Q4 2020 Ford Motor Co Earnings Call
[music].
Good day, ladies and gentlemen, my name is Holly and I'll be your conference operator today at this time I would like to welcome you to the Ford Motor Company fourth quarter and full year 2020 earnings conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time. Please press Star then one on your telephone keypad to withdraw a question press the pound key at this time I would like to turn the call over to Linda anti Pos Tyson Executive director of Investor Relations. Please go.
Ahead.
Hey, Lynn you're on mute if you can on mute. Thank you. Thank you.
Presenting today are Jim Farley, our president and CEO and John Lawler, Our Chief Financial Officer also joining us for Q&A is Marion Harris CEO of Ford credit Jim will make opening comments, John will talk about our fourth quarter and full year results and then we'll turn to Q&A. Today's discussion will include some non-GAAP references these are.
For the most comparable U S. GAAP measures in the appendix of our earnings deck, which can be found along with the rest of our earnings materials at shareholder Ford Dot Com. Today's discussion includes forward looking statements about our expectations actual results may differ from those stated the most significant factors that could cause actual results to differ are included on slide three.
Alrighty.
Unless otherwise noted all comparisons are year over year company, EBIT EPS and free cash flow are on an adjusted basis and product mix as volume weighted.
Update on our upcoming IR events on Tuesday February 9th JP Morgan will house start pre post earnings Fireside chat featuring Hau Thai Tang Chief product platform and operations Officer, and John Lawler on February 24th Jim Farley with keynote at the world's Global Auto Auto Tech and mobility conference on February 25th Bob Holy Cross.
Vice president of sustainability.
The environment and safety engineering will speak at Rbcs inaugural ESG conference highlighting how our achievements for sustainability sustainability ability will benefit our customers the planet and create a competitive advantage.
Much chance to a rally president of Ford Europe enhance Schatz General manager commercial vehicles for Ford Europe will participate in the Jefferies Auto conference and on March 23rd Bob Holy Cross will speak about clean technology, a J P Morgans Global ESG conference.
Lastly, we continue to target late spring for our capital markets day, and we will provide more detail details on that later now I'd like to turn the call over to Jim Farley Joe.
Thank you Lynn and thanks, everyone for joining us today.
Last year was like no other with Covid dramatically and Austin tragically affecting all of us.
But tough times can bring out the best in people and boy was that true at Ford.
I'm really proud of how our people mobilized with speed and resolved to respond to this crisis, we harnessed our capabilities and we developed a lot of new ones.
Our team members put others above themselves in both returning to work, but also to make life saving equipment.
And I'd like to share just a few highlights of our pandemic response, including our new finish strong initiative to help limit the spread of the virus and save as many lives as possible until this pandemic is under control.
To date Ford is manufactured 55 million medical grade masks and by mid year, We will have donated 100 million masks.
In partnership with the UAW. We've also produced 20 million face shields for.
<unk> thousand patient ventilators more than 32000 powered respirators in collaboration with three M and 1.4 million washable isolation gowns.
More to the point of today's call.
We relied on the same grit and resourcefulness to deliver a very strong year financially under difficult circumstances.
We improved our execution, while putting in place for specific and compelling plan.
By some important early actions that are transforming ford into a far stronger company.
A company that competes and wins on behalf of our customers and other stakeholders in this exciting new landscape, which will be defined by electrification and connected customer experiences.
After safely and smoothly restarting our manufacturing production in May following last year's shut down we sharply rebounded in the second half of the year as we rebuild our inventories to meet strong pent up demand in.
In fact, we more than doubled our second half adjusted EBIT from the year before yielding a 7.3% adjusted EBIT margin in.
In the fourth quarter, we successfully launched three incredibly important vehicles that exemplify our new Ford and our direction.
Our first all electric Mustang Mach E.
Which we and more importantly, others believe is the first credible mass marketed competitor to Tesla.
And the F 150 for 'twenty 'twenty, one F 150 America's favorite vehicle. It's now connected you can sleep in it you can work and it is incredibly capable and it is such a fantastic product and the Bronco sport. The first member of our re imagined legendary.
Bronco brand, which has generated as much excitement as anything to come out of Detroit in my career.
Now as we recap last year's results and discuss expectations for this year and beyond I want to underscore that everything we do is in service of our plan.
Simply put.
We're seeing real improvements in our core automotive business and we are laser focused on further progress this year.
Now this includes growing the company generating consistently strong free cash flow.
For our core automotive business as well as Ford credit.
We will allocate that capital to its best and highest uses for creating sustained value.
To achieve that we are competing like a challenger now.
<unk> customers and must have products and services and rewarding customer experiences, we're moving with urgency to deliver leading quality rich.
Reducing our costs and restructuring underperforming businesses.
We will start to grow again.
But most importantly in the right areas.
Allocating more capital resources and talent to take advantage of our strength in pickups and commercial vehicles and utilities.
Being a leader in the electric vehicle Revolution around the world.
Where we have strength, but also where we have scale.
Expanding our leading commercial vehicle business with a suite of software services that earns loyalty and generates reoccurring revenue and incubating and scaling and integrating new businesses. Some of them enabled by Argo AI is world class self driving system.
Today I'll touch on a few of our plan highlights with emphasis on cap allocation electrification and connectivity.
You know back in 2017.
Vehicle lines. It accounted for just 60% of our company's revenue generated 150% of our EBIT and most of the vehicles generating that EBIT earned a multiple of the cost of capital.
This imbalance was simply not sustainable and we immediately began reshaping of rebalancing our business, we allocated capital to our strengths we jettison.
Underperforming assets and created a more focused portfolio and built a financial flexibility to unleash significant untapped value at Ford.
We've already made a tremendous progress.
Through last year, we've invested $7 1 billion in EBIT, and 1.6 billion in cash and our global redesign reshaping our portfolio.
Our geographic footprint and our industry footprint.
In the first phase of redesigning Europe for example, we prioritize profitable growth in commercial vehicles, where Ford is the number one vehicle brand in the region, but also a smaller more targeted portfolio of passenger cars in the strongest segments.
An exciting imports like Mustang and edge that built our brand and make a solid return we shrunk our manufacturing footprint in Europe, we've reduced regional head count by 20%, we lowered our annual structure costs by $1 1 billion through last year in the fourth quarter Europe delivered its strongest.
<unk> quarterly profit in more than four years, achieving an EBIT margin of five 8%.
Let's turn to South America.
We've lost more than $4 $5 billion over the last decade in South America, not acceptable and.
In 2020, we exited our non core heavy truck business in the region, we discontinued focus and Fiesta and we further reduced head count in fact by more than 40% through the end of last year and with these actions last year, we posted the smallest losses in South America since 2013.
And then in early January we went further as Ford, Brazil announced it would end production and closed three facilities.
That decision will derisk, our business by concentrating it on a more profitable asset light model.
On our industry, leading ranger pickup trucks, our transit commercial vehicles and key imports.
We remain committed to serving our customers in Brazil, and South America, but now with the portfolio of exciting connected and increasingly electrified Suvs pickups, including this amazing new Ranger.
In commercial vehicles sorted in Argentina, and Uruguay and other markets.
Now we didn't take these actions lightly.
And Ford is working with all of our stakeholders in Brazil to mitigate the impacts of these decisions.
At the same time.
We know they were right and necessary.
And we are optimistic about our new business model for South America.
Now before John walks through the last year's results and how we see 2021 I want to update you on Ford connectivity and electrification plants.
'twenty 'twenty, one is a strategic inflection point for Ford.
We have hundreds of thousands of fully network vehicles now in the fields and.
And now we're seeing the evolving institutional capability inside Ford to leverage that data streaming off those vehicles and also use our over their updates to improve quality and revolutionize the for customer experience and importantly.
That means commercial vehicles too.
And customers, we have more than 100000 subscribers to our telematics and commercial vehicles software business, we call Ford commercial services and we are just starting.
Forged development and delivery of connected vehicles will be enhanced by a new six year partnership with Google that we announced earlier. This week. The two companies are establishing a collaborative group that we call team up shift to not only unlock personal consumer experiences.
But to create and make the most of data driven opportunities in our industrial system.
The partnership will greatly enhance the Ford teams ability to innovate and deliver a consistent world class consumer experience and as well provide for with a powerful technology and tools to modernize our manufacturing our supply chain management and speed of our implementation of the data driven business models.
And innovation across our whole company.
Now as I said, a few minutes ago, and many times, though for Ford will be a leader in electric vehicle Revolution around the world.
We will do this in areas, where we have strength and great scale.
It's early in the transition, but the trend is clear.
We watched one out of 10 vehicles sold in Europe in December be pure electric.
EV sales in China continue to grow and the reality is that customers, including in the U S are increasingly giving E mobility greater consideration, we have no intention to see ground to others and vehicle segments, where Ford is the established leader.
We are rapidly building on our electric vehicle plans.
And building out our manufacturing and our R&D capabilities. We're also increasing financial flexibility. So we can accelerate and flex to keep pace with the evolving E b needs of our customers.
Now the Mustang Mach E.
Our first dedicated Bev platform, which last month was named North America utility of the year and bodies, how we lead in electric vehicles. It's on sale now it has stunning design is a fully connected and ready for the over updates with a tremendous technology experience.
It's delivering high quality exceptional performance at a price in the mid thirties, It's a fantastic vehicle, which also happens to be a full battery electric.
And there are many more dedicated beds like this one that are coming.
As you know Ford is a global leader in commercial vehicles.
And we're on the leading edge of the electric Revolution there too.
We are the first company to announce plans for an all electric van and an all electric pickup truck.
With the E transit coming later this year. It has three different links three different heights, we have a van of strip chassis and a cutaway.
And Theres more coming on E Transit and then we're going to launch the Bev F 150 in the middle part of next year.
In a recent study by Cox automotive.
They showed that the all electric F 150 was the highest consideration rate and is the most appealing among major EV pickups that are coming to the market.
Our successful Ford Transit franchise is a critical pillar of our electrification plan, we understand the needs of this customers, we're going to offer a wide variety of configurations as I mentioned and we are developing not just the vehicles, but a whole suite of connected vehicles to serve them our connected services.
For instance, we know from our leadership position that the average daily route driven in a transit.
Is 74 miles.
And they do not over buy batteries.
Were validated that with over 30 million miles of telemetry data from our Ford customers.
Now with that data, we can forecast and optimize the battery life.
And provide over the air alerts so when the vehicle need service before anything fails for 100% uptime, we can do that that ban stays on the road working where it belongs.
Those are just two of <unk>.
Dozens of examples of how we're employing.
And using data to help our our commercial customers be safe and more efficient and to make more money while at the same time, creating an incredibly competitive advantage for Ford.
Value proposition for our customers extends to customizing vehicles interiors.
Digital experiences.
Service networks to maximize uptime and lower their operating cost.
These are very sticky annuity like capabilities that remove pinpoints and create opportunity for our customers.
No commercial vehicle provider is better positioned than Ford to innovate.
And introduce services like these at scale.
We are accelerating our plans right now breaking constraints, increasing battery capacity, improving our costs and getting more battery electrics into our cycle plan. We are now planned to invest at least 22 billion in electrification in the next few years through 2025.
And that's just electrification.
When you include the spending a ton of them is driving our total commitment is at least 29 billion.
The majority of our investment in electrification supports a widening portfolio of beds on platforms from both Ford and Alliance partners. This electrification number does not even include the potential of course for vertical integration of battery production, whether alone or in a JV.
As the size of our ice manufacturing footprint decreases the scope of our dedicated global Bev manufacturing capacity is now growing.
So far we're busy.
And were included a whole new facility in Dearborn at the Rouge to make the electric F 150.
We're building the Kansas City facility for the transit.
Phil Canada for several battery electric Suvs.
And in China in quantum on Mexico for the marquee and Theres a lot more to come our team is busy.
Thanks for your time and attention and as you can hear I'm very excited about our future John will now talk about our results in more detail and outlook for the year over to you John.
Thanks, Jim.
So when you analyze our fourth quarter results or even our second half performance last year, it's important to key in on the durable changes we've made to our underlying earnings power.
Including in automotive business increasingly positioned to sustainably generate strong free cash flow.
Right now our year end liquidity of nearly 47 billion provides the financial flexibility to opportunistically invest in growth and even accelerate investments if we choose to in key areas like electrification.
And connected services and that our 8% company adjusted EBIT margin target that we're aiming for we believe we can generate healthy annual free cash flows to fuel our growth.
So when we initially set our 8% target the secular forces accelerating today, we're still in their infancy EV penetration at scale was years out connectivity and digital services were still nascent and autonomous vehicles will they were still largely in labs. So you fast forward to 2021.
And the landscape is vastly different and so are the calls on our capital or our goal remains to hit the 8% margin and in doing so to reallocate profit and capital from a far healthier core business two exciting growth opportunities that will unlock long term value.
So let's take a look at the fourth quarter performance and automotive both wholesales and revenue declined by 9%.
While a lower industry influence both of these metrics. So did the plan changeover in North America to launch our all new 2021 F 150.
Our initial estimate was for a decline of 100000 units and we came in right on that number.
Fourth quarter revenue benefited from broad based gains in net pricing and product in series mix, especially in North America and Europe.
So let's take a look at our individual regions in a bit more detail starting with North America, the North American business offset some of its decline in top line metrics with continued growth and an increase in mix of commercial vehicles.
Together volume and revenue of transit and Super duty vehicles were up 14, and 24% respectively with the launch of the New F. 150, now complete we're building every vehicle we can.
EBIT was $1 1 billion up 53% with a margin of four 9%.
This growth was driven by excellent yield management and the non reoccurring for the UAW contract cost in the fourth quarter of last year, all of which was partially offset by the lower F 150 volume I mentioned.
In South America, Wholesales, and revenue declined, 15% and 10%, respectively, reflecting industry softness and Ford share losses, as we refocus our portfolio on strength in our Ranger pickups transit van and key imports on a full year basis Ranger gained one eight points of share.
15, 6%.
Revenue performance in South America was better than wholesale as we took aggressive price actions to offset inflation and currency pressures.
As Jim mentioned for 2020, we exited our noncore heavy truck business in the region discontinued the focus and Fiesta and further reduce head count in total by more than 40% through the end of 2020.
These actions.
And other actions that we've been taking contributed to the fifth consecutive quarter of year over year improvement in regional EBIT and we posted the smallest losses South America since 2013.
With our recent announcement to exit manufacturing in Brazil, we have fundamentally derisk. This portion of our business and delivered another significant milestone in our global redesign.
Shifting to Europe.
Europe Wholesales and revenues were both negatively affected by lower industry volumes. However for its revenue in the region was up modestly aided by higher net pricing and improved mix, our commercial business in Europe strengthened its number one position to a 14, 3% share which is a gain of 70 basis points for it.
Has the broadest network of commercial vehicle dealers in Europe, including close to 800 dedicated transit centers.
And during the quarter the commercial passenger it important vehicle businesses were all profitable.
And the reduced manufacturing footprint that Jim had referenced along with the $1 billion decline in structural costs over the last two years allowed Europe to deliver its strongest quarterly profit in for years with an EBIT of $400 million and achieving an EBIT margin of five 8%.
Now turning to China.
China delivered a 27% increase in wholesale retail sales grew 30% outpacing the overall industry sales growth of 12%.
Ford share in China grew by 40 basis points to two 4% with a 12 point increase in the mix of utilities to 36%.
The mix of commercial vehicles reached 45% in the quarter supported by strength in light trucks pick ups and other vehicles importantly, our dealer network return on sales remains positive.
Now, while it's still a modest EBIT loss. This was China's third consecutive quarter of year over year profit improvement aided by an enhanced mix of vehicles, including locally built Lincoln products.
For China specific Lincoln models accounted for 76% of the brands in country retail sales that's up from just 2% last year.
Wholesales and revenue results for the international market group varied, but its retail sales increase of one 8% countered an industry decline of 3%.
<unk> continues to capitalize on our strength in Ranger pickups, and Everest Suvs and Ranger was the best selling for Bai for pickup in Australia.
Just this week, we announced a 1 billion investment to modernize and upgrade our Ranger pickup plant in South Africa, and important low cost export hub for supplies 100 markets, including Europe.
This paves the way to significantly expand production for the next generation Ranger, starting in 2022 and profitably grow this important business for us excluding.
Excluding the impact of India, IMG was profitable in the quarter led by Australia and Vietnam.
In December Ford and Mahindra jointly decided not to complete our previously announced joint venture.
This outcome was driven by fundamental changes in global economic and business conditions caused in part by the global pandemic.
While we continue our independent operations in India, we are actively evaluating alternatives and reassessing capital allocation for India.
Turning to mobility.
We now plan to invest at least 7 billion and autonomous vehicles through 2025, including the 2 billion. We spent through 2020. Our plans include standing up for commercial EV business by 2022 to move both people and goods in.
And we also believe that Argo AI self driving system remains on a shortlist of leaders in the autonomous technology.
With improving unit economics, we continue to grow our spin Scooter network, which has become more relevant in a COVID-19 world as people explore alternative modes of transportation and.
In fact indicative of the strength of our city relationships spin one the overwhelming majority of all scooter permits that apply for in the U S and non municipalities last year.
Now, let's turn to Ford credit.
Ford credit delivered another strong quarter with EBIT up almost 300 million to 900 million a record fourth quarter improve.
Improved auction values drove the performance and we continued to experience strong credit performance with a low loss to receivables ratio.
All told we delivered $1 7 billion and adjusted EBIT in the quarter up $1 2 billion with an adjusted EBIT margin for 8%, which was up three six points.
<unk>, how the first half of 2020 unfolded I'm incredibly proud of how the 14 came together to finish the year with such strength setting a firm foundation for this year.
So, let's turn to 'twenty 'twenty one.
For global semiconductor shortage situation is fluid and we're evaluating and updating the potential effects on our business in real time.
We want to be transparent and also prudent therefore, we think it's premature to size what the ultimate impact will be on our full year results.
That said, we ended 2020, having achieved positive lasting change in the underlying trajectory of our earnings power, including the ability of our automotive business to generate consistent levels of strong free cash flow over time.
For 2021, we were on a course to earn between $8 billion 9 billion and adjusted EBIT, including a 900 million noncash gain on our investment in review.
That scenario anticipated continued EBIT improvement in each of our regional businesses, except for South America, which we expect to be flat through their transition this year we.
We anticipate mobility to be flat and Ford credit.
T to improve.
We also expect to generate between three and a half and for $5 billion in adjusted free cash flow.
However, the global Sendai semiconductor shortage is creating uncertainty across multiple industries that will influence our operating results. This year.
The situation is changing constantly so it's premature to size what the shortage will mean for our full year results. However, right now our current estimates from supplier support a scenario, where we could lose 10% to 20% of our planned first quarter production.
If that scenario is extended through the first half this could adversely impact our full year adjusted EBIT by between 1 billion and $2 5 billion.
Net of reasonable cost recoveries and some production makeup in the second half of the year.
So we should expect full year cash and EBIT EBIT effects to be about equal with quarterly cash implications more volatile given the mechanics of the company's working capital.
So our team is working with our suppliers around the clock to optimize the constrained supply minimize the profit impact while also prioritizing customer orders new vehicle launches in compliance with our C O two emissions regulations.
For example, similar to other actions we've already taken we are adjusting shifts next week at our Dearborn truck plant in Kansas City Assembly plant. These actions are contemplated in the 10% to 20% scenario for the first quarter.
Volume that I just mentioned.
We will provide you with an update on the semiconductor issue. When we report our first quarter 'twenty, one 'twenty 'twenty, one financial results and Thats on April 28.
So before we open the call for Q&A I will end, where Jim began.
Cannot be overstated twenty-twenty wasn't here like no other no other in our lifetimes. The 14 responded exceptionally well personally and professionally we're exceedingly proud of all of our colleagues around the world. We've made tough strategically sound decisions in 2020 that have created durable beneficial changes to our underlying earnings power.
Including an automotive business that is increasingly positioned to sustainably generate strong free cash flows from that financial flexibility will allow us to make the right investments for long term profitable growth and value creation.
Thank you.
Wonder if you ask a question. Please press Star then one on your telephone keypad to withdraw your question press the pound key to allow our callers an opportunity to ask a question. We are asking that you limit yourself to one question on line.
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And our first question is going to come from the line of Ryan Brinkman with J P. Morgan.
Hi, Thanks for taking my question it looks like even after adjusting for the Arabian gain you're guiding to 2021 profit well above consensus presumably helped by the volume pricing and mix benefits of a number of highly anticipated new products, including the new F 150, the Bronco Bronco score in Mustang Mach E. I know you have a lot of confidence in these vehicles.
But are there any objective measures that you can share with investors as to why they should also be confident in the profit contribution of these model. So you know I know it's early days, but do you have any anecdotes about how quickly the vehicles are turning on dealer lots.
Pricing has been trending for the new F 150, what's the early customer reaction has been to the marquee or if youre doing a lot of test drives and I realize the bronco still has yet even launch so maybe there are fewer metrics there, but maybe you could tell us a bit more about the wait list for example, whether it continues to grow or how trim levels are options have been tracked.
Relative to expectation or with the general community response has been.
Thanks for your question just really quick on the F 150.
Some of the metrics objective metrics, we see that give us.
Encouragement is is obviously, we're starting the year.
At a day supply level that we haven't seen for a long time.
That's one thing so lot of opportunity to build wholesale and dealer inventory into the year. We were starting the year with 53 day supply the mix of high series, which is always a big indicator of demand for the vehicle.
Is is about 20 points higher than we normally see in the outgoing model. So Larry plus mixes is extremely strong you also look at the Super duty demand Super duty was up 14% it had a great.
Improved vehicle.
But I think the F 150 improvement is even even bigger and even during that even.
Even during the sell down and the startup of the new truck that demand as you know we're turning vehicles in six days for the F 150, you're turning the marquee.
You know really good demand so far.
We have.
About 70% of the customers are new to Ford.
So.
We have you know.
Net new to for being they haven't owned Ford for 15 years. The cross shop vehicles are Porsche Boxster Porsche 911, Mercedes E class. We're also seeing in the reservations as we turn them into orders Hi, all wheel drive mix more than we thought the extended battery is much more popular than we expected and don't forget.
Net we have 127000 federal tax credits that are each worth $7500, each and that is a big advantage on the pricing side. So really strong demand early orders for marquee on Bronco you know obviously the Broncos Ford is turning.
And like six days, we sold everyone. He wholesale to dealers on the fourth quarter I think we sold over 5000, it's just like the F series, turning incredibly fast, Brian and I would say the Bronco. We're now just shy of 200000, a reservations and we're now starting well.
In a little bit will turn those into orders the.
Ah the you know that the encourage you to think about Broncos is just the interest.
Not only do we have a lot of orders in company and reservation, but the mix is stronger than we thought.
It's encouraging to see the tuner RMB three a third.
But the for doors very very strong mix.
And.
You know the demand is at the dealership levels or even our reservation system or a really really strong and I think yeah. We could pass on Bronco sport in January I think we passed a total units. So I mean, and that's a brand new model to our lineup. So that gives you a picture for the demand side. It may be John in E Comm.
It's about the rest of the performance.
I'd, just say Ryan that when you look at it Jim went through the portfolio transformation, but the global redesign is really starting to take hold and Derisking the business.
We're starting to see some strength in China, the localization of key projects or products, they're Lincoln for sure improving.
Improving our cost structure, thereby localizing.
We're leveraging capacity at the J vs to build Lincolns in commercial vehicles.
Our partnering to share investments in improved scale, you saw that with the South Africa announcement, we had building the Ranger and a VW pickup now in that facility.
So I think we're starting to see strength across all the areas. We've been talking about but we're also focusing on the basics of the business right. We've renewed our focus on our quality improvements, we're leveraging all of our connected vehicles to identify issues faster improve our warranty expense improve our ownership experiences.
We're also leaning into electrification now as Jim said with marquee being on the road the in transit coming the F 150, Bev next year.
And we're really transforming the team as well were bringing in new talent, we're organizing ourselves to grow our core businesses and expand that through connectivity and digital services and so when you look at all of that across the business and you start to see some of the strength take hold you know it.
It gives us confidence in the year and it allows us to you know move.
Move forward with the confidence we're projecting so I think theres a lot of good things going on here.
And our next question is going to come from the line of John Murphy with Bank of America.
Good evening guys I just wanted to ask a question Jim just around the transition to Evs and may be using.
If 150 years as an example, we can maybe maybe talk around.
When do you think sort of the tipping point is for the consumers where they see enough evs on the road that Youre ice vehicles become somewhat obsolete depresses resides and how do you kind of work through that transition.
And specifically also around the F 150, I mean can you position this as a performance enhancement, particularly around torque for trucks that you can actually get paid a tremendous amount of money for kind of like you did with Eagle Ford I mean, I think the joke around eco boost it wasn't really fuel economy and people get there was the low end for right I mean, so I mean just.
What's the tipping point, where you kind of get hit a little bit on your on your reserves on your outgoing ice vehicles, how do you manage that transition and how do you think about how position reposition evs.
Thank you for your question, it's stunning how fast the industry is changing.
I watched the market really carefully in Europe, and 10% in December pure battery Electrics Amazing you know our time is now at Ford.
We're not talking about aspirations.
We committed to California, and Paris accord and carbon neutrality long time ago, when it wasn't easy and I'm very proud of that this year as you mentioned, we're launching marquee its in the market now we think it's a real competitor to Tesla.
In their stronghold.
Are there price market F 150 electric has a lot of inbound interest from our loyal customers. We sold 780000 F 150 slides last year, we are going to find.
And we are finding within that a duty cycle that matches electric for some of those customers is such a large scale.
And transit electric the inbounds on that vehicle are are really high. This is our turf and we're not just going to have one delivery vehicle.
Gonna have three lengths two wheel basis, three roof heights, a cut through a cabin chassis and a van.
And we're not done so you know we are the leader in the transit business, we have the bodybuilder connections, 100% of our transits get updated.
And we know every one of those up fitters.
So I and we are getting more inbounds for that so how do we manage the move you know I.
I think it's.
It's a really good question I don't know if any of US have the answer the costs are coming down quickly.
But for me and the team the move to electric is not about batteries and motors, it's about digital vehicle and a new customer experience and that is universal whether its the F 150 ice or a battery electric that digital experience that we're talking them out we have 130000.
<unk>.
Commercial solution customers now we have 9 million Ford pass customers you know that is universal. So that's good news that we will get back in all of our business. We just have to be very flexible, which we have those large commercial vehicle manufacturing.
Manufacturing facilities that are very flexible and we will invest in both and will flex with the customers. So I think we're ready. This is our year, we're going to have a great offers and.
It's really on us the real proof point to me is not going to be how many we sell in the first year.
It'll be how much better the vehicle is a year or two after we launch it.
With the same customer.
Thank you and our next question is going to come from the line of Rod Lache with Wolfe research.
Hi, everybody. Thanks.
Thanks for taking my question.
So 22 billion is a pretty huge commitment to Evs I was hoping you can talk about.
The level of volume you're aspiring towards it sounds kind of like.
Like a similar commitment too and other company, that's targeting about about 1 million units.
Can you talk about Europe for its cost competitiveness.
And the trajectory of costs for Evs.
Agree with with these expectations of cost per kilowatt hour declining into the $55 to $80 range in five years, and then lastly in the context of what you said earlier, Jim about allocating capital towards businesses that have strong returns do you think that by 2025, you can achieve similar profitability and returns.
And E vs.
You achieve in Ice's.
Hi, Robert.
Well clearly.
We need to see improvements in cost structure similar to what you've been talking about in the 55 to 80 kilowatt hours from the pack.
And that's going to happen over time, and we definitely are pushing in that direction.
And that's going to be required we're going to see the ice in the Bev converge as they transition and yeah, we do see them being profitable in fact Mustang is profitable today, but lucky.
So you know.
It's going to transition over time.
Deeply focused on driving that cost structure down on our Bev vehicles, we're leaning into our strengths, where we see some synergies.
And taking advantage of that so it's definitely a focus we have.
From a standpoint of the $22 billion commitment to Evs, but as Jim said as we lean into our strength.
We're focused on bev or focused on expanding that growth. We're focused on both digital experience from the customer experience with those vehicles.
As that transition takes hold over time, we're going after the larger segments right. These are segments that we lead in there is a strong customer base and with that as Jim said Theres duty cycles, there's specific needs for these customers with these vehicles and we're going to continue to work with them to give them the solutions they need from a battery electric Stan.
Point, but at this point, we're not going to guide on a number of volume and by win at this point.
I think just a compliment John.
Expect us to be a lot more specific than that in the spring as we move on is just is this is not the right venue to go over specifics.
But please rest assured we are we are really excited to share all the specifics of our bed plan. We just wanted to give you an idea of how we're allocating the capital.
Okay. Okay. Thanks, guys.
And our next question will come from the line of Joseph Spak with RBC capital markets.
Thank you very much for for all the detail just just one question you mentioned a couple of times. The landscape is quite different now than when you first laid out that timeline for 8% EBIT margins.
And now Youre significantly stepping up the investment which is objectively a good thing so I.
I know youre still targeting that level, but is the timeline shifting.
Yeah, what I can say is that we.
We are continuously putting pressure on ourselves to pull that timeline ahead as quickly as possible and so it is shifting.
<unk>.
We're focused on it we're focused on improving the business as quickly as we can and continuing to invest in our growth areas.
We see a stepped up improvement in 2021.
You saw that in the guidance and.
Outside of the chip issue.
And we're going to continue to work that and as we do move closer to that 8% when we achieve those targets. We're generating good healthy free cash flows that we're going to invest in the business. So yeah, we're putting tremendous pressure on the team to move that forward and achieve that as quickly as we can.
Thank you.
And our next question will come from the line of Dan Levy with credit Suisse.
Hi, Good evening, Thank you for taking the question.
Jim I'd like to ask a question on partnership because if we think about the tenure of <unk>.
<unk> it seems like one of the core focus is really on building out partnerships and can be solved.
VW intra Asia tie that in.
We look at how things have played out.
Recent months, we've seen you terminate plans with Mahindra and <unk> seems like vehicle with Radian has sort of been de emphasized but on the flip side. We also see forming this partnership with Google. So all and wondering how you expect to use partnership that you're setting your agenda.
And specifically I'd be curious for that view.
It's to E D.
Yes.
Thank you so much for your question.
This is a fundamental approach that we all committed to and continue to be committed to.
We love what RGA is doing at Radian.
It's a strategic investment it's not a transactional investment for this for that.
And so we'll keep you updated.
But that's a very fundamental bet.
And it looks like the markets like in what he is doing too which is good for Ford.
The partnership with Google is very fundamental it goes far beyond.
Yeah.
We want our team working on things that differentiate us Google's got a great platform for navigation and content delivery and we can co create on top of that and there. The systems you know great, but we're going to use Amazon voice and we're going to work hard with Apple on par play in and we're going to have a great relationship with Microsoft on commercial vehicles.
We'll tell you about.
Some other day, but you know our partnerships in the technology area, including the Chinese partner.
Technology firms is just going to get deeper and deeper and deeper.
And as far as our relationships.
Our partnerships they will change with electrification.
And you should expect more work.
In that regard.
You know.
Anyways.
I don't think you're going to have to wait too long to hear more about that actually.
So it's a fundamental approach.
The technology partners, and becoming more and more important for us.
To deliver that digital experience, but also to build the capability inside our company for large gate scale AI ml deployment to our industrial system the customer experience using the data off the vehicles for quality improvement.
And we don't have all the answers.
And these companies can really help us and we can help them.
I hope that makes sense to you.
Great great. Thank you.
And our next question is going to come from the line of Emmanuel Rosner with Deutsche Bank.
Hi, good evening everybody.
Hi, Emmanuel Manuel.
So one follow up question on the <unk>.
Increased spending in.
Towards electrification.
You're not prepared for give specifics, but directionally speaking I am curious if you can give us color on.
What you were trying to achieve with it I guess how will these be spent and what is the goal here are you developing a dedicated flexible architecture for all your electric vehicles are you accelerating the rollout of electric vehicles, I guess interest I'm curious how this will be used.
A point of clarification on this as well so your slide 10 too.
In your presentation in closets will focus on the areas that where you lead all these pickups utility from a single seem to have some sort of commercial angle to it will your electrification strategy would be mostly aimed at commercial customers or will you have also high volume passenger vehicles.
So thank you for your question answer is absolutely there.
This accelerated spending some products and.
Any industrializing those products and we recognized in the guidance for explaining that that there's more more spending to come on our battery vertical integration decisions. We just don't have anything announced today.
We have.
We're not going to get into it but we have to be.
Battery electric dedicated platforms.
They will include high volume passenger cars, but you know.
As we've always said, we're going to invest in the segments, where we're the strongest and you can imagine what those nameplates are and what those segments are and we will have a great lineup of commercial battery electric vehicles and as well importantly for me is the investment in the digital.
Experiences and the physical services to make that work.
We've learned over all these years.
At Ford strength in commercial is far beyond the product in fact, a product is often regulated.
To be defined as it is our strength is our distribution network our ability to keep vehicles on the road are up Fitters are bailment policies.
And all of those strengths will come to bear as we electrify those lineup and we have more ambitions as as you can see with the FCS software business.
Business that business is growing very fast, it's a telematics and commercial services business and.
That's a good example of the kind of investments, we're making beyond the four walls for the product.
So as we electrify, we're not just going to bring more products were going to get more digital and we're going to get into physical services and digital services as well.
But they'll be in the nameplates in the segments that we have a great reputation as John said, we have a good owner base.
And our next question is going to come from the line of Adam Jonas with Morgan Stanley.
Hey, Jim So first off I just have to stay at the Mark E kicks apps.
I rolled up and Lynn can tell you. She shaved it may I rolled up in my why I spent a half hour in the Fang I got back and why and I have to admit I have some regrets.
I missed that.
Sell superfast, so bravo to the team.
My question's on cell supply.
What's your latest thinking on making your own sales are JV ing with someone or pure outsourcing and I asked this jam because as you can understand many of US on this call right can see a situation, where we have potentially dramatic.
Net misalignment between basically where demand massively exceeds supply of cells and this really could threaten our commercial targets oven oem's EV volumes unless you get this sorted out. Please tell me we don't have to wait until late spring for that.
But let me know where you had us thanks.
Alright.
Thank you I appreciate the feedback on the product and you know to me the real test for our fitness some marquee will be as they said how that product performs its range its capability its quality a year or two from now for that same customer. That's got a lot of character I wish. It was it was a riot and I wasn't even driving the G. James It was a lot of fun.
Well, that's that's the key I was just going to say.
Where do you see the G T look.
Our first inning. If this is a nine inning ballgame.
Our first inning I think we played it about right, which is to buy the best technology at the lowest price out there during.
What you could argue with this first inning was.
And excess supply batteries.
But now the game is changing.
And the next step is going to be a much more aggressive electrification plan and the subsequent impact on our battery strategy and we cannot afford.
Two to be in the situation, we are with semiconductors right now.
Which is a good metaphor for what you're bringing up so you can expect from Ford.
Follow on this battery electric commitment.
More news on our vertical integration plans and there are options, we could we could do it ourselves we can go to a JV.
And and and as well out there not too far away as solid state.
Technology moving very quickly.
There's a lot of bets to be made this company. This team is in the midst of making those and.
We'll let you know as soon as we can.
But we get it we want to lock it up we want to make sure it's not a constraint.
And we also want to pick the right technologies and the right partners at the right time and have the flexibility as well as the technology changes like solid state.
I don't know, we can't give you a day right now whether that would be the spring or tomorrow.
But please understand we totally get we totally get the issue and the opportunity.
Okay, Jim Thanks.
And our last question for the day will come from the line up Philippe who Schwab with Jefferies.
Yes. Good evening. Thank you very much I've got two questions one for Jim and one for John.
Jim on this alliance with our relationship with Google is interesting and we had little to do a similar arrangement.
Two weeks ago in Europe.
If I step back a few years ago, I remember, Google being seen as the enemy and accompany that carmakers had to stay away from them avoid seeing GUL getting to the Cox what has changed is it just simply that you looked at the cost of developing seltzer and you feel like it's too complicated for costly and then Google is a better solution to two.
Bring the connectivity with your customers.
Or has the willingness to find commercial arrangements, Google will improve in terms of revenue sharing for example that need what's from Google maybe less threatening it might have been a few hours ago.
And then for.
John I was just wondering if you are the first OEM to give us some <unk>.
Guidance on the impact of semi conductor shortage on the earnings and thank you for that I'm just trying to understand you your guidance for the impact what the impact could be in the first half, let's assume things normalize from the third quarter, how much of that negative impact in the first half would you be able to make up in the second half or should we think that is a net loss.
That we should take into account into our earnings forecast based on what you've given in terms of guidance. Thank you.
So to be really direct about your question.
Probably three things really changed our mind.
<unk> not changed our mind, but but but got us to where we were first of all non exclusive relationship so where we want.
Car play to work great in all of the vehicles, we want Amazon voice products to work great in our vehicles.
But the Google three things really change the answer your question or evolved the first one was.
We just.
The the money were spending to keep competitive on a generic experience in the vehicle.
Versus what they can offer and a stable robust platform the economics just work better.
And we could take our team and instead of doing generic capabilities, we can put them on really differentiation.
And and we found that in Marquis if you use the marquee and we.
We call it the Menlo system, we really started to understand.
That if we had a stable digital platform inside the vehicle.
We could really our co create and create better deeper experiences for our bronco customer marquee or commercial customer.
So basically.
It was their commitment to build and to dedicate resources to a really good digital.
Ecosystem and the vehicle. The second one is that we really start to feel a lot more comfortable with our customers' data.
And how that would be protected.
And that's really important for it is a very trusted brand all the data will be held and managed by Ford.
We will won't have access to the Ford customer data.
In the in the cloud.
The third thing was their cloud.
We're trying to move our enterprise and a lot of our our compute into the cloud very quickly for cost and capability and we think Theyre cloud is really competitive.
So as Amazon's, those Microsoft but but.
We also saw that they were willing to make a commitment on AI and ml.
We are already using AI and ml throughout our company, but we need to really accelerate that and they have real resources and we're willing to make the commitment. So those are kind of the the things that really swayed us.
Hope that makes sense, but it's not necessary.
Exclusive and we really are excited about the subscription business and the digital experience that could come off of this and all the other bets, we're making with.
With the technology companies John from.
Thanks, So the scenario we laid out.
It's based on the discussions we've been having with the supply base.
Over the last couple of weeks in it's very fluid and we know that it's an it's an industry impact on what we see is that we could lose.
Tween, 10% and 20% of the planned first half production.
And so when you take that on an annual basis, the impact of that full year could be between 1 billion and $2 5 billion.
And like we do and we did like we do and like we did with Covid, we've assumed in there some reasonable cost recoveries and our ability to recover some of the production in the second half and.
And so the net impact on the year would be between $1 billion $2 5 billion, depending on where this falls out relative to the production disruption in the first half.
And that's why we tried to frame it up to give a scenario around what it could be because it's very fluid right now and.
As we get through this quarter.
In April we'll be able to share more details. We think we'll have a lot more understanding of exactly how this is going to fall out.
Okay very clear thank you both.
Thank you at this time, we would like to thank you for dialing in for today's Ford Motor Company fourth quarter and full year 2020 earnings Conference call. We appreciate your participation and ask that you. Please disconnect.
Okay.
And Claire.
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Robert.
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