Ford Motor Company is navigating a transformative phase marked by sweeping internal restructuring, evolving EV strategies, and the resurgence of trade-related headwinds. Morningstar has reiterated its fair value estimate of $16 per share, implying nearly 68% upside from the current trading price of $9.54. Despite macroeconomic concerns and cyclical industry dynamics, the iconic American automaker is betting big on electric vehicles, cost rationalization, and its commercial vehicle strength. With a Price/Fair Value ratio of 0.60, Ford is trading at a significant discount, reflecting investor caution amid tariff risks and high capital demands.

1. Morningstar Maintains a 'BUY' Outlook With Fair Value at $16

Morningstar’s valuation underscores Ford’s deep discount relative to intrinsic value. While its market cap stands at $37.94 billion, the equity remains significantly undervalued in the firm’s view. The research house has pegged the fair value estimate at $16, reflecting Ford's long-term restructuring potential, albeit clouded by near-term pressures from tariffs, EV transition costs, and macro uncertainty.

Ford's high uncertainty rating mirrors its sensitivity to trade policies, interest rates, input costs, and competitive EV pressures. Still, the investment case is bolstered by a long-term shift toward light trucks, improved capital discipline, and commercial fleet monetization.

2. Revenue Outlook: Short-Term Contraction, Long-Term Expansion

Ford’s near-term guidance reflects some pessimism. Morningstar projects revenue of $160.1 billion in 2025, down 7.3% year over year, following a slower-than-expected EV adoption curve and rising material costs. However, revenue growth is expected to resume by 2026, with an estimated CAGR of 2.9% over the next five years.

The key driver? Scaling common vehicle platforms and optimizing the EV pipeline — both aimed at enhancing Ford's adaptability and margin expansion across cycles.

3. EV Strategy: A Costly but Necessary Bet

Ford has carved out its electric vehicle operations into a standalone business unit: Ford Model e. Losses here are steep, with $5.1 billion reported in 2024 and expectations of further red ink through 2026. However, by 2027, Ford plans to launch a second-generation EV pickup and achieve notable battery cost efficiencies through its $10 billion investment in U.S.-based battery plants.

The Mustang Mach-E and F-150 Lightning have drawn first-time Ford buyers, a rare achievement in a brand-loyal industry. Management views this as validation of its brand reinvention strategy anchored in electric mobility.

4. Tariff Risks and the Trade Chessboard

Geopolitical tariffs are a major cloud over Ford’s forecast. The reinstated 25% tariffs on imported steel and aluminum echo the 2018 round that cost Ford nearly $1 billion in EBIT. Additionally, reciprocal tariffs on Canadian and Mexican imports loom large, despite a USMCA waiver extension.

Ford’s positioning is relatively safer than General Motors, as 80% of its U.S.-sold vehicles are assembled domestically, compared to 54% for GM. Still, tariff-induced supply chain disruptions could pinch margins unless resolved diplomatically.

5. Operating Margins and Cash Flow: Challenging 2025, Optimistic Beyond

Operating margins are forecast to dip to -0.1% in 2025, primarily due to tariff exposure, EV development costs, and headwinds from foreign currency fluctuations in emerging markets. However, margins are expected to rebound to over 5% by 2028.

Ford’s free cash flow (FCF) remains pressured, projected at -$4.9 billion in 2025, but improves into positive territory from 2027 onward. The company’s liquidity position is strong, with over $46.7 billion in total liquidity and no immediate concerns regarding its dividend safety.

6. Dividend Policy and Capital Allocation

Ford resumed its $0.15 quarterly dividend, matching pre-pandemic levels, and issued supplemental dividends of $0.65 in 2023, $0.18 in 2024, and $0.15 in 2025. Management remains committed to returning 40%–50% of free cash flow to shareholders.

Morningstar assigns a Standard rating for capital allocation, appreciating Ford’s debt management, pension de-risking, and disciplined investment strategy that now rejects merely “good” projects in favor of return-on-investment-maximizing ones.

7. Competitive Landscape: Ford in a Crowd of Global Giants

Ford operates in a fiercely contested arena alongside Stellantis, Renault, Honda, and Tesla. A snapshot of key competitor metrics:

While Ford appears attractively priced, its lack of a moat, elevated execution risk, and structurally high competition mean long-term gains require investor patience and management follow-through.

8. Key Risks to Monitor

Tariff Uncertainty: Policy instability may erode profitability faster than management can respond.

EV Execution Risk: Cost absorption without scale poses a long-term risk to Model e viability.

Labor and Union Dynamics: Tensions with the UAW could reintroduce volatility, especially around pensions.

Macro Cyclicality: As a traditional automaker, Ford remains sensitive to economic cycles and rate fluctuations.

9. Investment Takeaway: Undervalued, But Not Without Bumps

Ford is a classic case of deep value with structural friction. Morningstar sees long-term value creation potential, but acknowledges that execution is key — especially in scaling EV operations, cutting costs, and navigating tariff storms.

Target Price: $16
Current Price: $9.54
Suggested Strategy: Accumulate in stages, monitor margin trends, and reassess after 2025 tariff clarity and Model e cost improvements.

Disclaimer: Investors are advised to perform their own due diligence and consult financial advisors before making investment decisions.