Last night, Ford announced that it beat earnings expectations like a TEMU snare drum. Will the automaker be rewarded with a big increase in its stock price today? Almost certainly not. Ford, in particular, and the auto industry, as a whole, see 2025 as a difficult year with perhaps more chutes than ladders.
Speaking of games, I play Ultimate Frisbee poorly but enthusiastically. If you’ve never played Ultimate, it’s basically soccer if soccer was invented by golden retrievers. I bring this up in The Morning Dump because, as I’ve grown older, I’ve had to change a few things about my life to keep playing. When I was younger I could spend hours a week running around the field, jumping and colliding, and I wouldn’t get hurt. Other than a little yoga, I did no real cross-training.
Now I have to spend my off days stretching, lifting weights, icing ankles, and doing all sorts of exercise just to play the same amount of time I did before. The auto industry is, in this way, a lot like me. If it wants to keep existing it’s going to have to change.
Volvo is another automaker in the same boat. The company had a record year of sales in 2024 and, yet, the leadership is warning of a complex 2025. Audi? Yup. Audi continues to be a problem. Though maybe it can provide a solution for Porsche. Now that it’s official that Nissan isn’t going to team up with Honda, that brings Foxconn back in play.
2025 started weird, and it’s only going to get weirder.
For Ford, 2025 Is A Year Of Headwinds
In many ways, Ford had a strong 2024. Sales were up for the year, and the company had a big Q4. The Blue Oval was expected to report earnings per share of about 33 cents and, instead, Ford hit 39 cents. Ford’s commercial arm, Ford Pro, continues to be a strong profit center for the automaker.
So why did the earnings call not feel triumphant? Why is the market responding negatively this morning?
If you listen to enough earnings calls or read enough earnings transcripts, you start to understand what companies are saying, even if it’s a little indirect. In its call last night, Ford’s CFO said there would be “headwinds.”
Our full year outlook assumes headwinds related to market factors. We’re planning for lower industry pricing of roughly 2%, driven by higher incentive spending throughout the year.
For Ford, we expect this will be partially offset by top-line growth from upcoming launches. We expect these headwinds to be partially offset by about $1 billion of net cost reductions, primarily coming from lower warranty expense and material costs. Our team is aggressively working to deliver more than $1 billion, which would likely lift us to the higher end of our guidance range. And we expect the majority of these savings to occur in the second half of the year.
“Headwinds” is just businesspeople-speak for “different ways we expect to get hurt.” For Ford, there are three distinct headwinds, and these are mostly applicable across the industry:
- As alluded to above, consumers are basically tapped out with what they’re going to be able to spend on cars, meaning that the only way to maintain or grow sales is to cut costs. In this case, Ford sees incentive spending as the offset.
- The EV business is still a loser. Ford wants to keep losses stable, which means losing about $5-$5.5 billion. This is an “investment” if you’re moving towards a profitable model line, but pricing just isn’t there. There were too many new entrants at the same time and Tesla, with its huge advantage, sucker-punched everyone.
- This is slightly more specific to Ford, at least in scope, but warranty costs are a huge drag on Ford. The company is working hard, it says, to stem these issues and expects to save $1 billion next year from a decline in warranty work. That would be nice.
This is to say nothing of the potential disruption from tariffs, which is also on every automaker’s mind.
For all this, I’m actually a bit bullish on Ford. Losing money on every Mach-E and Lightning is going to suck, but Ford has the right idea going forward, which is basically: Cheaper, smaller battery EVs for some people. Multi-energy platforms (hello EREV) for other people, and ICE-powered trucks or HEVs for everyone else.
Here’s how CEO Jim Farley put it:
We’re deep in the development of our next generation of vehicles that we believe will be affordable, high volume and great for our business. On the U.S. retail side, the sweet spot that has emerged is small- and medium-sized trucks and utilities. These vehicles use case fits perfectly for EVs, daily commuters, well suited as a second vehicle in the household.
They require smaller, much lower cost batteries. These vehicles can be offered at lower prices to help adoption of EVs for the customers who really appreciate their lower operating costs. But for larger retail electric utilities, the economics are unresolvable. These customers have very demanding use cases for an electric vehicle.
They tow, they go off road, they take long road trips. These vehicles have worse aerodynamics and they’re very heavy, which means very large and expensive batteries. Retail customers have shown that they will not pay any premium for these large EVs, making them a really tough business case given the expense in the batteries. For Ford, our commercial customers do show potential for large EVs.
Ford has adopted the Skunkworks moniker for its smaller EVs, at least in the development phase, and this feels like the right strategy. In the Q&A portion of this call, Farley mentioned something else interesting:
Well, we’re really confident of our EV strategy because, believe it or not, most things that are happening are kind of playing to our strength. We believe that if the EPA or the California waiver is pulled, if there’s some change to the CO2 regime in the U.S. starting from ’27. By the way, the next two years, nothing happens, so it will be ’27 and beyond.
Ohhhhh boy. If California loses its waiver from the EPA to enforce its essential EV mandate, then does this also remove the need for automakers to pay Tesla the credits it relies on to remain profitable? Does Farley think this is going to happen? Would Elon Musk allow President Trump to do this?
While this wouldn’t necessarily impact Europe, where automakers also have to buy credits from Tesla, it’s an interesting thought.
Volvo Says 2025 Is Going To Be Tough For It, As Well
Profits were down for Volvo in Q4 despite the company having its biggest year of sales ever. Why? The company’s leadership keeps telling everyone it’s going to be a tough year.
“We’re going to see more turbulence,” Volvo CEO Jim Rowan told Reuters after the Swedish-based automaker posted a lower fourth-quarter profit. “We’re going to see more hyper competition, China will remain very, very competitive and we’ll start to see more competition in Europe.”
Majority-owned by China’ Geely, Volvo faces similar challenges to other major automakers, with a weakening market in Europe, new rivals in China where an electric vehicle price war has been raging for more than two years, and lower-than-expected demand for EVs in Europe and the United States.
European and U.S. tariffs on Chinese-made EVs are also a large worry for Volvo, which is moving more production out of China but faces tariffs in the meantime.
Volvo, being part of the larger Geely Universe, invested in both Polestar and Lynk & Co. as part of a plan to utilize the company’s Chinese production capacity to expand. That’s not quite worked out for the automaker and Volvo gave up its shares in Polestar last year. This year? Lynk & Co. is also getting the boot, with Volvo saying they’ll still work together:
Following today’s shareholder approval for the divestment of its entire shareholding in Lynk & Co, Volvo Cars underlines its commitment to its ongoing commercial partnership with Lynk & Co in Europe.
In September 2024, both companies formed a retail partnership, which Lynk & Co will leverage with a select number of Volvo Cars retailers in seven European markets through a wholesale model. This wholesale model allows customers to buy Lynk & Co cars directly from one of the chosen Volvo Cars retailers.
Chaos!
Is Porsche Going To Make A New ICE Macan?
Porsche’s big bet on the future was making its best-selling model, the crossover Macan, EV-only. Was that a good idea? Unclear.
There’s an article in Manager Magazine today that talks about how much trouble Audi CEO Gernot Döllner is having with the company, that includes a lot of bitchy details like this (translated):
In Ingolstadt, tempers flare when Döllner wants to reduce complexity but keeps making new demands about what the models should be able to do. Budgets are often not increased, and the projects are sometimes barely financially viable given the extra requests. Döllner, even those who actually support him, warn that he must accept other opinions sometimes. “He needs people who tell him the truth,” says one member of the supervisory board.
Audi needs a hard reset so I don’t have a strong sense of how much this is just internal resistance to necessary change. That’s interesting, but what I really want to talk about is the ICE Macan. We didn’t get an ICE Macan for this generation, largely because the model would have a hard time passing muster because of regulations. At the same time, its historic platform-mate the Q5 did get an ICE option.
You thinking what I’m thinking? From that article:
The combustion engine had to be redesigned. And the helper was quickly found: Audi. The Ingolstadt-based company has the Q5 on offer, and Porsche has been using the SUV’s platform since the Macan was launched in 2014 to keep its profitability high. Döllner’s predecessor Duesmann had not stopped the combustion version of the Q5: last summer, a renewed version of the successful model came onto the market.
The final decision on whether Porsche’s Macan will get a successor with a gasoline engine has not yet been made, say those involved in Stuttgart. But there is agreement: the model should be on sale in early 2028.
That sounds very possible.
Why I Think Foxconn Is Going To End Up With Nissan After All
Nissan today officially walked away from its potential partnership with Honda, surprising absolutely no one. The company just couldn’t square itself as a minority partner with Honda. This whole charade is hilarious to me, as the main reason why Nissan and Honda were even considering it is because the Japanese government (and probably some folks at Nissan) were loathe to become consumed by Taiwanese megacompany Foxconn.
What’s going to happen?
Nissan Motor’s decision to halt merger talks with Honda Motor could re-open the door to Taiwan’s Foxconn, the contract manufacturing giant with designs on moving into the electric vehicle business.
There are a couple of scenarios for how Foxconn might approach Nissan now that the Japanese automaker is possible to be a free agent again. It could wait for the slumping Nissan to determine that it could use a sponsor as it restructures its operations. If it hears any murmurs along these lines, it could propose its plan to make a strategic investment in Nissan.
Another option is to fast-track an acquisition, including via an unsolicited takeover bid.
Can Nissan, uh, Nissan this up? Absolutely. Foxconn, like Honda or any other rational partner, is likely going to want to see Nissan do a much more thorough restructuring prior to any kind of investment.
What I’m Listening To While Writing TMD
According to Apple Music, I was in the 95th percentile of listeners to British musician Self Esteem in 2024. Did I really listen to that much Self Esteem last year? I guess I did. Here’s “Focus is Power” off her upcoming album.
The Big Question
Bearish or bullish on Ford? How are we feeling?
Top photo: F Armstrong Photo/stock.adobe.com
Only party I can see wanting Nissan would be one of the bigger Chinese companies to convert their lines to building export versions of their cars to ship to countries with trade restrictions against Chinese products using Nissan’s distribution network. Otherwise, everything they have is old and was of limited competitiveness when new, they have massive debt, their name has no snob appeal to resurrect, and the times when they were associated with good cars at a good price is long ago, now being associated with transmission problems, BHPH lots, and Altimas on 3 training wheels swerving through traffic at speed leaving the smell of skunk in their wake. Even their two name plates of value are of questionable use today unless they want to make GTR and Z CUVs and I’m not even sure that would work.
Nissan and Suzuki Merger perhaps?