F Ford Motor Company
Ford earns about 6.5% on book against a 12% cost of equity: still a value trap at 1.3x book.
The story
Ford is a scale incumbent with a strong Pro commercial franchise and profitable Ford Credit, but Model e losses, EV write-downs and recall/warranty costs have pushed trailing results to a -5.6% operating margin and a $7.4B net loss. Revenue near $188B is close to peak, and the auto cycle looks late, with tariff and pricing pressure. Book equity of about $36B now absorbs the write-downs, but the captive finance arm keeps leverage high. The new numbers fit last week's view: the charges cleaned up book without fixing through-the-cycle returns.
Drivers are unchanged because no material facts have changed. A normalized 6.5% ROE blends roughly 9-10% from Pro and Ford Credit in good years with structural EV losses and cyclical troughs, so it ignores both the 2023 peak and the current impairment-driven loss. Book shrinks in year one because the roughly $2.4B dividend exceeds normalized earnings, and terminal growth of 2.5% sits well below the 5.28% risk-free rate. Beta of 1.45 and a 10% distress probability reflect operating leverage, captive-finance credit exposure and the history of 2008-era bailout risk.
Value drivers
| Return on equity (normalized) | 6.5% |
| Book-value growth (Y1) | -3.0% |
| Terminal book growth | 2.5% |
| Beta | 1.45 |
| Failure probability | 10.0% |
| Cost of equity | 11.8% |
Valuation bridge
| PV of excess returns | -10.27B |
| PV of terminal excess | -6.54B |
| Equity value | 17.23B |
| ÷ shares → per share | $4.32 |
Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 35.95B | 6.5% | -1.91B | -1.70B |
| 2 | 34.87B | 6.5% | -1.85B | -1.48B |
| 3 | 34.04B | 6.5% | -1.80B | -1.29B |
| 4 | 33.44B | 6.5% | -1.77B | -1.13B |
| 5 | 33.05B | 6.5% | -1.75B | -1.00B |
| 6 | 32.86B | 6.5% | -1.74B | -892.13M |
| 7 | 32.88B | 6.5% | -1.74B | -798.40M |
| 8 | 33.10B | 6.5% | -1.75B | -718.88M |
| 9 | 33.52B | 6.5% | -1.78B | -651.21M |
| 10 | 34.16B | 6.5% | -1.81B | -593.47M |
Key risks
- Auto credit downturn hits Ford Credit residuals and loss provisions while volumes fall
- Further EV and battery-plant impairments, plus recall and warranty costs, keep eroding book
- Tariffs and UAW labor costs squeeze margins with limited pricing power late in the cycle
Catalysts
- Credible Model e loss reduction and a smaller EV capex plan, lifting normalized ROE toward 9%
- Clean quarters on warranty and recalls plus sustained Pro margins, allowing dividend coverage from earnings