Automaker Adapts Strategy to New Trade War Reality

Jim Farley, CEO of Ford Motor Company, has stated that he expects elevated tariffs to persist for at least the next three years. Despite the US-China trade war adding an estimated $2.5 billion to the company’s annual expenses, Ford maintains an optimistic outlook and continues to make strategic decisions, including maintaining stable or even lower prices for its vehicles. The automaker has also suspended exports to China, scaled back certain electric vehicle projects, and is taking active measures to minimize the impact of tariff policies, having already managed to reduce potential losses by $1 billion.

Ford Adapts to the New Reality of Tariff War

Jim Farley’s forecast about the long-term persistence of tariffs reflects a realistic assessment of the current geopolitical situation and the direction of the Trump administration’s trade policy. Unlike many competitors, Ford finds itself in a relatively advantageous position thanks to its production localization strategy.

According to Barron, the company manufactures 80% of vehicles sold in the US domestic market within the country. This high degree of localization significantly reduces Ford’s vulnerability to import tariffs and gives the company a competitive advantage under current conditions.

“Our ‘Made in America’ strategy has proven farsighted,” Farley stated during his latest address to investors. “We see not only challenges in the current situation but also opportunities to strengthen our positions in the American market.”

Barclays analysts note that investors have recently been favoring Ford shares compared to General Motors precisely because of the difference in production localization: 79% of Ford’s US sales come from vehicles produced in the country, while for GM this figure is only 53%.

“This is a classic example of how a long-term localization strategy suddenly transforms from ordinary business practice into a significant competitive advantage,” comments Maria Johnson, senior automotive industry analyst at consulting firm Global Auto Insights. “Ford has invested in American production for many years, and now these investments are paying off in unexpected ways.”

Financial Consequences and Strategic Decisions

Despite relative protection from tariffs, Ford still feels the significant impact of the trade war on its financial performance. According to company management, tariffs will add about $2.5 billion to Ford’s annual expenses. Most of these additional costs are associated with importing vehicles from Mexico and China, including the Lincoln Nautilus model, which the company continues to import from China.

Ford’s sales in the last quarter fell by 5% to $40.7 billion, which nevertheless exceeded analysts’ expectations of $36 billion. Notably, the company’s earnings increased partly due to panic demand: consumers accelerated vehicle purchases, fearing future price increases due to tariffs.

To minimize the negative consequences of the trade war, Ford has already taken a number of measures that have reduced potential losses by approximately $1 billion. One such measure has been the use of bond carriers to transport vehicles from Mexico to Canada bypassing US territory, which avoids American tariffs.

“Ford demonstrates impressive flexibility in adapting to tariff barriers,” notes David Lee, professor of international trade at the University of Michigan. “Using complex logistics schemes to minimize tariff impact is exactly what we expect to see from global companies in trade wars.”

The company has also decided to suspend automotive exports to China, which is a direct consequence of the escalating trade tensions between the world’s two largest economies.

Electric Vehicles and Strategic Rethinking

While Ford adapts to the reality of tariff war, the company also faces serious challenges in the electric vehicle segment. According to management, Ford’s software and electric vehicle divisions could lose up to $5.5 billion in the current year.

As part of revising its strategy, the company abandoned the costly FNV4 project—development of a next-generation electric platform for its vehicles. This decision was made due to delays and rising costs that made the project unprofitable. Commenting on this move, Farley characterized it as “a very significant save for capital efficiency.”

Ford Pro, the company’s commercial division specializing in commercial vehicles, recorded sales of $15.2 billion in the first quarter, 16% less than last year. At the same time, Ford’s business related to gasoline-engine vehicles brought in $21 billion in sales in the third quarter.

“We’re observing a paradoxical situation for Ford and the entire industry,” comments Alex Smith, global automotive analyst at investment bank Morgan Stanley. “On one hand, the US government actively promotes the transition to electric vehicles through various incentives. On the other hand, tariff policy makes components for these same electric vehicles more expensive and slows down the industry’s transformation.”

Experts note that Ford’s decision to scale back some ambitious electric vehicle projects may be related not only to their immediate profitability but also to the general uncertainty regarding trade policy and the possibility of its change in the future. In conditions where supply chains for electric vehicle components are highly globalized and largely dependent on China, trade barriers create additional risks for long-term investments in this segment.

“Tariff policy creates a dilemma for American automakers,” Johnson emphasizes. “They are forced to balance between localizing production to minimize tariff impact and using global supply chains to maintain competitiveness, especially in the field of new technologies.”

Despite all challenges, Ford continues to adapt its strategy to the new realities of global trade, using its competitive advantage in the form of a high degree of production localization and flexible logistics solutions. Farley’s forecast about maintaining tariffs for the next three years indicates that the company is preparing for a long-term existence in conditions of elevated trade barriers and is planning its strategy accordingly.