New
2 Problems That Ford Needs To Fix In 2025
With 2024 officially in the history books, it's safe to say it wasn't a great year for Ford Motor Company (NYSE: F). Unfortunately, for investors, it's become more of a trend. Over the past 10 years, Ford's stock has declined 35% compared to the S&P 500's 186% gain.
It's been a rough ride, no doubt. The good news is that most of Ford's woes are fixable; management just needs to execute. Here are two things that Ford needs to fix in 2025 to reward investors going forward.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »
Big China problem
The problem in China, at least for foreign automakers, was when the government decided to heavily subsidize its electric vehicle (EV) industry. That created a long list of competitors with advanced EV technology and rock-bottom prices -- it worked almost too well.
Now, that long list of competitors has created a brutal price war, which has slowly put pressure on most foreign automakers as they can't compete on price, especially with EVs. It's even forced some countries to slap tariffs on Chinese EVs to protect their home turf, as the Chinese EV makers are now beginning to export their competitive vehicles around the world.
"I think you have to see the [Detroit Three] exit China as soon as they possibly can," said John Murphy, Bank of America Securities analyst, at his annual presentation of "Car Wars," a highly respected industry report, according to Reuters.
Ford may not fix this problem in 2025, but it can come up with a solution to start the process. Whether it's exiting the country, figuring out destinations to move its manufacturing from China, or somehow becoming more competitive and filling its production capacity in the region.
Whatever Ford does, it needs to figure it out fast because China is no longer the market the company thought would stand alongside North America in terms of profitability -- it's the opposite now.
Come one, come recall
One of the biggest speed bumps Ford hit in 2024 was, no doubt, higher warranty costs. Ford has led the U.S. industry in recalls for the past three years and may end up leading for 2024 when the data is collected. Those recalls and warranty issues can get expensive, and that was evident during Ford's second quarter.
During the second quarter, Ford's warranty costs increased by $800 million from the first quarter and reached roughly $2 billion. It's been a growing problem and a growing expense. It was a driving force in Ford missing second-quarter earnings estimates, with operating profit down 26% from the prior year.
"Warranty has been a growing issue at Ford over the last five years and has escalated over the past year," wrote Freedom Capital Markets analyst Mike Ward in a Thursday report, according to Barrons. "Between 2011 and 2019, warranty averaged 1.6% of revenue, but since the beginning of 2022, accruals have averaged 2.9% and exceeded 4% in the second quarter."
This is also a problem that Ford can't solve solely in 2025, but management has also reassured investors numerous times that it's been doubling down on quality over the past couple of years and that it will take time for those higher-quality vehicles to work into the vehicle mix and start impacting change. Most of the recalls were for older-model vehicles.
That said, investors can also keep an eye on warranty expense compared to revenue and see if it's improving throughout the next 18 months.
Buying opportunity?
The good news for investors is that Ford's problems are fixable, and it could provide investors with a buying opportunity after Ford's stock lagged the S&P 500 and even rival General Motors, which posted a 48% gain in 2024 compared to Ford's 18% decline.
The bad news for investors is that Ford's performance seems more of a trend. Over the past 10 years, Ford's stock has declined 35%. Ford's dividend yield is consistent, unlikely to be cut unless drastic circumstances appear, and it offers investors a 6.2% dividend yield. However, that juicy dividend might not be enough reason to own Ford until it starts fixing some major problems in 2025.
Should you invest $1,000 in Ford Motor Company right now?
Before you buy stock in Ford Motor Company, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Ford Motor Company wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $807,495!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of January 13, 2025
Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
