Is Ford Stock at Risk for a Tariff Downturn?

Tariff uncertainty has plagued many businesses from nearly every sector since President Donald Trump first announced them in April. Since then, news of additional tariffs, rollbacks of others, and specific carve-outs for some companies have caused countries and companies alike to adjust to ever-shifting policies. For a complete list of the latest trade and tariff policies, check out this research from The Motley Fool.

Automotive companies have felt the brunt of these policies through tariffs on imported parts and on vehicles manufactured outside of the country and then imported for U.S. sales. That has put Ford Motor Company (NYSE: F) in a difficult position, considering it has significant parts manufacturing outside of the country.

But a recent policy shift will likely shield Ford from the worst-case tariff scenario. Here's how Ford is avoiding a tariff downturn and why it's such a good thing for the company.

Image source: Ford.

Ford was facing significant tariff headwinds

Back in the spring, the Trump administration slapped a 25% tariff on all imported vehicles and auto parts -- as well as up to 50% tariffs on steel and aluminum -- which caused some serious problems for Ford. While Ford is one of the largest U.S. vehicle manufacturers -- with an estimated 80% of its U.S. vehicles made domestically -- many of its engines, transmissions, and other parts are built elsewhere.

Ford CEO Jim Farley initially said that the tariffs would be "devastating" for his company, and management estimated that they'd cost Ford nearly $3 billion in 2025. Tariffs cost Ford about $800 million in the second quarter and an additional $700 million in the third quarter.

Farley was clear that a continued 25% tariff would be terrible for Ford and the auto industry. He said in February at a Wolfe Research conference: "What we're seeing is a lot of cost, a lot of chaos. If you look at the tariffs, let's be real honest, long-term, a 25% tariff across the Mexico and Canadian border will blow a hole in the U.S. industry that we have never seen."

Thankfully, a recent policy shift is making things a lot better for Ford.

How Ford is avoiding a tariff downturn

The Trump administration recently announced a new credit system for U.S.-based companies that offsets some of the automotive tariffs if enough of their manufacturing is done in the U.S. This credit rewards assembly in the U.S, and because Ford makes its medium- and heavy-duty trucks stateside, the volume credit will help erase the effect of other tariffs.

Farley said on the recent third-quarter earnings call, "Credit, based on our large U.S. manufacturing volume, will allow us to offset tariffs on imported auto parts we need for our strong American production and manufacturing base."

He added that tariffs on other automotive companies that import their medium- and heavy-duty trucks "is a positive for Ford because we are no longer disadvantaged for building every single one of our Super Duty trucks here in the United States."

The company now says it expects a net tariff impact of $1 billion in 2025 and a similar impact next year, far lower than its previous estimates.

What Ford shareholders should keep an eye on

Tariffs have been anything but certain since they've been announced, and I wouldn't be surprised if automotive tariffs -- and other levies -- continue to be adjusted in the future. This could work in Ford's favor, or against it.

The good news is that Ford appears to have dodged the worst of tariffs as of right now, and the company is coming off a better-than-expected third quarter. For a company that was expecting the worst just a few months ago, the recent tariff credit is a big win.

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.