There's been a resurgence of investor interest in automakers recently, after President Trump indicated that some automotive tariffs may not be as bad as initially feared. Ford (F +4.11%) stock plummeted in early April on the initial tariff rollout but has since rebounded and is up nearly 9% year to date.
But investors may want to temper their enthusiasm. Ford continues to face significant headwinds on multiple fronts. Here's why Ford stock isn't a millionaire maker and why it's probably best to avoid it right now.
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The automotive market is facing a steep hill
The Trump administration said recently that it wouldn't "stack" automotive tariffs on top of each other. For example, a steel tariff wouldn't be applied to imported auto parts that have already undergone a tariff. Moreover, the administration said automakers could receive a rebate on some tariffs for the first two years.
But the damage has already been done to Ford and its peers. The company pulled its full-year guidance for 2025 and said tariffs will cost $1.5 billion this year, even after attempts to offset some of the impact.
To understand just how much the tariff turmoil is hurting Ford, consider that the company's previous guidance was for about $8 billion in earnings before income and taxes (EBIT) for the full year. Yet the company had just $1 billion in EBIT earnings for its first quarter, far below the pace required to meet that goal, which was set just three months ago.
Ford CEO Jim Farley said on the company's earnings call that, "it's still too early to fully understand our competitors' responses to these tariffs. It's also early to gauge the related market dynamics, including the potential industrywide supply chain disruptions and the impact of Ford's domestic manufacturing advantages."
While tariff deals are being worked out, some damage has clearly already been done to Ford and its peers. And there could be more pain on the way.
Consumers are worried about spending
Another result of a chaotic tariff rollout is that consumers are now more worried about the economy. A recent University of Michigan survey found that consumer sentiment is at its lowest point in three years, and Americans are expecting inflation to start ticking up later this year.
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Key Data Points
That's bad news considering the average transaction cost for a new vehicle is about $48,700. Tariffs could drive auto prices even higher -- Ford already hiked prices for three of its models by as much as $2,000 -- at the same time that consumers are worried about the economy.
That's doubly bad for Ford and its peers because it means Americans could soon begin saving their cash for a rainy day, instead of spending it on a new car.
Ford stock lacks excitement
I understand why some investors might be drawn to Ford. The company's stock is relatively cheap, with a price-to-earnings ratio of 8.6, far below the S&P 500's P/E ratio of 28. Plus, the company has fared better than some of its peers when it comes to tariffs. General Motors expects a $5 billion tariff impact this year, compared to Ford's $1.5 billion.
However, there's far too much uncertainty in the automotive market right now for Ford to grow significantly. Tariffs are likely to continue affecting automakers for the foreseeable future, and Ford's sales aren't expected to be impressive over the next few years. Analysts estimate sales will fall by 2.4% this year and increase by just 1.5% in 2026.
With significant risks from tariffs and potential economic headwinds, Ford stock certainly isn't a millionaire maker. And with these uncertainties likely to stick around for a while, I think it's best to avoid the stock altogether.
