Ford and GM Take Yet Another Gut Punch Amid Bumpy 2025

2025 hasn't exactly been kind to the automotive industry as automakers grapple with sluggish electric vehicle (EV) sales (and hefty losses associated with them currently), a reduction in emissions standards, and the implementation of tariffs on imported vehicles and auto parts, among other unfavorable developments.

When it rains it pours, and General Motors (NYSE: GM) just announced a significant $1.6 billion charge due to changing EV dynamics -- and Ford Motor Company (NYSE: F) has a billion-dollar problem of its own.

What's going on?

Investors knew that the U.S. EV market was sluggish and headed for an even steeper slowdown during the fourth quarter without the valuable $7,500 federal tax credit on EV purchases. Investors also knew automakers were altering their strategies left and right, including reductions in EV development, plant delays, and vehicle launch postponements, among other things.

It might not have been until Tuesday, however, that investors saw hard data showing just how expensive these changes in plans can become. General Motors announced a $1.6 billion special charge that will hit third-quarter income "on a planned strategic realignment of our EV capacity and manufacturing footprint to consumer demand." The charge breaks down into a $1.2 billion accounting write-down in the value of EV plants and equipment and $400 million in cash charges for canceling supplier contracts related to EV investments.

2026 Hummer EV. Image source: General Motors.

A more complicated way to explain where the charge comes from: When comparing net carrying value of assets such as plants, you compare them to the undiscounted net cash flows those assets are expected to produce over their useful lives. When the carrying value exceeds the undiscounted net cash flows, an impairment loss is recognized for the value difference.

It's a painful realization that essentially reads that unfilled production capacity isn't generating the planned earnings. The bad news seems baked into the stock, which isn't surprising considering its crosstown rival Ford, one of the few that breaks out its EV profits and losses, lost a staggering $5.1 billion in its Model-e division during 2024. Investors knew the pain was coming at some point, in some fashion.

The blame, as expected, falls largely on the whipsaw effects from changing policies. "Following recent U.S. Government policy changes, including the termination of certain consumer tax incentives for EV purchases and the reduction in the stringency of emissions regulations, we expect the adoption rate of EVs to slow," the company said in a press release.

While Ford is likely dealing with similar pain from unused capacity, investors are also grappling with another unforeseen gut punch in the form of a supplier plant fire. The supplier factory at Novelis, an aluminum plant that feeds Ford's highly profitable F-150 trucks, is expected to disrupt production for months and analysts estimate the incident will cost Ford up to $1 billion in operating earnings.

The bumpy road ahead

GM and its EV producing competitors find themselves between a rock and a hard place currently. The automakers must prepare for the future, which increasingly appears to be electric vehicles, even when that future is slower to materialize than expected and more costly in the near-term than desired.

Despite the bad news, GM continues to build scale and delivered over 66,500 EVs during the third quarter, a 110% increase compared to the prior year. It was a record quarter for the company's EVs, albeit boosted by a surge in demand ahead of the $7,500 federal tax credit removal.

2025 headwinds have certainly taken their toll on automakers. Using GM as an example, while investors have long worried about the negative impact to tariffs on profits, it's clear there is more pain to be had: Wall Street anticipated GM operating profit of $11.4 billion for 2025, which is down significantly from the prior year's $15 billion, and that estimate doesn't include the impact of its upcoming EV charge.

It's just another development that underscores the importance of patience for investors. The future for EVs is bright, and the automotive industry is poised to evolve more in the coming decade with EVs, artificial intelligence, and driverless vehicles, as it arguably has over the past century. The future is bright, but patience is required for long-term investors.

Daniel Miller has positions in Ford Motor Company and General Motors. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.