Ford Bets on Trucks, Software and Storage as Tariffs and Fires Obscure Margin Progress

A sturdier balance sheet behind a messy year

Ford closed 2025 in a way that will please bondholders as much as equity investors: the balance sheet looks sturdier, even if the year’s narrative is cluttered with tariffs, fires and one‑off distortions.

Revenue grew for the fifth consecutive year to $187bn, U.S. market share edged up to 13.2% – the best in six years – and adjusted EBIT came in at $6.8bn. Free cash flow was a solid $3.5bn, allowing Ford to finish with roughly $29bn of cash and close to $50bn of total liquidity. That, in turn, underwrites management’s insistence that an investment‑grade rating remains non‑negotiable, even as it pours fresh capital into new ventures such as Ford Energy and its software subscription platform.

The detail that will catch investors’ eye, however, is buried in the footnotes of 2025. Two shocks – fires at a key Novelis aluminum facility and a late change in tariff credits on auto parts – dragged roughly $4bn off the EBIT line. Tariffs alone hit to the tune of $2bn, double what Ford had guided just a quarter earlier; the Novelis saga did another $2bn of damage through lost production and higher sourcing costs. Strip out the unexpected tariff hit, management argues, and 2025 EBIT would have been closer to $7.7bn.

That exercise in pro forma archaeology is not just vanity. It is the foundation for Ford’s claim that it has quietly become a structurally stronger company, with better quality, lower material and warranty costs, and a more disciplined approach to inventory – U.S. gross stocks were cut 16%, ending at 56 days’ retail supply, at the low end of the firm’s target range.

Shareholders have already voted with their wallets: total shareholder return reached 42% in 2025, aided by both share price appreciation and a regular dividend of $0.15 a share.

Ford Pro: the profit engine in plain sight

Beneath the headline numbers, Ford Pro – the commercial vehicles and services arm – has become the group’s clearest profit pillar, and a useful lens on where Ford intends to compete when the next downturn arrives.

In 2025, Ford Pro generated more than $66bn in revenue and $6.8bn in EBIT, with a double‑digit margin. That performance came despite the same macro irritants that hit the wider group: tariffs, Novelis‑related production losses and softer pricing in commoditised niches such as government and delivery vans.

The strategic story lies in how Ford Pro is reshaping its revenue mix. Paid software subscriptions grew 30% in 2025; software and physical services together now contribute 19% of Ford Pro’s EBIT, closing in on a 20% target. This is not yet a software company, but there is a discernible shift from selling metal to selling uptime and data.

The hardware base remains formidable. In the U.S., Ford Pro’s class 1–7 market share exceeds 42%, roughly equal to its two largest rivals combined. Transit vans posted record U.S. sales, up 6%, while Super Duty volumes jumped 10% to their best level in more than two decades. In Europe, Ford retained its status as the top commercial brand for an eleventh straight year, even in a difficult regulatory and macroeconomic environment.

Looking ahead to 2026, Ford Pro is expected to deliver EBIT of $6.5bn–$7.5bn. Underlying demand appears robust: the company cites continued share gains in a flat North American industry, a deliberately balanced customer mix spanning large corporates, SMBs and public sector buyers, and “untapped demand” for high‑margin crew cab and diesel Super Duty variants. Most contractual deals for the year are already inked.

Yet Pro will not be immune to the lingering Novelis issues and the ramp‑up of additional capacity. Management expects 2026 results to be “dampened” by temporary aluminum costs, the ramp of Oakville in Canada to bolster Super Duty output, and tougher European regulation.

Trucks, hybrids and the quiet rebalancing of Model e

If Ford Pro is the earnings engine, Ford Blue – the legacy combustion and hybrid business – provides the cash‑rich platform on which Ford intends to rebuild its EV ambition.

In 2025, Ford Blue held revenue roughly flat despite a 5% decline in wholesales, reflecting both Novelis‑driven disruption and planned model shifts. Pricing and product mix – more expensive trims, more profitable nameplates – did most of the work. Bronco and Raptor had record years, Explorer remained the top three‑row SUV in the U.S., and Ford sold the two best‑selling hybrid trucks in its home market.

EBIT at Ford Blue reached $3bn, as lower warranty outlays and other cost improvements, plus growth in software and services, were more than offset by lost production and adverse currency moves. For 2026, Ford expects Blue EBIT to rise to $4bn–$4.5bn, helped by recovering volumes as the Novelis disruption eases, richer mix as lower‑margin nameplates such as Escape sunset, and continued cost work.

Layered on top is a strategy of “power of choice” – an unapologetic commitment to a portfolio spanning gasoline, multiple hybrid architectures and full battery‑electric offerings. New performance products such as Bronco RTR and Mustang Dark Horse SC will extend Ford’s grip on off‑road and enthusiast niches, which have quietly become powerful profit reservoirs: Raptor and other off‑road trims now constitute more than 20% of Ford’s U.S. sales mix.

The rebalancing comes at the expense of a more restrained Model e – the EV segment that has consumed so much capital and patience across the industry. In 2025, Model e’s revenue and volume grew sharply, powered mainly by new European products, but it still posted an EBIT loss of $4.8bn. That loss did at least improve year on year, with lower losses on first‑generation EVs more than offsetting higher investment in second‑generation products ahead of the launch of a new “universal EV” platform in 2027.

By December, Ford had acted on “changing market realities” in U.S. EV demand, rationalising the role of pure EVs in its near‑term line‑up. That triggered the announcement of roughly $7bn in special charges to be taken across 2026 and 2027 as Ford rebalances its EV portfolio and winds down its BOSC investment. Up to $5.5bn of associated cash outflows will fall primarily in 2026.

For the coming year, Ford expects Model e to lose $4bn–$4.5bn – still painful, but a modest sequential improvement. Around $1.6bn of benefit is expected from lower losses on Gen 1 products, driven by cost cuts and lower U.S. volumes, partly offset by about $600m of higher Gen 2 costs as LFP battery production in Marshall, Michigan, and the Kentucky‑based universal EV platform ramp, plus roughly $400m of start‑up costs for Ford Energy.

Management is explicit that the path to breakeven in 2029 will not be a hockey stick. Instead, investors are being primed for steady incremental improvement as the new platform and additional variants arrive in 2027–28, even as older EVs decline in volume.

Ford Energy: a battery bet beyond cars

Perhaps the most intriguing element of the earnings presentation was not about vehicles at all. Ford is moving decisively into stationary energy storage with Ford Energy, a business the company describes as both “strategic” and endowed with a short payback period.

The plan is to invest around $2bn in Ford Energy, with some $1.5bn of that folded into 2026’s elevated capital expenditure, taking group CapEx to $9.5bn–$10.5bn. Over the planning horizon, management says roughly three‑quarters of capital will still flow to higher‑return truck and multi‑energy vehicle programs, but the remaining quarter – including Ford Energy and ongoing EV platforms – is where Ford hopes to diversify revenue and derisk its core automotive cycle.

The logic is straightforward. Demand for battery storage, for both data centres and grid stabilisation in states such as California, Texas and Florida, is surging. Ford believes its manufacturing scale and access to licensed LFP technology from CATL give it a cost advantage over rivals relying on imported cells or more expensive lithium‑ion chemistries. The company is targeting at least 20 GWh of capacity from 2027 onwards, and insists it will play as a customer‑facing systems provider rather than a contract cell manufacturer, leveraging deep relationships with commercial and utility buyers.

For investors, the key questions will be execution and margins. Ford portrays Ford Energy as a natural adjacency to Ford Pro, with similar customers and a services overlay. At the same time, it is a different business rhythm, involving long‑lead infrastructure projects and regulatory interfaces that carmakers are still learning to navigate.

Tariffs, Novelis and the 2026 bridge

What ties these disparate strands together is Ford’s 2026 outlook, which attempts to separate transient shocks from underlying earnings power.

At the group level, Ford expects adjusted EBIT of $8bn–$10bn next year, with adjusted free cash flow of $5bn–$6bn. Assumptions include a U.S. SAAR of 16m–16.5m units and broadly flat industry pricing, with Ford deriving mix tailwinds from pruning low‑margin models and from modest regulatory relief in the U.S. that reduces its need for emissions credits by about $0.5bn.

On costs, the company is guiding to another $1bn of industrial cost improvement, again skewed to material and warranty savings, and expects tariff costs to fall by roughly $1bn in 2026 as expanded credits bite over a full year. Those gains will be largely absorbed by about $1bn of higher commodity inputs – particularly inflation and DRAM pricing – plus incremental spending on the universal EV platform, Ford Energy and cycle‑plan actions that are meant to drive growth from 2027 onwards.

The Novelis story, which turned aluminum into an unlikely earnings swing‑factor, deserves particular attention. In 2025, Ford lost around 100,000 units of production due to fire‑related outages at Novelis’s hot mill, and incurred roughly $2bn of related EBIT impact. For 2026, the company expects a net $1bn year‑on‑year EBIT improvement from Novelis, but the gross flows are much bigger: $2.5bn–$3bn of benefit from no longer repeating 2025’s production losses and bringing on extra capacity at Dearborn and Kentucky, offset by $1.5bn–$2bn of temporary tariffs and premium freight to secure alternative aluminum until the Novelis mill restarts, currently estimated between May and September.

Management argues that, absent those temporary aluminum costs, 2026 EBIT would effectively sit about $1.5bn higher – pointing to an underlying run‑rate closer to $10.5bn at the top end of guidance. Those tailwinds should then fall out in 2027, when the aluminum supply chain is expected to be normalised.

Calendarisation also matters. Ford expects first‑quarter EBIT to be roughly flat sequentially as it works through the residual Novelis and tariff impacts, with a move toward a more “normalised” EBIT in the second quarter and a full run‑rate in the back half as volumes stabilise and portfolio optimisation takes hold. To aid modelling, the company has provided an explicit first‑half/second‑half bridge in its investor deck.

The cost gap and the 8% margin ambition

Underpinning the numbers is a cultural project that Chief Operating Officer Kumar Galhotra characterises as closing the cost gap with peers. At its 2023 Investor Day, Ford identified a roughly $7bn structural cost disadvantage. In 2025, it banked about $1.5bn in savings excluding tariffs; in 2026 it is targeting another $1bn. Those gains come from the unglamorous but powerful levers of bill‑of‑materials reductions, plant efficiency, logistics and warranty performance.

More important for long‑term margins, however, is Ford’s insistence that these disciplines are now being “embedded” into next‑generation products, from the re‑engineered F‑150 and Super Duty to the universal EV platform. That is where the company hopes to bake cost competitiveness into the DNA of its most important lines rather than rely on annual negotiations and tactical trims.

The explicit goal is to reach an 8% adjusted EBIT margin for the company by 2029. Getting there will require Model e to move from multi‑billion‑dollar losses to at least breakeven, Ford Pro to maintain its high‑single‑digit or double‑digit margins in a more competitive commercial vehicle world, and Ford Blue to continue milking its truck and SUV franchises even as regulatory and consumer preferences evolve.

Management compensation is now tied not just to financial metrics, but to cost, quality and software milestones for future vehicles – an attempt to align incentives with the long‑term nature of the transformation.

A differentiated path through an industry in flux

What emerges from Ford’s 2025 results is a company that has, in effect, chosen its battles. It is doubling down on its historical strengths – full‑size pickups, off‑road icons, commercial fleets – while admitting that the first phase of the industry’s EV experiment was capital‑inefficient. It is pivoting from an all‑out race to electrify everything to a more pragmatic mix of affordable EVs, hybrids and plug‑in hybrids tuned to specific duty cycles, backed by software and services.

The universal EV platform, focused on $30,000–$35,000 high‑volume vehicles and localised in the U.S., is a bet that money can be made in the mass market once costs are tamed and content is right‑sized. Overseas, Ford is seeking cost‑efficient scale by leaning on partners such as Renault and Volkswagen for small EVs and vans, while keeping its options open in markets where Chinese competition and regulatory choices could rapidly reshape pricing power.

Around the edges, new ventures in energy storage and an industrial bank license for Ford Credit – enabling new savings products and cheaper funding over time – show a company probing for adjacencies that can smooth the inherent cyclicality of selling cars and trucks.

The risks are clear enough: a still‑loss‑making EV arm, a heavy capital budget, political and regulatory uncertainty in both the U.S. and Europe, and a global industry wrestling with overcapacity and Chinese competition. But beneath the noise of tariffs and fires, Ford is trying to convince investors that the earnings power of its core franchises is rising, not fading – and that, by 2029, the company that Time readers anointed “America’s most iconic” will also look like a structurally higher‑return business.