Ford Stock Faces Challenges Amidst Tariff Policy Impact

President Trump’s recent announcement regarding tariffs is negatively affecting stocks across various sectors, particularly impacting automotive companies. Notably, Ford‘s (NYSE: F) stock is struggling under the looming threat of 25% tariffs on imports from Mexico and Canada. This economic pressure could harm Ford and its competitors even further.

As of April 4, Ford’s stock has dropped nearly 9% over the past six months, bringing its share price below $10. This decline may attract some investors looking for value.

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So, is Ford’s stock a good investment? Let’s explore this further.

Image source: Ford.

Ford’s Stock May Appear Attractive at First Glance

The recent decline in share prices often prompts investors to seek potential bargains. Currently, Ford’s stock possesses a price-to-earnings ratio of 6.5, significantly below the S&P 500’s average of 26.6. This appears to be a favorable price point for potential buyers.

Additionally, Ford’s annual dividend yield stands at about 6%. Dividend-focused investors might view this as an appealing opportunity amidst lower stock prices.

Ford has faced adversity in the past and has sometimes emerged unscathed. For instance, during the initial months of the COVID pandemic, Ford’s stock increased by 170%, significantly outpacing the S&P 500’s 69% growth. Despite challenges like factory closures and semiconductor shortages, Ford managed a robust performance.

Challenges Ahead for Ford

However, significant hurdles remain, particularly concerning tariffs. Trump’s 25% tariffs on automotive imports from Canada and Mexico will considerably impact Ford, which sources about 17% of its North American production from these countries. These high tariffs are likely to strain the company’s finances. Given that Ford operates globally, the ramifications of U.S. tariffs and reciprocal tariffs from other countries could inflict substantial damage on the entire automotive sector.

Experts predict that car prices could surge by $4,000 to $15,000, or an average increase of 13.5%. This price hike could severely curb new vehicle sales when the average payment already stands at $738 per month. According to The Wall Street Journal, new car tariff costs could consume about 15% of a buyer’s monthly income, further complicating affordability.

In the words of Ford CEO James Farley during the fourth-quarter earnings call:

“There is no question that tariffs at a 25% level from Canada and Mexico, if they’re protracted, would have a huge impact on our industry with billions of dollars of industry profits wiped out and adverse effect on the U.S. jobs, as well as the entire value system in our industry. Tariffs would also mean higher prices for customers.”

This situation poses significant uncertainties. As tariffs are now a reality rather than a hypothetical situation, investors must carefully consider the long-term effects on Ford.

The Conclusion: Ford Stock is Not a Buy

Trump’s tariffs are likely to create profound challenges for the automotive industry. Even if some manufacturing shifts back to the U.S. — intended as a positive outcome — it will take years for production to normalize. The reality of increased tariffs, elevated vehicle prices, and potential economic slowdowns suggests serious implications for automakers, including Ford, in the years to come.

While Ford’s stock may appear cheap, the risks associated with it at this moment outweigh the potential rewards.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.