Q3 2021 Ford Motor Co and Ford Motor Credit Company LLC Earnings Call

October 27, 2021

Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin momentarily. Until that time your lines will again be placed on music hold, thank you for your patience.

[music].

Good day, ladies and gentlemen, my name is Erica and I will be your conference operator today. At this time I would like to welcome you to the Ford Motor Company third quarter 2021 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 you will need to press star one on your telephone.

Your remarks, there won't be a question didn't answer session. If you would like to ask a question. During this time you will need to press star one on your telephone.

At this time I would like to turn the call over to Lynn Antipas Tyson Executive director of Investor Relations.

Thank you Erica and welcome to Ford Motor Company's third quarter 2021 earnings call. With me 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.

Today's discussions include some non-GAAP references these are reconciled to the most comparable US GAAP measures in the appendix of our earnings deck, you can find the deck along with the rest of earnings materials and other important content at shareholder.for.com, including some updated videos and proof points around our Ford plus plan for growth.

Today's discussion also 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 page 23, unless otherwise noted all comparisons are year over year, company EBIT EPS and free cash flow are on an adjusted basis, product mix as volume-weighted.

<unk>.

Quick update on our IR events for the balance of the year, we assign.

On Monday, the first of November 1st Willful hosted Fireside chat with John Lawlor, and Hau Thai-Tang our chief product platform and operations officer. On the 18th of November Barclays will host a virtual fireside chat with Ted [Kenes], our CEO Ford Prem. In December on the third Goldman Sachs will host a virtual fireside chat with Lisa Drake our Chief Operating officer for North America on the third credit Suisse will host fireside chat with Hau Thai-Tang.

Operating officer for North America on the third credit Suisse will host fireside chat with her teng.

Finally on the ninth Deutsche Bank will host a virtual fireside chat with Alex pretty our director of business operations Enterprise connectivity, now I'll turn the call over to Jim Farley.

Thank you Lynn. Hello, everyone and thanks for joining us today. This month marks one year since we began executing a Ford plus plan. It creates growth, value.

This month this month marks one year since we began executing a Ford plus plan.

It creates growth value.

And it allows us to win in the emerging area of electric and connected vehicles. We built a strong team. That combines top leaders from Ford. With World Class talent recruited from outside of our company. Specific talent, specific people that are largely outside of our industry. This leadership team is committed to this plan. And we are accelerating our progress. And Ford Plus is not a tagline, it's not advertising.

We built a strong team the.

The combined top leaders from Ford.

With World Class talent recruited from outside of our company.

Specific talent specific people that are largely outside of our industry.

This leadership team is committed to this plan.

And we are accelerating our progress.

And Ford pluses, not a tagline, it's not advertising.

It's a larger more ambitious way to think about our business and how we bring value to our customers. We're creating iconic and distinctive products that only Ford can do.

We're creating iconic and distinctive products that only four can do.

Increasingly always-on relationships with our customers and ever improving user experiences all while creating value for our shareholders. We're fully vested in this future. We're taking big swings.

Were fully vested in this future.

We're taking big swings.

The plan is harnessing the power of connectivity, we are designing a new generation of fully networked vehicles, not delegated to our supply chain, but done inside the company to revolutionize the experience of owning and operating Ford vehicle, that's embedded technology to unleash unlimited innovation.

We're scaling the number of vehicles capable of over the air updates, will be moving from 1 million vehicles today to 33 million by 2028. That scale.

That scale.

At the same time, we're moving aggressively to lead the electric vehicle Revolution, substantially expanding our battery production as we speak today in the US. In fact, we're already announced plans that will give us enough battery production to meet our mid-decade goal of 141 gigawatts.

=Which is enough to build more than 1 million battery electric vehicles, a year and I think we'll need more. Our 7 billion investment and believable city in Tennessee, and the Blue Oval S. K Battery Park in Kentucky sets a new standard for scale, sustainability.

Our 7 billion investment and believable city in Tennessee, and the Blue Oval S. K Battery Park in Kentucky sets, a new standard for scale sustain.

Sustainability.

Advanced manufacturing and training the next generation of technology leaders. At the same time, the $1 billion of an investment in our electrified centre in Cologne, Germany will allow us to go all-electric soon. That center will be all-electric by 2023.

That center will be all electric by 2023.

We're making final preparations to launch the F 150 lightning. The defining zero-emission version of the America's best selling vehicle for the past 40 plus years.

The defining zero emission version of the America's best selling vehicle for the past 40 plus years.

Our all-electric Mustang Mach E is a hit with customers not just in the US, but around the world bringing. Bringing a stunning number of new customers to the Ford brand.

Bringing a stunning number of new customers to the Ford brand.

Over 90% of the marquee owners say they would recommend a marquee to other customers critical as a new generation of battery electric customers make new brand choices.

Our challenge now is to break production constraints and increase availability to meet this incredible demand both in North America and in Europe, and also in China. The biggest EB market in the World, where we are just starting production of marquee.

Is to break production constraints and increased availability to meet this incredible demand both in North America and in Europe, and also in China. The biggest E b market in the World, where we are just starting production of marquee.

We believe the global demand just for Mustang Mach-E. Could approach about 200000 vehicles a year. We've created new organization Ford probe to change in power the future work.

Could approach about 200000 vehicles a year.

We've created new organization Ford probe to change in power the future work with.

With compelling commercial vehicles distribution and services, while growing revenues to Ford. In a few weeks, we will start production of the new E Transit. And electric version of the world's best selling commercial ban.

In a few weeks, we will start production of the new E Transit.

And electric version of the world's best selling commercial ban.

And in the third quarter alone Ford lives.

Europe's new connected Uptime center, which I wish you could all see for our commercial customers helps customers in the UK secure additional uptime.

Preventing about $8 million of lost revenue and associated cost for our valuable customers. We're reinventing icons like Bronco, and creating new ones like Maverick in fact, the old new Maverick forty-two miles per gallon and I might add is the first standard hybrid pickup in the United States. It's also America's most fuel-efficient hybrid pickup.

We're reinventing icons like Bronco, and creating new ones like Maverick in fact, the old new Maverick forty-two miles per gallon and I might add is the first standard hybrid pickup in the United States. It's also America's most fuel efficient hybrid pickup this.

This is the strongest most compelling lineup I'd ever seen from any mass-market brand in my career.

And we are creating our spring-loaded future as we emerged from the chip shortages and COVID constraints.

Our spring loaded future as.

As we emerged from the chip shortages and Covid constraints.

In the third quarter, we announced a new partnership with Argo AI and Walmart.

This is Walmart's first-ever multi-city autonomous delivery service and it will be anchored in cities, where we already have operations.

Not the easiest miles in one city, but multiple cities and hard miles. In addition to making real progress on autonomy vehicles operating domains S. T S. We fully support Argo AI aspiration to access public capital.

Operating domains S. T S. We fully support Argo AI aspiration to access public capital.

To build this future and generate the margins and cash flow, we need to fund Ford plus we had a turnaround our automotive operations and improve our competitiveness.

Our results in the third quarter show we are making significant progress, in fact company-wide, we achieved an 8.4% EBIT margin, including 10.1% in North America, those margins I'll remind you are in line with our targets for 2023.

More importantly, our operations outside of North America are likely to post the best performance in four years.

Please note that performance in South America.

Largely driven by our success of our global redesign.

We've been able to achieve this while thoughtfully managing our supply chain for short term sustainable improvements, including semiconductors and prioritizing high demand and high-profit vehicles. Now before I turn it over to John, a few thoughts. I believe we have the right plan to drive growth and unlock unprecedented value.

For short term sustained sustainable improvements, including semiconductors and prioritizing high.

Demand and high profit vehicles now before I turn it over to John a few thoughts.

I believe we have the right plan to drive growth and unlock unprecedented value.

You are already seeing favorable change in the slope of our earnings and cash flow.

There is more to come.

Given the strength of our business this year, we are increasing our full-year adjusted EBIT guidance to between 10.5 billion, and 11.5 billion. As we planted Ernest for next year, we're excited and energized about the opportunity in front of us. And clear that we have so much more work to do to deliver on Ford's potential.

As we planted Ernest for next year, we're excited and energized about the opportunity in front of us.

And clear that we have so much more work to do to deliver on for its potential.

The word I would leave you with is focus.

The competitive environment has never been more interesting and tough and we intend to live up to our promise to compete like a challenger.

Focusing on our top priorities to unlock Ford Plus growth with customers at the very center of everything we do.

Now I'll turn it over to John who will take you through our results for the quarter, our outlook for the full year, our capital allocation priorities and our expectations heading into next year. John.

Thank you Jim.

Now in the face of continued industry-wide semiconductor constraints, we stayed focused on our plan strengthening our portfolio and investing in opportunity opportunities fundamental to growth and value creation.

We delivered a solid quarter with 3 billion and adjusted company EBIT and a margin of 8.4%. Free cash flow of $7.7 billion was as we expected up sharply on a sequential basis driven by the positive working capital effects from higher wholesales and EBIT.

Free cash flow of $7 7 billion was as we expected up sharply on a sequential basis driven by the positive working capital effects from higher wholesales and EBIT.

We ended the quarter with strong cash and liquidity at over 31 billion and 47 billion respectively.

Now across our automotive business, our playbook remained consistent as we optimize production for customer orders, new launches in our most profitable vehicles.

As expected on a sequential basis, our wholesales improved dramatically as chip supply for Ford improved.

We also remained disciplined with incentive spending and mixed management, which on a year over year basis more than offset chip related declines in volume.

Ford credit delivered another solid quarter with 1.1 billion EBT. As auction values continued to remain strong and credit losses continue at near-record lows.

For the fourth quarter, we're assuming a sequential increase in wholesale. We also expect continued healthy mix and net pricing and solid results from Ford credit, although not as strong as the third quarter.

Headwinds include inflationary impacts on commodities and freight and we also expect plan sequential increases in our Ford plus modernization investments, including customer experience and IT.

<unk>.

So let me share with you some highlights from the quarter before I turn to guidance capital allocation and our preliminary view of 2022.

Paid off in the third quarter, representing 28% of our retail sales in the third quarter and reaching a high of 31% in September. And our overall customer orders increased over 50% from the second quarter to more than 100000 orders excluding bronco. With a 10.1% EBIT margin in the quarter, North America is now at a 9% margin year to date, just 100 basis points shy of our 2023 target of 10%.

And our overall customer orders increased over 50% from the second quarter to more than 100000 orders excluding bronco.

With a 10, 1% EBIT margin in the quarter North America is now at a 9% margin year to date, just 100 basis points shy of our 2023 target of 10%.

South America marked its eighth consecutive quarter of year over year improvement in EBIT and the business run rate is now approaching breakeven.

The region also launched its new commercial vehicle organization with the introduction of the New transit, which is manufactured in Uruguay. This transit is the first light commercial ban to market in Brazil that includes connectivity as a standard feature.

In Europe, the underlying trajectory of our business continues to strengthen though the adverse impact from chips has masked the improvement. In the third quarter the business lost about 50000 units, which would have had a substantial favorable impact on EBIT, our leadership as the number one commercial vehicle brand continued in the quarter along with an extremely robust order bank.

<unk>, along with an extremely robust order bank.

In China, Lincoln continues to perform well extending its success in the most profitable segment Luxury. With retail sales up 24% year over year. In fact, Lincoln has doubled its share of the China Luxury market over the past 18 months.

Our newly created Bev organization to open its first 13 direct to consumer Ford Select city stores with a total of 25 expected to open by year-end.

And IMG, our leadership team in India made the difficult decision to end manufacturing following accumulated operating losses of more than 2 billion over the past 10 years going forward, we will focus on importing iconic vehicles, including Evs that overall IMG had a solid quarter capitalizing on our strengths, including Ranger.

<unk> on our strengths, including Ranger.

Now as Jim highlighted the underlying strength of our business supports increasing our adjusted EBIT guidance for 2021 to between 10.5 and $11.5 billion.

And that's despite a lower than anticipated improvement in chip availability in the second half of the year.

Consistent with our adjusted EBIT guidance through this year, our updated guidance for 2021 includes the 900 million dollar non-cash gain on our investment in Ravine in our first quarter adjusted results.

So let me spend a minute on Ravine. Now in the event that Ravine completes its IPO.

Now in the event that revision completes its IPO.

We will record any gain on our investment and any subsequent adjustments or special items. Accordingly, we will recast the 900 million noncash gain from adjusted EBIT in the first quarter to a special item.

If revealing completes their IPO in the fourth quarter, we will make this change when we report our fourth quarter earnings on February 3rd 2022.

Our guidance for 2021 adjusted free cash flow is unchanged at 4 to 5 billion, reflecting the higher EBIT, but less favorable improvement in working capital and timing difference. Timing differences now this is due to lower than anticipated volumes than previously assumed in the back half of the quarter.

And that's as a result of chip constraints.

We do expect free cash flow to increase with higher production and the associated improvement in supplier payables and other timing differences.

So now let me turn to capital allocation, which again is the foundation of our value creation framework.

Our capital allocation discipline is driving a strong core business and balance sheet that provides the flexibility to invest in new growth opportunities as we deliver our Ford plus plan ultimately and ensures we return value to our shareholders. Both in the form of a higher share price and dividends.

Today, we announced the reinstatement of our dividend, our board has approved restarting a regular quarterly dividend of 10 cents per share in the fourth quarter of 2021.

Importantly, the dividend reflects our confidence in the improving run rate of the business and our ability to fund all of our calls on capital, including the growing investment in electrification and the trajectory of our Ford plus plan.

The dividend was also sized to ensure we maintain appropriate optionality to manage continued uncertainties in the external environment.

To give you a better sense of our calls on capital between 2020 and 2025, we expect total capital expenditures of about 40 to 45 billion or a run rate of roughly $7 billion per year. Over the same time, we expect to invest over 30 billion in BEV. And I'll be investment in Bev about 50% is CAPEX, 25% is expense and 25% is direct investments.

In Bev and I'll be investment in Bev about 50% is capex, 25% is expense and 25% is direct investments.

These numbers so there'll be the dynamic and we are confident we have ample financial flexibility to increase our investments even if BEV adoption further accelerates.

Now, let me share with you our early thinking about 2022, a year, which like this one is likely to experience some industry crossways that could drive a range of outcomes. Though we typically don't talk about the upcoming year this soon but we're not yet prepared to give financial guidance, but we do want to share how we're thinking about next year.

Given the dynamic operating environment.

Boards underlying strengths give me great confidence, we can build on our results in 2021.

First, our portfolio of products and services is exceptional and we have a significant amount of new products coming to market spanning our iconic high volume nameplates.

Second, our industrial base gives us significant optionality as the adoption of electric vehicles accelerates. Third. Driven by the chip shortage, the roughly $4 million in wholesales, we are likely to deliver this year fall significantly below our capacity and based on our current assessment, we believe our wholesales to be up about 10% in 2022, but that number is very dynamic and changes almost weekly.

<unk> <unk>.

Driven by the chip shortage, the roughly $4 million in wholesales, we are likely to deliver this year fall significantly below our capacity and based on our current assessment, we believe our wholesales to be up about 10% in 2022, but that number is very dynamic and changes almost weekly and.

And fourth, the effects of our global redesign, which is largely completed are now evident in substantial. We have drastically derisked and rationalized, our global footprint and product lineup vastly improving our earnings and cash generation power in the process.

Now for headwinds next year, it's difficult to predict the interplay between center semiconductor related constraints, volume and pricing and this will continue to remain dynamic.

For 2021 we expect commodities to be up 3 to $3.5 billion and they could be up another $1 5 billion in 2022, largely driven by steel and aluminium similar to this year. There will also likely be other inflationary costs, but it's too early to size that right now.

Ford Credit is likely to be lower as strong auction values will be moderated by a smaller inventory of vehicles and lower lease and return rates.

And lastly, we're obviously going to continue to invest in our Ford plus plan for growth and value creation and this includes in customer facing technology connectivity, our always on relationships with customers and electrification and of course, we believe the long term payback from those investments will be substantial.

Well that wraps up our prepared remarks, and if you perceive that the upfront portion of these calls is becoming more efficient, well, you're right and that's a function of us being very specific with you and our team about what's truly important and our confidence in executing effectively against those things and reporting accordingly.

We'll use the balance of the time to hear and address what's on your minds. Thank you.

Okay.

As a reminder to ask a question, you will need to press star one on your telephone. To withdraw your question press the pound key. We do ask that you please limit yourself to one question and one follow up question. Please stand by while we compile the Q&A roster. Your first question comes from the line of John Murphy with Bank of America.

Do ask that you. Please limit yourself to one question and one follow up question. Please stand by while we compile the Q&A roster.

Your first question comes from the line of John Murphy with Bank of America.

Good evening everybody. Thanks.

Thanks for making the call efficient. It can be tough to limit to one question, but I will. As you think about the 10% increase you're talking about in 2022 wholesales. And if we could focus on North America.

It can be tough to limit to one question, but I will.

As you think about the 10% increase you're talking about in 2022 wholesales.

And if we could focus on North America.

I assume you're going to do about 2 million units this year and 'twenty, one give or take.

We're only talking about 200000 units of increase next year.

There's an assumption that the price and mix will deteriorate as incremental units are produced as SME shortage of route is relieved but given that that's still going to be relatively low. At a very low level of production. Do you believe that the price and mix are really going to actually come under pressure next year?

Our produced as SME SME shortage of route is relieved but given that that's still going to be a relatively low.

At a very low level.

Of production do you believe that the price and mix are really going to actually come.

Come under pressure next year.

And are we really going to stay in a very tight environment that you are selling through and not even building inventory, if that's true which means the price and mix might stay very strong next year are you'll still get the benefit.

Thanks, John here. It's going to remain dynamic and that's what the interplay is going to be. Volume increases for the industry if there are higher we'll probably see more pressure on price if they remain as they are today and we see a moderate increase. I think you're going to continue to see strong pricing and mix continue through next year. So that's where we have to stay disciplined and we have to stay very focused on managing that well. So that we can have.

It's going to remain dynamic and that's what the interplay is going to be.

Volume increases for the industry. If there are higher we'll probably see more pressure on price if they remain as they are today and we see a moderate increase I think you're going to continue to see strong pricing and mix continue through next year. So that's where we have to stay disciplined and we have to stay very focused on managing that well. So that we can have.

As you said the play through next year relative to what happens from an overall volume standpoint, and we're focused on that so I agree with you that is going to be one of the key dynamic elements for next year.

And just to follow up on that I think right now based on Ward you have about 213000 units in dealer inventory. Pre COVID-19 travel rate was about 650000 units. As you think about ultimately getting into a time, where you can rebuild or restock that inventory.

Pre COVID-19 travel rate was about 650000.

Units as you think about ultimately getting into a time, where you can rebuilds or restock that inventory.

Where do you think that runs and how much opportunity is there to try to maintain some of this mix and price discipline to offset any cost inflation? And then also invest in the future.

And then also invest in the future.

Yeah. So if you look at where we ended in September we ended at about 20 day supply in the US and we're watching it very closely from a day supply standpoint, and as we talked about last quarter. You know our historical base supply was somewhere around 75 days, we're not going back there.

As Jim said, we're going to be very disciplined and that we expect to be in the 50 day supply when we're at full capacity and we're running and producing everything that we can. So that's going to be the key, the other thing I would say John is that the move as we talked about in our remarks to having more of our sales come through orders online orders and the order bank. That's really important for us to manage our day supply. So it's a less of a you know ground stock pushed through and it's customer demand pull through based on the orders and we had over 100000 orders.

The 50 day supply when we're fully fully at full capacity and we're running and producing everything that we can so that's going to be the key the other thing I would say John is that the move as we talked about in our remarks to having more of our sales come through orders online orders and the order bank that's.

Really important for us to manage our day supply. So it's a less of a you know.

Ground stock pushed through and it's it's customer demand pull through based on the orders and we had over 100000 orders.

At the end of the quarter. And that's grown since then in our order bank and that played well for us in the third quarter. 139454 orders as of today? As of today.

139454 orders as of as of today as of today.

Backing.

It sounds like you're on that and maybe if I could sneak one in just on cap allocation real quick on the dividend I mean, why now and I'll hop back in the queue.

Yes.

It's this underlying strength of the business John. And you know we're not capital constrained. We're able to fund our initiatives for growth.

And you know we're not capital constrained.

We're able to fund our initiatives for growth.

We know that there are going to be other opportunities that surface. We're confident that we can fund those and you know we're focused on total shareholder returns not only stock appreciation, but also the dividend and so given the strength of the business.

The board elected that we would restart the dividend this quarter.

Great. Thank you very much.

Your next question comes from the line of Dan Levy with Credit Suisse.

Hey.

Good evening. Thank you for taking the question. I just like to ask a question on the shape of recovery in volumes. How is this magnesium shortage going to cause any term any sort of near term supply disruption for you? I mean could some draconian comments that he could just outright stop European production and just maybe you can give us a sense broadly on how you anticipate the shape of recovery.

I just like to ask a question on more on the shape of recovery in volumes.

Hey is this magnesium shortage going to cause any term any sort of near term supply disruption for you I mean could some draconian comments that he could just outright stop European production and just maybe you can give us a sense broadly.

How you anticipate the shape of recovery.

You know in terms of volumes at what point do we get a baseline expectation that the chip shortages fully mitigated that you can be back at full run rate production.

Based on an expectation that that the chip shortages fully mitigated that you can be back at full run rate production.

Yeah. So from the magnesium standpoint, when we look at that, we are seeing price pressure on aluminium, you know, broadly we saw that all year pharmacy, a little bit more price pressure due to the magnesium issue, but our sheet metal suppliers our sheet aluminium suppliers.

Don't purchase magnesium from China for North American production. So we don't see that having any significant impact or any impact on us.

We do see the chip issue continuing to run through '22, as we said, it's very dynamic right now you ask us what we think the sequential increase in supply will be year over year. We think we will have about 10% more but that's changing weekly and we're doing everything we can to get our hands on as many chips as we can but we do see that running through 2022, it could extend into 2023, although we do anticipate the scope and severity of that to reduce as we move through '22 and through '23.

Do see that running through 2022, it could extend into 2023, although we do anticipate the scope and severity of that to reduce as we move through 'twenty two into 'twenty three.

Great. Thank you.

Second question I'd like to zoom out a bit more strategic. I think if we just look at the pace of progress at both financially and in terms of EV EV. All things digital and just what we're seeing today is far greater than what we saw 12 or 18 months ago, which is actually yeah pretty impressive given your large organizations it takes time to really affect change so.

A bit more strategic I think if we just look at the pace of progress at <unk>.

Both financially and in terms of EV EV.

All things digital and just what we're seeing today is far greater than what we saw 12 or 18 months ago, which is actually yeah.

Pretty impressive given your large organizations it takes time to really affect change so.

I just want to I'm trying to understand how much of what we're seeing today with something that was always there and it's just always starting to come to the surface now you're sort of getting the fruits of prior initiatives, or has something fundamentally changed in the past 12 18 months?

What does this tell us about the pace of change it for the next maybe just to be a bit more specific cause I know you could take that a number of ways, maybe you could answer that specifically.

What we're seeing on product and planning on the business trends transition to EBIT.

Thank you for your question.

A lot of the product we've been working on for several years, we made the tough choices. I would say. The answer is we have a plan. It's not advertising a PR. Taglines, it's our plan everyone in the company knows what we have to do, we were out of time.

I would say.

The answer is we have a plan.

It's not advertising a P. R. Taglines, it's our plan everyone in the company knows what we have to do we were out of time.

And we have focus.

We need to get an 8% margin like we did this quarter as the company regularly because we have to fund a high growth BEV and digital business.

It's not to make more money. Ah yes, it is that. But it's motivated in the mission of transforming Ford through these digital products. So running the ice business for cash. Getting serious about our cost our quality our launches are 8% return it's all emission.

Ah yes, it is that.

But it's it's motivated in the mission of.

Of transforming Ford through these digital products.

So running the ice business for cash.

Getting serious about our cost our quality our launches are 8% return it's all emission.

And the team knows the plan. And I think the culture is starting to change. To be quicker. More accountability. Less birocracy. And that mission permeates through the company.

And I think the culture is starting to change.

To be quicker.

More accountability.

Let's be accuracy.

And that mission.

Permeates through the company.

I'm probably the worst person asked whether something's changed because it sure has changed for me and my leadership team.

But to me the proof is in the pudding. Like our third quarter. And whether we really change the company will be proven out in our numbers over time like to have the last year. And then just to be more specific on the product because I think we're seeing a much faster pace of product. Is the time of development products like how much have you accelerated that meaning typically in the past three and a half to four years of drawing blood type product and showroom. Is there a new normal for what that is?

Like our third quarter.

And.

Whether we really changes the company will be proven out in our numbers over time like to have the last year.

And then just to be more specific on the product because I think we're seeing a much faster pace of product.

Is the time of development products like how much have you accelerated that meaning typically in the past COVID-19 here of three and a half to four years of.

Drawing blood type product and showroom is there a new normal for what that is.

If we make up our mind and we come together as a team like we did a Maverick it could be just two years.

You know we did we knocked 20 months after the Maverick development, but it required the leadership team to not have the hand wringing on the studio for six months like we normally did.

To not have the hand wringing on the studio for six months like we normally did.

I think that's a new proof point, but the question I ask myself is a little different. When we see a technology change like this like BEV, it's not just the speed of your product creation.

When we see a technology change like this like Bev, it's not just the speed of your product creation. It's.

It's can you be flexible and agile in your industrial system like in manufacturing, we have three complete hits on our hands.

Our marquee with 200000 units of of demand. That's we had the lightning with over 160000 orders and the transit completely sold out. So how I like to think about it, it's not just the product creation speeding up its whole company and we have to do our job to break constraints now so that we can deliver hundreds of thousands of battery electrics next year.

That's we had the lightning with over 160000 orders and the transit completely sold out so how I like to think about it it's not just the product creation speeding up its whole company and we have to do our job to break constraints now so the weekend deliver hundreds of thousands of battery electrics next year.

Sure.

That to me is the proof of our change not just how fast the product creation process works.

Great. Thank you very much very helpful.

Your next question comes from the line of Ryan Brinkman with J P. Morgan.

Hi, Thanks for taking my question I thought to ask a few on the order Bank you know just given the commentary that it grew 50% sequentially in Q3 xcluding the Bronco. So can you talk about the benefits of the order bank how it helps to optimize your operations and what kind of pricing or other trends you might be seen with regards to the order bank? And then how much of the increase in orders do you think makes them.

From that currently very strong new product cadence or from the currently low inventory environment, and what avenues are there available to drive orders as industry conditions eventually normalize.

Low inventory environment, and what avenues are there available to drive orders as industry conditions eventually normalize.

Thank you so much for your question.

I'll ask John to comment, from my view the order Bank model that we're going to in North America that we're in right now has benefits across the patch. We are an incredibly complicated company.

Has benefits across the patch.

We are an incredibly complicated company.

And so having an order bank allows us to push simplification into the order that the customer facing options.

Which we need to do and it reduces cost and improves our quality. Number two, it eliminates the need for expensive conquest fixed marketing.

And improves our quality.

Two it eliminates the need for expensive conquest fixed marketing.

Number three, it's incredibly helpful for industrial system, you cannot imagine Ryan how much money we waste by not by guessing what our launch mix is for new product when you have a order bank.

Order bank.

Especially for new models, you can capacitize the high series mix that are very profitable right in line with customer demand. So it's incredibly cost-effective.

The high series mix that are very profitable right in line with customer demand.

So it's incredibly cost effective.

And it allows you to address the long tail revenues that we've lost in the past because we're on ground stock model. And the last one is, it's lower cost. It's less parts hanging around we can manage our industrial system and our manufacturing in a leaner way.

And the last one is it's lower cost.

Less parts hanging around we can manage our industrial system and our manufacturing in a leaner way.

The question really is how we maintain it as you said as the market improves. And the way we're looking at that is not just having a day supply target in the past that we've managed. But actually putting in the infrastructure to maintain or prefer an order-based system that means we train our system to put in orders, we reward people for putting in orders we dynamically price. For customers, so that they are incentivized to keep ordering versus buying off the lot.

Not just.

Having a day supply target in the past that we've managed but actually putting in the.

Infrastructure to maintain or prefer a order based system that means we train our system to put in orders, we reward people for putting in orders we dynamically price.

For customers, so that they are incentivized to keep ordering versus buying off the lot.

So it's going to be a journey.

It's been a very rewarding one so far and we're just beginning.

This is the model we have to go to as most of our business or majority of our business goes battery-electric and digital. It's the right loyalty model.

Okay, great. Thanks, and then just as a quick follow up to that it seems that what was discussed earlier that product development times are speeding up maybe particularly with regard to ease the lightning for example seem to come together very fast. another trend seems to be that automakers are revealing their EVS.

For a longer period of time before the actual start of production maybe because there are so eager to show that consumers are so clamoring for them. Does that mean that you think that order banks in ordering in advance might be even more popular with electric vehicles? What are you seeing with regard to that? The move to a digital product means we have to go to a 100% loyalty model. So.

Order banks in ordering in advance might be even more popular with with electric vehicles.

Are you seeing with regard to that.

The move to a digital product means we have to go to a 100% loyalty model. So.

The reason why you're seeing us launch battery electrics early is very simple, it's our Super Bowl ad. Our new Super Bowl add, our new Detroit Motor show is our reveal.

Our new Super Bowl add our new Detroit Motor show is our reveal.

Because it starts the clock on reservations and you have to do it early enough. So your industrial system gets informed by the results of your reservation.

That's the closed loop that has to happen.

We need to open it early enough so that our industrial system can react to the orders and we don't waste money and take advantage of long tail revenue.

And it's a more controlled environment than a broadcast. Media advertising on the Super Bowl.

Media advertising on the Super Bowl.

Very helpful. Thank you.

Your next question comes from the line of Rod Lache with Wolfe Research.

Hi, everybody. I have just two questions. So first. You've got a lot of growth that you're targeting in beds and digital businesses. So it's not surprising that we would see some structural cost inflation.

I have just two questions. So first.

You've got a lot of growth that you're targeting in beds and digital businesses. So it's not surprising that we would see some structural cost inflation.

What we're seeing right now is actually really benign it's $200 million in the quarter, considering what you've got going on but maybe can you talk a little bit about how we should think about the feathering in of those additional structural costs?

How we should think about the feathering in of those additional structural costs.

Which presumably come in ahead of the revenue. So how should we think about that as we look out to next year or two?

Yeah, Rod, we'll start to see those come in as we get into '22. And then they'll feather in through '23 as we continued to ramp our investments in our plan our priorities. Not only in the products the best but also as we're building on our customer-facing technologies, our connectivity et cetera. So. Yeah, you'll see that start to come in on a year over year basis next year and it will continue in through '23.

And then they'll feather in through 'twenty three as we continued to ramp our investments in our plan our priorities.

Not only in the products the best but also as we're building out our customer facing technologies, our connectivity et cetera. So.

Yeah, you'll see that start to come in on a year over year basis next year and it will continue in through 'twenty three.

Can you just give us any sort of brackets around what you did mentioned that 25% of the EV spending will be expense, but any sort of thoughts on the magnitude of that what that headwind is?

<unk> spending will be expense, but any sort of thoughts on on the magnitude of that what that headwind is.

I'm not ready to do that today for '22 and going in through '23.

We're completely targeted on getting to that 8% in 2023, So we'll manage it within that but today I'm not ready to talk and that level of detail about.

Okay, and you know I was a little surprised about the comment about just 10% volume growth for next year. It seems to me like the Renaissance fire in Texas storms alone might have not 200000 units off of your production in Q2. And it wasn't too long ago that you guys were routinely doing over 7 hundred thousand units a quarter so.

You know I was a little surprised about the comment about just 10% volume growth for for next year. It seems to me like the Renaissance fire in Texas storms alone might have not 200000 units off of your production and in Q2 and it wasn't too long ago that you guys were routinely doing over seven.

<unk> hundred thousand units a quarter so.

Do you have any thoughts that you might be able to share about when would you be able to get back up to that kind of a level of production and if so when should we expect that to happen?

When would you be able to get back up to that kind of a level of production and if so when when should we expect that to happen.

Right. So I think what you'll find is that as you look through 2020 to the first half will have less supply them through the second half.

As you look through 2020 to the first half will have less supply them through the second half.

And as I said earlier, we see this mitigating over time it may extend into 2023, but I would say that we should be back up and running based on what we're seeing today.

Run rate the end of next year into '23 and then in 2023 we'd start to rebuild our inventories, but it's dynamic and it's hard to you know laker of pinpoint call at this point in time, but we wanted to share with you. What we're seeing is that we're now we're seeing about 10% for next year.

And we see that the chip constraints going to still hit us it's going to still be a factor next year. So we have to keep managing as we are this year.

Got it okay. Thank you.

Our next question comes from the line of Brian Johnson with Barclays.

Two questions first a quick. Not quite housekeeping, but definitely balance sheets question. As you restated the dividend at that level. Can you maybe talk us through the investment grade, rating implications and timeline to get there that she says that you and the board considered when setting that?

Not quite housekeeping, but definitely balance sheets question.

As you re stated the dividend at that level.

Rating implications and timeline to get there that chicken says that you and the board considered when setting that.

Right so.

We're going to continue to work and focus on improving our business right. Our target is to have an investment grade balance sheet, but that's going to come by improving the business and you're seeing the strength of that come through.

And so that's what we're focused on you know what the rating agencies decide to do with our rating bell manage that that's up to them. What we're laser focused on is improving the run rate of the business improving our performance, improving our overall metrics and eventually the rating agencies and the ratings will take care of themselves.

Okay, second question. As you think about that 10% volume increase. Rough guidance. A couple of things.

As you think about that 10% volume increase.

<unk>.

A couple of things one.

Where do you see fleet sales coming back as you kind of bring that up? And second, are you going to take a different attitude towards fleet sales than in Florida the past?

I remember John Leclair, saying, we have two factories make endorses. And rental car companies were about the only buyers for that and so but there's also daily rental cars, but maybe some of the government business. That's not police is not quite the same.

And rental car companies, we're about the only buyers for that and so but there's also.

Daily rental cars, but maybe some of the government business. That's not police is not quite the same.

And kind of related to that as you kind of think about prioritizing production, are there models where you're more comfortable you'll get good price retention and other models I'm going to pick on like the Escape, maybe that have a lot of competition in their segment and as capacity comes back less likely to hold price? Say compared to a Bronco.

Escape, maybe that have a lot of competition in their segment and as capacity comes back less likely to hold price say compared to a bronco.

I don't know.

So you know it's interesting because I remember those days when Don probably made that comment about rental fleets. They were low margin et cetera. What you're finding is business models are changing and the fleet business is evolving just like everything else in our industry and we see that there could potentially be a positive fleet business.

<unk>, probably made that comment about rental fleets.

They were low margin et cetera.

What you're finding is business models are changing and the fleet business is is evolving just like everything else in our industry and we see that there could potentially be.

A positive fleet.

Fleet business, where.

Where there can make good money and so we're not going to shy away from that if we see that it's right for our brand and we think is right for the bottom line. And so we're going to continue to look at fleets differently, we're going to continue to think about vehicles as a service and what that potential holds for us if that business model changes and we'll see where that takes us, but we're not going to go back to the times, where we're putting in capacity, we're pumping out a unit selling them at little to no margin for rental cars, that's not going to happen again.

to the times, where we're putting in capacity, we're pumping out a unit selling them at little to no margin for rental cars, that's not going to happen again.

I'm sorry. That's okay. I was just going to see our fleet business now, now that we've rationalized the company our fleet business is very strategic for us.

Okay I'm sorry.

That's okay I was just going to see our fleet business now now that we've rationalized the company our fleet business is very strategic for us.

It's also very profitable. It certainly varies in Europe, and North America, and China, different fleet sex segments have different profitability.

It certainly varies in Europe, and North America, and China differ.

Different fleet sex segments have different profitability.

The one thing I would ask you to think about is that most of the fleet matters at Ford is commercial vehicles. And the most important commercial vehicles for us is small medium-sized businesses, and those are very profitable business for us, for transit, for Super duty. So that's where Ford excels in the fleet business and its smaller fleets. It's not big fleet sales.

Ask you to think about is that most of the fleet matters at Ford as commercial vehicles.

And the most important commercial vehicles for us is small medium sized businesses and those are very profitable business for us for transit for Super duty.

So that's where Ford excels in the fleet business and its smaller fleets Snot Big fleet sales.

So the texture of this is that we're revenue managing the company very carefully. We know the margins by geography, even within a country. And we know by distribution channel. So this is a very thoughtful approach for us, but strategically, especially because of the pro-business and its profitability.

And we know by distribution channel.

So this is a very thoughtful approach for us, but strategically, especially because of the pro business and its profitability.

We want to make sure we have reliable partner with fleet customers. They do business with companies that are reliable.

They do business with companies that are reliable.

They don't come in and out of the market. They do business with companies that have a full range of products a full range of services. That's one Marion is investing in four pro and why we're vertically integrating our services.

<unk> do business with companies that have a full range of products a full range of services. That's one Marion is investing in four pro and why we're vertically integrating our services.

So I think we have a really good profitable fleet business around the world. We look at the margins very carefully, but it's strategically very important for the company to be a reliable partner.

Okay and in terms of price retention and how that's going to vary across your product line?

Well. You know John I think you should you should answer that one in terms of how we revenue manage in a constrained environment, Yeah, So as you would expect.

You know John I think you should you should answer that one in terms of how we revenue manage.

Constrained environment, Yeah, So as you would expect.

We're very conscientious about the dynamic of the supply and demand and the impact that that has on the pricing. And we look at this on a daily basis. Managing our incentives. Looking at if we should be taking top-line pricing given the inflationary pressures we're seeing.

Managing our incentives.

Looking at if we should be taking top line pricing given the inflationary pressures we're seeing.

And as we talked about. We're not going to go back to the old habits of loading up the dealers with stock and then looking for the pushed through for sales.

We're not going to go back to the old habits of loading up the dealers with stock and then looking for the pushed through of for sales.

We're going to focus more on orders coming through online. Specific orders to customers being satisfied understanding what their demands are simplifying the system and with all of that we expect to retain quite a bit of a price now will it mitigate as we go through next year as supply and demand comes more in balance.

Specific orders to customers being satisfied understanding what their demands are simplifying the system and with all of that we expect to retain quite a bit of a price now will it mitigate as we go through next year as supply and demand comes more in balance.

And into '23 yes, but our job is going to be to manage that and retain as much pricing as we can. And while providing customers good value for those products. So it's something that we look at very closely on a daily basis.

Thank you.

In the Escape business, we now have another player called Bronco sport in the segment, it's incredibly profitable and people really appreciate the product. We are not in the business of commodity products in that segment anymore. We changed, we made an investment several years ago. Right.

Changed we made an investment several years ago.

Right.

Your next question comes from the line of Colin Langan with Wells Fargo.

Oh, great. Thanks for taking my question. Just wanted to clarify I thought your original guidance was that the first the second half was supposed to be up in volume 30%. I'm not sure if I'm misreading it it sounds like Q3, may be up a bit from Q4. So is that 30% still not accurate obviously, it's kind of important when you think about the 10% to 2022, what base are going off of.

Just wanted to clarify I thought your original guidance was that the first the second half was supposed to be up in volume 30%.

I'm not sure if I'm misreading it it sounds like Q3, maybe up a bit from Q4.

So is that 30% still not accurate obviously, it's kind of important when you think about the 10% to 20 to 22, what base are going off of.

Yeah, Colin, that's a great question. Thank you, now we did say last quarter that we expected the second half to be up about 30% looks like it's going to be up somewhere around 15%. And so what you're seeing flow through as the strength we had in the quarter relative to the top line and other actions that we took relative to cost et cetera. So when you look at that walk, that bridge between Q3 to Q4, we expect market factors to be positive. We said we think volume is going to be up sequentially about 10%. We also see a little bit stronger mix are continuing.

And so what you're seeing flow through as the strength we had.

In the quarter relative to the top line and other actions that we took relative to cost et cetera. So when you look at that work that bridge between Q3 to Q4, we expect market factors to be positive. We said, we think volume is going to be up sequentially about 10%. We also see a little bit stronger stronger mix are continuing and.

And then of course, you'll have some product-related cost, production-related costs associated with that but net market factors net of those costs to produce the increased volumes is going to be positive. What we're seeing from a headwind standpoint if you look at Q3 to Q4 are commodities.

We expect that on a quarter over quarter basis, they're going to be up about $700 million.

And if you look at that so far year to date, we've seen about $1.6 billion of commodities hit us and when you get to the fourth quarter you can get the cumulative effect of that on a year over year basis commodities you are going to be up about another billion five in the fourth quarter. So year over year up 1 billion five sequentially up $700 million and then we are going to see some higher warranty costs.

Year to date, we've seen about $1 $6 billion of commodities hit us and when you get to the fourth quarter you can get the cumulative effect of that on a year over year basis commodities are going to be up about another billion five in the fourth quarter. So year over year up 1 billion five sequentially up $700 million and then we are going to see some higher warranty costs.

On a sequential basis in the fourth quarter for all things that we have to take care of around the extended warranties and a little bit higher coverages, but again on a year over year basis, our warranty will improve in the fourth quarter and full-year on a year over year basis, our warranty we expect to be good by about $1 four.

To be good by about $1 four.

Got it that's very helpful.

Does that help you with the bridge.

Yeah, no, that's great. And just secondly in terms of the redesign plan that's been out for a while. Is India the last major step? I mean is this kind of sort of as it fits over here next quarter, maybe the last time, we see besides just kind of curious or is there more still coming.

And just secondly in terms of.

The redesign plan that's been out for a while is the Indy.

The last major step I mean is this kind of sort of as it fits.

Fits over here next quarter, maybe the last time, we see besides just kind of curious or is there more still coming.

Well, I think we're in good shape for now obviously, the acceleration of the bed business and our ice assets will be I think you know the next big transition for the whole industry, not just Ford, but Ford specifically. India's really the principal, region country, where we have struggled over time, and it's really great to see the progress the team is making in the end. And the very vibrant position will now have with the new lineup. And I'd just like to highlight the progress in South America. For this quarter.

The next big transition for the whole industry, not just Ford, but Ford specifically.

India's real.

<unk>.

The principal.

Regional country, where we have struggled.

Over time, and it's really great to see the progress the team is making India and the very vibrant.

Position will now have with the new lineup and I'd just like to highlight the progress in South America.

For this quarter.

John when's the last time, we were profitable in South America? I believe it was 2013. So, let's hang that in the air for a second, 2013.

In South America I believe it was 2013.

So, let's let's hang that in the air for a second 2013.

Your next question comes from the line of Joseph Spak with RBC.

Yeah.

Thank you. Maybe just one quick one on the free cash guidance, which I think you maintained despite the EBIT guidance going higher. So is there something going on with working capital or something because you're saying you're releasing more vehicles. So I wouldn't think that would actually be a positive factor in the fourth quarter as well. So I'm curious what the offset is.

Maybe just one quick one on the free cash guidance, which I think you maintained despite the.

EBIT guidance going higher so is there something going on with.

Working capital or something because youre, saying youre releasing more vehicles. So I wouldn't think that would actually be positive factor in the fourth quarter as well. So I'm curious what the offset is.

Yeah. So what we're seeing there is that we've got the EBIT coming in right that improvement, but the less favorable improvement in working capital and timing differences are hitting us in the quarter, because we have lower than anticipated volume in the back half of the quarter due to the chip constraints and so we get hit with that working capital at the end of the year. So that's what's happening to us on a free cash flow. So it's a timing issue.

Working capital at the end of the year. So that's what's happening to us on a free cash flow. So it's a timing issue.

Okay.

And then I want to go back to some of the announcements you've made over the past couple of months and now you talk again about the spend today and they're spending more than $30 billion. I appreciate the breakdown you gave us sort of how you're spending that. Maybe just me, but I actually find it still fairly difficult to track what exactly you're spending over the coming years, because I believe some of that has already been spent so is it possible to maybe just say like of that 30 billion, what's being spent like starting next year through the middle of the decade? So of the $30 billion.

No.

I want to go back to some of the <unk>.

The announcements you've made over over the past couple of months and now you talk again about the spend today and.

And they're spending more than $30 billion.

I appreciate the breakdown you gave us sort of how you're spending that.

Maybe just me, but I actually find it still fairly difficult to track what exactly you're spending over the coming years, because I believe some of that has already been spent so is it possible to.

Maybe just say like of that 30 billion, what's being spent like starting next year through the middle of the decade.

So of the $30 billion.

When you look at the cap very little what you said about half of that was care very little of that has been spent through 2021 relative to the $15 billion about half of it.

Of course. You're going to see the expense front loaded because that's primarily the engineering that we have in developing the battery electric vehicles.

And then the direct investment, which is about 25% of at-bats for things like the vertical integration of the JVs and those types of things. And you saw those announcements this quarter with our plan and <unk> K. The battery plants. So that's how we're going to unfold that fab spending over time.

Okay. That's helpful. I appreciate it.

Okay.

Your next question comes from the line of [inaudible] with Citi.

Great. Thanks, a lot good evening everybody. Just two quick ones from me. First, is there any update on the balloon cruise deployment, including through OTAs, maybe some initial customer feedback?

Just two quick ones from me first is there any update on the balloon cruise deployment, including through Otas, maybe some initial customer feedback.

Great. Thank you were shipping with marquee. F series now blue crews as they leave the factory. And we're gonna be O T a blue crews. In the first quarter, we wanted to improve the customer experience. So we've we've pushed it back in terms of an O T. A.

F series now blue crews as they leave the factory.

And we're gonna be O T a blue crews.

In the first quarter, we wanted to improve the customer experience. So we've we've pushed it back in terms of an O T. A.

Because we want it to be much simpler for the customer than was originally planned. And that takes a little planning to consolidate.

And that takes a little planning to consolidate.

Often these level two systems require multiple updates to the car. We want it to be very simple, that took a little bit more work on our teams part.

It's available as we ship products now and as no T. A it'll be in the first quarter and it will be a lot simpler to use and get that OTI and update for the customer than it was originally planned.

Does that answer your question? Yes. Thank you Jim, that's very very helpful. And then maybe just a super quick follow up to just a point of clarification. Thank you for the 2022 initial indications in the release at least it had mentioned that you expect to build on the strong performance in 2021 and I'm just curious if that if we should interpret that as you expect to grow EBIT adjusted year over year.

In 2022.

Yeah. So we're not going to give a number at this point in time, but what we're saying is that.

The strength of our new product lineup, our high volume nameplates and the strength of what we're seeing from Lucky as Jim said, we think Theres about demand for 200000 units. We've got the Bronco Maverick E Transit F 150 Lightning are coming it's the best lineup, we've had. And so that's going to be a tailwind for us for sure as we go into next year and you're seeing that come through there this year. And we're going to build on that but we're also going to have to manage the headwinds that we've talked about and the other puts and takes but what we can tell you is.

This year and we're going to build on that but we're also going to have to manage the headwinds that we've talked about and the other puts and takes but what we can tell you is where we are.

We are laser-focused on getting to the 8% target in 2023, and so we will manage into next year. These are the types of things, we're seeing from a puts and takes strengths.

Tailwind and then the headwinds and we will manage that next year and we'll be out of the past next year towards our 8% target in 2020.

Great that's super helpful. Thank you.

Your next question comes from the line of Emmanuel Rosner with Deutsche Bank.

Alright, Thank you very much and good evening. Yes. Two questions. Hi. Two questions. The first one. Very pleased to see beyond target and for the 8% margins by 2023. A big focus of the company and clearly showing some progress there. How should we think about the impact on this from the margins on your electric vehicles?

Yes.

Two questions.

Yes.

Hi.

Two questions the first one.

Very pleased to see beyond.

Target and.

But the 8% margins by 2023 Big focus of the company and clearly showing some progress there.

How should we think about the impact on this.

The margins on your electric vehicles.

Obviously, the scale take sometimes to buildup, but youre going through that right now and probably have some level of visibility.

So what's released latest thinking around trajectory for margins, when somebody who could be EVS and to what extent, you will or will not impact overall company margins and potentially how should we think about it beyond 2023.

Trajectory for margins, when somebody who could be evs and to what extent, you will or will not impact overall company margins and potentially how should we think about it beyond 2023.

Yes. Thanks, such an important question for the company. I'd like John to comment on the margins. Right now we have three high volume, very well accepted battery-electric vehicles on our hands.

Thanks, such an important question for the company I'd like John to comment on the margins.

Right now we have three high volume.

Very well accepted battery electric vehicles on our hands.

Marquee E transit and the F 150 lightning so the way we look at it is we want to grow this business really fast.

Just the marquee demand itself. We think is 200000 units that does not include the lightning or the transit.

So our first job is of course post job one customer experience improvement, post job one simplification and improvement of the cost of the vehicle. And post job one quality improvements using the data of the vehicles.

Is of course post job one customer experience improvement post job, one simplification and improvement of the cost of the vehicle and post job one quality improvements using the data off the vehicles.

Perhaps our biggest job in my opinion is to break the constraints, we have in manufacturing and our supply chain. So we can get these products out to these customers.

And that that post job one orientation is quite different than how we historically looked at the ice business, where we went to a minor change or something later to make those changes.

The ice business, where we went to a minor change or something later to make those changes.

The constraint for marquee right now is batteries, we think we can break some of those constraints by working creatively with our China team and get batteries from China. So stay tuned.

And I'll ask John to comment on the margins. Alright, well as we talked about last quarter Mach E is EBIT profitable today.

But we also know that the margins are not as strong as our ice margins.

We also know that the margins are not as strong as our ice margins.

So we're working on that over time, we expect as we scale as you said and as the technology costs come down, we will grow those margins and ultimately we do expect with these connected vehicles.

These connected bands that the profit margins will be better than what we're seeing a nice today, but that's over time.

Thank you and then my second question was on Argo. So very encouraged to see that you would like to encourage them as supportive of accessing the public markets. How do you envisage the future relationship between Ford and Argo should be how important is that going to be a part of your overall business model?

My second question was.

Argo.

So very encouraged to see that you.

You would like to encourage them as supportive of accessing the public markets.

How do you envisage the future relationship between.

<unk> and <unk> should be how important is that going to be a part of your overall business model.

Mission critical for us to truly disrupt personal ownership, we have to democratize shared mobility and the self-driving NN and mobility and the driven world are absolutely mission-critical for the company and disrupt itself. I am really proud of the teams progress.

N N and mobility and the driven world are absolutely mission critical for the company and disrupt itself.

I am really proud of.

The teams progress.

It's different than our competitors in this space, we've gone to the most difficult miles in four-five different cities. Our mapping, our SDS deployment.

Cities.

Our mapping our S D S deployment.

And the algorithms are built to be scaled for production deployment.

So we're not going to have small market area and easy miles like others, we're taking on the toughest problems now and building our capability for scaling quickly. And I think that's always been our approach. The relationship with Argo and us and Volkswagen is very close.

And I think that's always been our approach.

The relationship with Argo and us and Volkswagen is very close.

But we do see us moving into more of a production mode now. And we're really ready for that and we think this will take more capital and a little more time, and we think the access to public capital.

And we're really ready for that and we think this will take more capital and a little more time, and we think the access to public capital.

Is really critical mission critical for our journey.

Thank you.

Your final question comes from the line of Adam Jonas with Morgan Stanley.

Hi, everybody sorry for the background noise here. Thanks for squeezing me in. Do you like that are border jackpot. Alright. We look forward fan he's got we got a board Fannie here. Sure Jamie. No way.

Thanks for squeezing me in.

Do you like that are border jackpot.

Alright.

We look forward fan he's got we got a board Fannie here.

Sure Jamie.

No way.

I think <unk>. Recently, and clearly the always on and the foreign crowds stops. Hey, you have right.

Recently, and clearly the always on and the foreign crowds stops.

Hey, you have right.

Yes, you got it you got kudos for that.

But you're saying some of your competitors make some cyclical investments and the downstream to make kind of for that customer experience, even Volkswagen buy in Europe car and some startups, including ones that you know pretty well kind of owning that physical part of it.

Is there any gap in your strategy as you go always on and really the full service? Is there anything you want to vertically integrate to under the Ford umbrella or is working with the franchises and the third parties sufficient given this big change in business model?

Service.

Is there anything you want to vertically integrate to under the Ford.

Umbrella or is working with the franchises and the third partys, especially given this big change in business model.

Yes.

Great question. Our philosophy is different we think partnership on the demand layers for autonomy and pre autonomy is mission-critical for our always-on strategy.

Our philosophy is different we think partnership on the demand layers for autonomy and pre autonomy is mission critical for our always on strategy.

Are there pieces missing that we're working really hard on, you betcha. We're not going to talk about them today, though. Alright.

We're not going to talk about them today, though.

Alright.

As a follow up from me your dealers they're crushing it. Some people will say they're gouging that might be unfair because they're paying high prices too.

Watching it some people will say, they're gouging that might be unfair because they're paying high prices too.

For their vehicles, but we're starting to see four handle, five handle, six handled GPUs on land. Really big chunk of the price of a car jam. The risk of saying do you think they're making too much because I know that's all a gotcha question.

Really big chunk of the price of a car jam.

The risk of saying do you think theyre, making too much because I know that's all I've.

Gotcha question.

Do you think there's some of that that you can capture for Ford and the consumer?

We're already in the can is similar.

Yes.

Well. This is also really important first of all I would say the heart and soul of Ford's strategy is our commercial business. In that business, where vehicles are highly utilized.

Our dealer network is one of our most important advantages versus the new competitors. I'll give you some statistics, we have 650 dedicated commercial.

Dedicated commercial.

Mostly service centers in the United States, and 850 transit centers across Europe that will take a lot of time and a lot of money for someone recreate every one of those dealers. Has multiple bodybuilders.

Has multiple bodybuilders.

Beck and call designed for those trades and those vacation locations for our Ford vehicles. So the dealer body is not only important for the after sales experience and making sure those vehicles.

Can be serviced but it's also mission critical for the outfit of those products.

So.

The dealer network is absolutely strategically critical for our leadership and maintaining that as we go to digital connected vehicles for our commercial customers. There is no doubt that.

Many customers want a three or four click very easy service experience on the retail side and we're working really carefully on that including a simple e-commerce platform and actually in China. Our bed business already has 25 direct stores by the end of this year. So we're starting to <unk>.

<unk> I think our dealers that served us really well I'm very proud of them I'm, especially proud of our commercial dealer.

And we are we are very vigilant you can imagine I get lots of emails everyday.

About transaction prices from customers on our hottest products and we all feel obligated to represent the brand professionally but for our customers.

Thanks, Jim.

Okay.

This concludes the Ford Motor Company third quarter 2021 earnings Conference call. Thank you for your participation you may now disconnect.

Okay.

[music].

Q3 2021 Ford Motor Co and Ford Motor Credit Company LLC Earnings Call

Request a DemoDemo

Ford Motor

Earnings