Ford's Profitability Faces Historic Threat from Off-Lease EVs

Ford Credit, one of Ford Motor Company's most profitable units, is facing a significant threat to its earnings that hasn't been seen since the 2008 financial crisis. Ford Credit, which acts as a banking entity for the automaker, typically generates 15% to 20% of the company's profits, despite contributing only about 5% of annual revenue. In 2024, Ford Credit generated $2.6 billion in earnings before taxes and returned $1.7 billion in cash to Ford. However, the unit's profitability is now at risk due to a wave of off-lease electric vehicles (EVs) that are losing substantial residual value. Ford Credit finances customer sales and leases, projecting expected residual values and return volumes of leased vehicles. When actual proceeds from returned vehicles fall significantly below projections, it can severely impact profitability. This scenario is reminiscent of 2008, when economic downturns and tightened credit markets hurt vehicle demand and values. Today, while there is no financial crisis, the off-lease EV market is expected to peak in 2028 with nearly 800,000 EVs flooding the market. By the end of 2026, EVs are projected to make up 15% of off-lease used vehicles, up from 7.7% in the first quarter of 2026. Industry experts anticipate that the resale value of these EVs will be $10,000 less than projected, potentially leading to an industrywide loss of about $8 billion for models coming off lease in 2028. Tesla and General Motors are expected to bear the brunt of these losses, as they dominated EV lease volume in 2024 with 228,000 and 102,000 EV leases, respectively. Ford, with just over 52,000 EV leases, is less exposed to this risk compared to its competitors. While the situation is less dire than in 2008, investors should remain cautious as the automotive industry navigates this new challenge.