Ford's Renault EV Partnership Highlights Urgent Battle Against Losses and Leverage

What happened

Ford CEO Jim Farley announced a strategic partnership with Renault to develop cheaper electric vehicles, framing it as a critical move in a 'fight for our lives' against Chinese competitors in Europe. This collaboration emerges as Ford's Model e segment reported a $5.1 billion EBIT loss on $3.9 billion revenue in 2024, highlighting the severe financial drag from its EV business. Recent SEC filings show Ford's 2025 guidance projects a sharp decline in adjusted EBIT to $6.0–$6.5 billion and free cash flow to $2–3 billion, down from $10.2 billion and $6.7 billion in 2024, due to tariff impacts and EV challenges. The partnership aims to leverage Renault's expertise to reduce costs and improve competitiveness in Europe, where Ford is restructuring amid intense regulatory and market pressures. However, this move does not immediately address Ford's high leverage, with net debt/EBITDA at 9.7x, or the persistent EV losses that continue to threaten overall profitability.

Implication

The partnership could help Ford reduce EV development expenses and accelerate affordable model launches, potentially easing Model e losses if implemented effectively. Nonetheless, it offers no immediate relief for Ford's high leverage or the $1 billion tariff headwind projected for 2025 EBIT, limiting near-term financial improvement. Success depends on seamless integration, adding operational risk to an already complex turnaround effort. For investors, this underscores management's recognition of competitive threats but does not justify a change in investment stance without evidence of narrowing EV losses and meeting 2025 targets. Consequently, while the stock's modest undervaluation provides some downside protection, the case remains execution-sensitive, with the partnership being a watch item rather than a catalyst for immediate re-rating.

Thesis delta

The partnership reinforces Ford's focus on mitigating EV losses and competitive threats, aligning with prior watch items on EV strategy. However, it does not shift the core investment thesis, as execution risk remains high and the fundamental challenges of meeting guidance, de-leveraging, and stabilizing the EV business are unchanged.