Novelis Fire a New Problem for US Autos, Especially Ford

An Oct. 6 story in The Wall Street Journal of a Sept. 16 fire shutting down aluminum sheet production at an Oswego, New York, Novelis plant until first-quarter 2026 sent Ford’s stock down over 7% the morning of Oct. 7. F-150 seat supplier Adient also saw its stock fall over 8%.

Why it matters: The plant reportedly supplies about 40% of the US auto industry’s aluminum sheet with Ford the largest user due to F-Series being the only all-aluminum-bodied full-size pickup truck. We don’t think that other suppliers and other Novelis plants can make up all the lost capacity.

• Ford reports third-quarter results on Oct. 23, and we expect management will address mitigation plans, though details may be sparse. F-Series is likely its most profitable vehicle program, so this supply shock could keep profits depressed into early 2026.
• Supply mitigation efforts are also complicated by a 50% US tariff on foreign aluminum. We believe US manufacturers would benefit from temporarily pausing this tariff, but even if it paused, Ford could still see higher pricing and higher shipping costs to secure aluminum.

The bottom line: We are not changing our fair value estimate on Ford or Adient nor their respective moat ratings of none and narrow on this news. We have seen many automotive supply chain shocks, and the industry always bounces back, but it takes time.

• If the fire leads to Ford cutting its 2025 guidance on Oct. 23, we wouldn’t see anything about the firm’s long-term earnings power impaired. Ford’s June 30 automotive liquidity was excellent at $46.6 billion, so we see its dividend safe despite an F-Series profit hit that could exceed $1 billion.
• Ford is about 12% of Adient’s total revenue and Adient’s second-largest customer in fiscal 2024. Adient’s June 30 liquidity of about $1.7 billion, including about $872 million of credit line availability, in our opinion should allow it to get through this production interruption.