This week, we discussed how tariffs are bound to hurt the airline industry if tourism in the United States is constricted.

Tariffs are also poised to affect another recently embattled industry, automotive.

President Trump’s new 25% tariffs on imported vehicles and auto parts, set to take effect in April, are causing headaches for an industry already struggling with thin margins and fierce competition.

While the policy aims to boost American automakers like Ford (F), the reality is messy.

Vehicles are no longer a product of a single location but are assembled from thousands of parts that travel across borders.

The new tariffs target not only complete vehicles but also key components such as engines, transmissions, and electrical parts.

While these tariffs may increase the price of imported vehicles, they also complicate the supply chains that both domestic and foreign manufacturers depend on.

President Trump’s 25% tariffs on imported vehicles and auto parts might seem like a win for Ford at first glance.

The company has a stronger domestic footprint than General Motors (GM), with around 80% of its U.S.-sold vehicles assembled in America.

That should theoretically shield it from the worst of the tariff storm, especially compared to GM, which imports nearly half its vehicles and faces added pressure from its exposure to China’s shaky market.

However, Ford’s situation is far from simple.

While Ford’s assembly numbers look solid, the word “assembled” hides a critical detail: Many components in those vehicles still come from abroad.

Tariffs on auto parts mean Ford’s supply chain costs will rise, squeezing margins even if finished cars avoid the full brunt of the policy.

Investors aren’t exactly rushing to bet on Ford’s resilience.

The stock has lost more than 25% of its value over the past year, reflecting broader concerns about the auto industry’s challenges, like slowing EV adoption, union labor costs, and now tariffs.

We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At the current stock price, the market predicts that the company’s Uniform return on assets ”ROA” will stay around 4%, below the cost of capital.

Ford’s electric vehicle division lost $5 billion last year, and while the company expects positive free cash flow in 2025, much of that hinges on its gas-powered and commercial vehicle segments propping up the business.

The 6% dividend yield looks attractive, but with a payout ratio nearing 60%, there’s little room for error if tariffs disrupt sales or margins further.

For Ford, the rising costs of imported parts and the overall unpredictability of the auto industry continue to pose significant risks.

Investors should remain cautious about investing in a company that faces strong headwinds and offers little upside.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

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