Ford losing traction to rivals, downgraded at Jefferies to Underperform

Ford (NYSE:F), like the other ICE manufacturers in the U.S., should benefit from a roll-back of Biden-era EV mandates and emission restrictions that have influenced shifts in manufacturing and capital allocations. But for Ford (F), the challenges are more endemic rather than systemic, prompting Jefferies’ auto analyst team to downgrade the stock to Underperform from Hold and lower their price target by 25% to $9, suggesting 13% downside in the stock.

Ford (F) shares are trading defensively as a result of the downgrade, down more than 3% in Monday’s premarket trading.

“We downgrade Ford to Underperform on broad concerns ranging from inventory overhang to looming strategic decision on its European presence and a widening gap between warranty provisions and related cash flows,” Jefferies’ team led by Philippe Houchois said.

Ford faces a difficult start to 2025 that will be exacerbated by the re-sizing or perhaps exiting of Europe, a cumulative gap of $8.5B between warranty/quality provisions and cash outflows and executing on its yet-to-be-announced electrification strategy which Jefferies thinks will likely be centered on range extenders.

The warranty issue will continue to plague Ford (F), and while the balance sheet is “robust rather than strong”, potential claims from restructuring and warranty leave little cash for shareholders if Ford (F) wants to maintain a conservative financial profile.

In concert with its downgraded of Ford (F), Houchois and team reaffirmed their Hold rating for General Motors (GM) as the company’s policy of capital allocation builds on a combination of solid operating performance and continued retrenchment, leaving GM (GM) in a strong position when trading conditions improve.

And while there are some issues that could weigh on GM (GM) in 2025, including the likely changes to EV policies that would undermine GM’s (GM) efforts to scale production to profit, and Stellantis’ (STLA) efforts to grab market share from its larger rival, Houchois and team remain constructive towards GM’s (GM) future earnings and ability to repurchase shares.