John Deere, the world’s biggest farm machinery manufacturer, prides itself on using AI for autonomous tractors and precise See & Spray crop spraying technology. Its yellow and green tractors and lawn mowers are also iconic symbols of America’s heartland, helping place Deere in the political crosshairs of future tariff policies under President-elect Donald Trump.
Deere’s innovative self-driving tech and other improvements rely heavily on sensors and GPUs. Various upgrades have meant the newest giant farm machines are priced at half a million dollars or more apiece, often putting them out of reach of average farmers. An autonomous Deere 8R tractor recently sold for $500,000, with autonomous electronics adding another $50,000. In the past two years, Deere has reacted by creating a new pricing scheme, a pay-per-use licensing model for monthly billing of AI-based applications like See & Spray, said to cost a fraction of the traditional upfront investment.
Against the backdrop of needing to hold down costs to farmers, Trump has repeatedly promised tariffs on many types of imports, especially from China. In September, Trump singled out Deere for reportedly wanting to move some production to Mexico, proposing steep tariffs that could make the newest farm tech even more expensive.
“I’m just notifying John Deere right now, if you do that, we’re putting a 200% tariff on everything that you want to sell into the United States,” Trump said Sept. 23. It isn’t clear whether the remark has had any effect on Deere & Company’s Mexico plans. The company laid off 503 workers in Illinois and 310 in Iowa earlier in 2024, amid reported steps to acquire land in Mexico to shift production previously done in the US.
Latest Deere earnings call comments on tariffs, revenues
The tariff question did, however, come up at Deere’s quarterly earnings call on Thursday when Josh Beal, director of investor relations for Deere, said the company is “thinking about [tariffs] in terms of how it impacts our customers, how it impacts our suppliers and certainly how it impacts our operations as well.” He said it is too early to know exactly how enacted Trump policy will affect the various stakeholders, adding, “Certainly, we’re engaging, and we will monitor that going forward.”
CEO John May added on the call, “We’re positioned really well. We rely heavily on our highly skilled employees in the US to design and build high-quality, the most technologically advanced equipment in the world. As a result of that, greater than 75% of all products that we sell in the US are assembled here in the US and they’re assembled by highly skilled employees, 30,000 employees in the US, that are located in 60 different facilities across 16 different states.
“As a result of all their hard efforts and frankly manufacturing leadership results in John Deere ag and turf division being a net exporter of our products manufactured in the US exporting to other countries. So, we feel really positioned well. We’ve been at this for nearly 200 years, building product in the US. And I’m very, very proud of our team and what they’re able to accomplish.”
To be clear, May’s defense of Deere did not critique tariffs or Trump directly. How the next president handles tariffs and government support for manufacturing (like the CHIPS Act grants for chipmakers) is still evolving and is a wild card for investors and manufacturers alike. Some investors like David Bahnsen at the The Bahnsen Group suggested Trump’s comments on Deere and tariffs more generally could be a negotiating tactic, telling BNN Bloomberg, “Trump himself has said that those things are negotiating tactics.”
Latest Deere outlook sees ag sales decline
During its call, Deere said it expects sales in it largest production and precision agriculture segment to be down about 15% in fiscal 2025, with prices up 1%. The Association of Equipment Manufacturers said US sales of agriculture tractors fell about 14% in October from the previous year. Farmers have faced grain and oilseed prices at four-year lows, and have delayed machinery purchases after a surge in upgrades in 2022.
Deere’s net income for fiscal 2024 year ended Oct. 27 was $7.1 billion, compared to $10.1 billion for fiscal 2023. Global net sales and revenues dropped 16% to $51.7 billion for the full fiscal 2024 year. The company employs 75,000 workers globally including the 30,000 US-based workers May mentioned.
Other factors in Deere’s defense
A Deere spokesperson defended Deere’s presence in the US in an email to Fierce Electronics that indicated the company has invested more than $2 billion in US factories in the past five years. In 2023, Deere also spent over $16 billion with US-based suppliers. Fewer than 5% of Deere’s US sales are assembled in Mexico, the spokesperson added.
Deere also told Fierce that orders are down due to several factors:
--Row-crop cash receipts are forecasted to be down 18% in 2024, following a 5% decline in 2023, according to the US Department of Agriculture.
--USDA forecasts marketing year average prices for crops harvested now to continue a decline from last year and down by more than 30% compared to two years ago.
--Regarding construction (since Deere makes backhoes and construction equipment), single family housing starts are down 10% and multi-family housing starts are down 40%.
--Interest rate reductions have occurred but current rates remain elevated compared to recent history.
Deere’s pay-per-use model
On the earnings call, Deere CFO Joshua Jepsen offered insights about its pay-per-use pricing model. He said despite concerns whether it’s the right approach for deploying the latest tech, “the reality is that we’re seeing higher levels of adoption using this model compared to our traditional upfront pricing approach, but only when it makes sense.”
Deere’s precision agriculture Essentials Kit includes three technologies for guidance, connectivity and onboard compute that are needed to run any of the other precision tech on tractors and other machines, Jepsen said. “We recently changed the pricing model from a one-time cost to a recurring license that allows customers to access the vital technology at a fraction of the traditional upfront investment,” he said. “In the first year alone, we sold over 8,000 kits, and these kits are being installed on equipment with an average model year vintage 2012.”
Jepson added, “This example highlights the importance of finding new ways to meet our customers at every stage of their precision tech journey. It also emphasizes our commitment to providing cost-scaling solutions that enable all customers to adopt precision technology regardless of the size of their operations.”
Looking ahead to the Jan. 20 inaugural
After Trump is inaugurated Jan. 20, the future of his tariff policies will surely become clearer, at which point Deere & Company will be asking itself if its pricing models and US manufacturing commitment will satisfy both farmers and the next president. As May noted, Deere was founded in 1837, a gentle reminder that the company has survived wars, economic upheavals and many presidents. From the time its blacksmith founder developed the first commercially successful self-scouring plow to the recent advent of self-driving tractors and trucks, Deere has seen plenty of change.