Ford Motor: Ford musings - unpacking warranty, upside for '26 est's, and what gets the AI trade to crack?

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Ford Motor: Ford musings - unpacking warranty, upside for '26 est's, and what gets the AI trade to crack?

Barclays | Ford Motor

We remain EW on Ford, and believe the excitement on the AI opportunity is somewhat

overdone. Yet we believe it's important to be mindful of the market environment. And given

Ford's capability to tap into retail/meme excitement in the market, it's possible the AI

excitement in Ford may not crack so easily.

Warranty continuing trend of improvement

Ford's ~$400mn y/y warranty tailwind in 1Q (on our est.) was encouraging, continuing the streak

of warranty improvements since 2Q25. While warranty costs had been a clear drag to earnings

over the past several years, Ford appears to have "turned the corner" in '25 (~+$450mn y/y), and

improvements continued in 1Q26, validating mgmt's continued commentary on process

improvements, initial quality surveys, etc. While there is still much more work to be done, we

acknowledge Ford's solid progress over the past year and continued positive momentum.

Unpacking 1Q warranty disclosures

In 1Q we estimate Ford saw a ~$400mn y/y improvement in warranty cost in the EBIT bridge,

below the ~$860mn y/y warranty (ex FX) benefit disclosed in the 10Q (see below for the

differences between EBIT bridge and 10K/Q warranty). Warranty benefit to EBIT was not

specifically disclosed, though mgmt noted the majority of the $860mn benefit in the 10Q flowed

through volume/mix, and thus we estimate a ~$400mn y/y improvement in warranty.

The ~$400mn improvement marked the fourth consecutive quarter of y/y warranty benefits

within the EBIT bridge. Recall, prior to warranty turning positive in 2Q25, it had largely been a

y/y drag since 4Q21.

Within the 10Q warranty disclosures, the ~$860mn warranty benefit (ex FX) was encouraging,