Ford CEO Jim Farley knew the EV pain would be severe, but the ‘punch line’ is a $4.8 billion loss: ‘the customer has spoken’

For months, Company CEO Jim Farley has been cautioning that the electric vehicle transition would soon encounter a major roadblock, forecasting that the elimination of federal tax credits would reduce the EV market by half. He acknowledged that EVs would stay a “vibrant industry” but believed they would be “much smaller than anticipated.”

Farley identified a “game-changer” in the termination of the $7,500 federal consumer incentive, which he expected would shrink EV sales in the U.S. to 5% of the total market from the existing 10% to 12% range. (JD Power data showing EVs at 6.6% of new retail sales in January indicates the actual situation aligns closely with Farley’s forecast.)

On Tuesday, during Ford’s fourth-quarter earnings call, Farley revealed the Detroit automaker’s validation of his forecasts: a $4.8 billion operating loss for its Model E electric vehicle division. CFO Sherry House added that the losses would continue, projecting an additional $4 billion to $4.5 billion shortfall in 2026 and delaying the break-even goal to 2029.

“The customer has spoken. That’s the punch line,” Farley informed investors, confirming his own dire predictions through financial results that demonstrate the steep price of the market adjustment he anticipated. The fact that Ford’s stock has risen over 27% in the past six months suggests Farley effectively primed the market for these results.

Prophecy fulfilled

In response to what he calls the consumer “duty cycle”—shorthand for how, where, and for what purpose a vehicle is used—Farley declared on Tuesday that the era of building EVs solely to meet regulatory targets is over. “We aren’t just building compliance vehicles at Ford,” Farley stated.

Rather, the company is shifting focus to the “high-volume, affordable segment” of the market, concentrating on the $30,000 to $35,000 price bracket where Farley observes EVs “have continued to thrive in America” even without government support. This approach marks a clear departure from the sector’s earlier push toward $75,000 electric trucks and SUVs—vehicles that Farley had earlier said consumers considered “interesting” but prohibitively costly.

This strategic shift, however, carries substantial costs. Ford anticipates booking roughly $7 billion in special charges during 2026 and 2027 connected to dismantling its previous EV strategy and divesting assets that don’t align with the new direction. In December 2025, amid the company’s pivot on EVs, Farley made an announcement.

JD Power reported in January that “affordability pressure remains significant” in the automotive market, with typical monthly finance payments hitting $760, an increase of $24 year-over-year. “EV retail sales stay subdued as transaction prices surge due to both the removal of federal credits and diminished manufacturer incentives.”

Old habits pay the bills

As the EV division endures this difficult restructuring, Ford is relying on its conventional strengths to maintain profitability. The automaker’s commercial unit, Ford Pro, generated $6.8 billion in EBIT for the year, essentially offsetting the electric division’s losses.

Farley also emphasized the rising consumer appetite for “partial electrification,” a shift he identified early on, observing that Americans were “falling in love with” hybrid vehicles over pure electric ones. During the call, he disclosed that Ford’s off-road performance variants and hybrids now represent over 20% of the U.S. sales portfolio, delivering “massive earning power” to finance the company’s future.

A “reset” environment

The earnings call also underscored the instability of the present political climate, which Farley has previously addressed by advocating for stability. He recognized a “partnership with the administration” and a “reset in emission standards” as critical elements for 2026. Nevertheless, trade barriers continue to pose uncertainty; the company suffered an unforeseen $1 billion blow in the fourth quarter from an “unexpected, late-year adjustment to tariff credits on auto parts,” adding another layer of complexity to the financial outlook.

For Farley, the 2025 outcomes validate his prudent approach. The early EV boom has ended, supplanted by a more constrained, challenging marketplace that prioritizes affordability over ideology. As he wrapped up the call, “The customers in their duty cycle have spoken.