Ford and GM's High-Margin Digital Services Spark Re-Evaluation of Auto Profit Pools

What happened

A Motley Fool article argues that Ford and GM are unlocking traditionally high gross margins through digital services, with GM leveraging OnStar and Super Cruise for retail buyers. Ford's latest filings reveal software subscriptions surpassed 1.3 million paid users, up 53% year over year, with gross margins above 50%, and software plus physical services contributing 19% of Ford Pro EBIT in 2025. However, these digital services remain a small part of Ford's overall $10-11 billion adjusted EBIT guidance, which still depends heavily on tariff reimbursements, aluminum supply recovery, and containing Model e losses. The article may prompt investors to assign higher value to Ford's recurring revenue, but the deep value report cautions that core earnings quality issues persist through 2026. As a result, the news reinforces long-term potential but does not immediately resolve near-term uncertainty.

Implication

If Ford can sustain and grow software revenue with high margins, it could structurally improve profitability and reduce cyclicality, justifying a higher valuation over time. However, investors should monitor whether digital services meaningfully offset current headwinds from tariffs, aluminum, and EV losses. The next few quarters should show whether subscription growth converts into higher Ford Pro EBIT and group free cash flow. Until then, the stock's risk-reward remains balanced, favoring patience over aggressive buying.

Thesis delta

The prior WAIT thesis emphasized near-term earnings quality issues; the new article highlights a potentially transformative digital services opportunity. While this could shift the long-term valuation framework, we remain cautious because digital services currently contribute only 19% of Ford Pro EBIT and have not yet offset core headwinds. Therefore, the thesis shifts to acknowledge a stronger bull case but still requires proof of scaling before upgrading.