That might look like a screaming bargain. After all, Ford isn’t going out of business. It’s been around for over a century. People still buy Ford trucks, SUVs, and cars, and when those vehicles wear out, they buy new ones.
But here’s the truth: just because a company is going to survive doesn’t mean it’s going to be a great investment. A low P/E can be misleading, especially in cyclical, low-margin industries with uncertain futures. And remember, you’re not just buying Ford’s current business—you’re also buying its future challenges, its debt, its capital needs, and its exposure to industry transitions.
Conclusion
So where does that leave us? Despite all the negative points I’ve raised, I’m not issuing a sell recommendation here. I’ve had Ford stock rated as a hold, and I’m maintaining that view. I’m also acknowledging my own bias—I’ve been consistently bearish on auto stocks for years because of their structural challenges. So in fairness, I’m adjusting slightly upward to account for that bias.
But overall, this is not an industry I like from a long-term investment perspective. Tariffs, high debt, structural inefficiencies, and a costly EV transition all point toward a rocky road ahead.
Yes, Ford may continue to operate successfully for decades. But that doesn’t necessarily translate into strong investment returns for shareholders. In fact, I often say: if you really want to make money from a car company, the best way might be to work there—not to invest in it.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub
Comments