Q4 2021 Ford Motor Co and Ford Motor Credit Company LLC Earnings Call
[music].
Yes.
Yes.
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 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 that time. Please press Star then one on your telephone keypad.
At this time I would like to turn the call over to Lynn Antipas, Tyson Executive director of Investor Relations.
Thank you Holly welcome to Ford Motor Company's fourth 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.
Today's discussions include some non-GAAP references these are reconciled to the most comparable U S. GAAP measures in the appendix of our earnings deck, you can find the deck along with the rest of our earnings materials and other important content that's shareholder dot for Dot Com todays discussion also includes forward looking statements about our expectations actual results may differ.
From the stated the most significant factors that could cause actual results to differ are included on page 30.
Unless otherwise noted all comparisons are year over year company, EBIT EPS and free cash flow are on an adjusted basis product mixes volume weighted.
A quick update on our near term IR event on Tuesday February 8th John Murphy from Bank of America will host Fireside chat with John Lawlor and Kumar Gupta, who was president of Americas and International markets Group on Wednesday February 23rd Jim Farley will participate in a fireside chat with Rod Lache Wolfe Global Auto Auto Tech and mobility conference.
And on Thursday February 24th Bob Holy Cross, our Vice President of sustainability environment, and safety Engineering, and David Web forts Treasurer, who will participate in the RBC global environmental social and governance conference now I'll turn the call over to Jim Farley.
Thanks, Lynn and Hello, everyone.
Oh, well some may describe 2021 is a breakthrough year for Ford I would simply portrayed as a year of important progress for the company.
We strengthen our base business last year, and now expect to deliver even stronger results. This year.
Just as critical we started moving with real speed and ambition to build a modern and Ford.
Our true breakthroughs are still ahead of us.
Rapidly scaling production of our popular new battery electric vehicles like turning Ford Pro a new growth engine for commercial customers businesses and ours.
Like building, our intelligent software platform to revolutionize our customers' experience.
Even with the recent momentum I know some observers may remain skeptical that a 118 year old company like Ford will emerge as a winner and these disruptive times in our industry.
And I'm, okay with that.
We're going to compete like a challenger.
Speak with our actions prove ourselves over time.
So let's dive in the last year as I mentioned.
We have significantly improved our base business in North America, our largest market.
We have a very hot portfolio on new vehicles.
We've now won awards of North America truck and utility of the year for two years running.
Never happened by any company.
The new Bronco, the Bronco sport the Maverick the Mustang Mach E.
All of them brand, new nameplates for our lineup.
All of them hits.
Last month, we launched E transit in the spring or in the middle of launching F 150 Lightning.
Few people ask us any more about why we phased out sedans.
There are many more asking when they could take delivery of the new bronco or maverick or lightning.
So we're doing everything we can in our powers to increase our production and break constraints.
We don't like making your customers wait and.
We're taking action to ensure that they don't pay unreasonable markups.
We've also made progress outside of North America, and this is very important.
What has been a one legged stool for too long.
We stayed in Europe , and South America, and other regions, because we really believe we can create sustainably strong businesses in those markets.
We want to serve these customers with better more connected and electric products and services.
The deep restructuring in Europe , and South America were.
Have put us in a position to grow profitability going forward.
In China, we're now set up to play a much bigger role in the E V boom going on there.
We've quietly grown linking into a strong contender in the world's largest luxury vehicle market. In fact, China is now the number one Lincoln market globally.
Our international markets group is profitable.
And we're now preparing for the important launch of our next generation Ranger pickup this year.
While we remain in the teeth of the Covid crisis and semiconductor shortages.
Our overall business is still in great shape.
And at the same time, we are rapidly making progress on key aspects of this Ford plus plan.
And for customers that means more distinctive products and solutions.
More always on relationships with our brands.
And adding ever improving user experiences.
Now deliver these things we're building new muscles and that certainly includes scaling up our production of electric vehicles as I mentioned.
We under called the demand for our first wave of DBS, the Mustang Mach E Transit the F 150 lightning.
And in the past six months, we doubled our 2023 planned capacity for E. BS 600000 units a year.
Now this required everything from working at working with S K and LG to increase battery supplies.
Knocking down walls that are Rouge electric vehicle center, while the mortar was still wet to make room to improve and build more lightnings.
Our team knows how to scale manufacturing.
And we are now harnessing that capability to ramp up production of Evs.
We also have a task force dedicated to lowering the bill of materials for our bps above.
Above and beyond just the usual declines in material costs.
For example in Mustang Mach E and just the last month, our team found a $1000 of opportunity per vehicle.
And that's deliberate through design simplification vertical integration and leveraging our scale with supply chain.
As we ramp up production and.
And that team is just getting started.
Yeah.
We plan to take full advantage of our first mover position in the fully electric pickup truck market, starting with lightning, but there's much more to come.
In the coming months, we will break ground on the Blues City electric truck plant in Tennessee.
It will be the largest the most advanced manufacturing complex in our history.
And it will produce towards second generation of a full size electric pickup in high volume starting in 2025.
And at the same time, we have three large scale battery plants in Tennessee, and Kentucky, which will be coming on stream with capacity to produce enough battery cells for more than 1 million vehicles a year.
This is in addition to our battery sourcing in China and Europe .
We are well on our way to achieve at least a 40% mix of beds by 2030.
With strong margins.
And equal to or higher market share in the key high profit high volume segments, we compete.
For example, the F 150 Lightning if we had full production today to meet our current demand we.
We would rival the model Y as the leading Bev nameplate in the U S market.
We can't grow our profitable <unk> business without a very healthy ice business and to do this we're reducing complexity everywhere.
Increasing leveraging the benefits of our connectivity.
Now this includes things like fewer top hats guided by customer demand and a judicious approach the vehicle content based on deep insights generated from that same vehicle data.
We're also being disciplined with capital as we deploy as we deploy that to our ice products recognizing that as the mix of beds increases we will continue to manufacture ice vehicles, but with a focus on optimizing cash returns.
So our goal is to continue to improve our own motives EBIT margins, let me say that again our goal is to continue to improve our auto EBIT margins, even as we ramp up the mix of bets.
In 2021, we began to bring our vision of an always on experience for retail and commercial customers to life.
Our customers are realizing the benefits of our over the air software updates, but thats just the beginning.
We're using our hubs and places like Palo Alto to attract more and more great software engineers and technology specialist.
And we're fundamentally changing the culture of engineering inside Ford.
The hardware will always be important.
But the software and the embedded systems, we will define the next generation of our vehicles experiences.
I think customers will be amazed at the benefits as we move to central compute.
Rather than the distributed compute we have across all the supplier provided modules today.
Our human centered interface professionals.
Our now in one single organization with.
With the authority over the in car digital experiences interfaces screens and controls.
And we're committed to providing an environment, where software engineers could do the very best work of their careers.
Before I turn it over to John Let me close.
The velocity of change at Ford is increasing we're.
We're not seeking half measures.
Fear of change in risk has never served legacy automakers well in the past couple of decades.
We're done with incremental change.
We have a clear plan, a biased fraction and whatever it takes mindset.
We're confident our strong base business will generate the capital we need to fund a very exciting future.
We're recruiting incredible talent from outside the company to work with the best people from Ford.
As excited as our customers are for that great portfolio, we have in the market today, we can't wait to show them whats coming in the future now I'll turn it over to John will take you through the results for the quarter and our expectations for this year.
Thank you Jim.
In the face of ongoing challenges.
With semiconductor constraints and industry wide supply chain disruptions, we executed our Ford plus plan, including closing out our global redesign.
<unk>, our product portfolio and investing in exciting new opportunities fundamental to growth and value creation.
For the year, we posted a 10 billion and $10 billion in adjusted EBIT with a margin of seven 3%, that's our strongest performance since 2016.
We delivered right at the midpoint of our guidance range adjusting for the re class of our first quarter, revealing game to a special item.
And despite a 6% decline in wholesales, our automotive business posted its strongest EBIT margin since 2016.
North America delivered eight 4% EBIT margin and is firmly on the glide path to a 10% EBIT margin in.
In addition, our operations outside the U S collectively posted their best results since 2017.
I'm very proud of the team's hard work the resiliency last year as we rose to the challenge and optimized constrained production to protect customer orders.
Launches, our electrification strategy and our most profitable vehicles.
We also remain highly disciplined with our incentive spend and mixed management, which combined with improvement in warranty costs more than offset commodity headwinds and supply chain related production losses.
Ford credit.
Whose profits and dividends are an important source of capital for US delivered a strong year EBT was $4 $7 billion is auction values were at record highs and credit losses were near record lows.
Free cash flow was $4 6 billion and we ended the year with strong cash and liquidity more than $36 billion and $52 billion, respectively, which now includes our stake in Libyan valued at $10 6 billion at the end of the year.
In 2021, we continue to advance our capital strategy given the improvements we're seeing in the underlying business. We reinstated the regular dividend at <unk> 10 per share in the fourth quarter as we continue to focus on creating value for our shareholders.
We also further strengthened our balance sheet by repurchasing seven $6 billion of high cost debt.
Deleveraging the balance sheet and significantly reducing our ongoing interest expense.
We introduced the industry's first fully integrated sustainable financing framework.
Covering both in auto OEM, and it's captive finance company.
And in November following the launch of the framework, we completed our inaugural $2 5 billion Green bond issuance, which was met with incredible investor demand and.
And we will help fund our exciting Bev portfolio.
Our strong balance sheet, including cash provides a solid foundation to continue to invest in our Ford plus priorities.
So let me briefly touch on the fourth quarter.
With a margin of five 4% adjusted EBIT was $2 billion and we generated $2 3 billion in free cash flow some modeled stronger EBIT for us in this quarter. We know that was largely driven by higher volume expectations relative to the 10% sequential increase we guided we would.
Guided to in October and lower corporate and other expenses.
North America delivered $1 8 billion of profit with a margin of seven 1% volume was up 10% on a sequential basis, our supply chain constraints eased and customer demand for our products remained strong.
South America delivered a modest profit for the second consecutive quarter and the business is now set up to deliver sustainable profitability.
With restructuring of the legacy business complete region is now focused on strengthening <unk> position in the truck market.
Growing its new commercial vehicle business and enriching customer experiences.
In Europe , the underlying trajectory of our business continues to accelerate towards a 6% EBIT margin. However, the adverse effect of near term supply chain disruption continues to mask that improvement.
Importantly, we were the number one commercial vehicle brand in Europe for the seventh consecutive year and transit continues to have an extremely healthy order bank.
Mustang Mach E sales in the region are off to a strong start with the order bank building momentum as we accelerate the transition to beds.
In China Lincoln continues to be a real bright spot and gained share in the highly profitable and growing premium segment.
In the fourth quarter, we achieved record sales of the brand in China contributing to an almost 50% increase for the year. We are expanding the Lincoln portfolio in 2022 with the launch of the all new Zephyr. The order bank for that vehicle opened recently and is off to a fast start.
In the fourth quarter. We also achieved an important electrification milestone in China as we began local production and customer deliveries of the Mustang Mach E.
Our direct to customer model for marquee allows people to order online and through twenty-five Ford select city stores.
Our international markets group performed well in fourth quarter and had a record year playing to its strengths, especially from our flagship Ranger pickup, which delivered full year segments share a 14, 9% up one one percentage points year over year.
We also announced major investments in both South Africa, and Thailand to modernize production and launch the next generation Ranger from for Assembly plants later this year.
And in mobility, we've made steady progress towards the skilled commercialization of moving people and moving goods and we are confident in argo's progress in delivering a level four autonomous vehicle solution.
In addition, we are rationalizing our restaurant portfolio and focusing on autonomous development.
Now I'll share with you our current thinking about 2022.
We expect supply constraints to remain fluid throughout the year, reflecting a variety of factors, including semiconductors and COVID-19 .
Based on what we see now we believe our full year wholesales will be up about 10% to 15% in 2022 with a high single to low digit decline in the first quarter, reflecting supplier shortages related to omicron shutdowns and semiconductors.
For the full year, we expect to earn between $11 5 billion and $12 5 billion in adjusted EBIT.
That's up 15% to 25% versus 2021.
The high end of the range equates to an adjusted company EBIT margin of 8% and our North America business at 10% EBIT margin, which if we achieve would be one year earlier than target. We shared with you last may.
Now turning to GAAP results for a minute, it's important to point out that each quarter, we will mark to market our investment in Libyan which sits in cash and marketable securities on our balance sheet.
This is not something we can forecast the mark to market may cause volatility in our quarterly GAAP net income and EPS results.
So looking at how our adjusted EBIT guidance Rolls up.
Our range assumes significantly higher profits in North America, and collective profitability outside of North America as we realize the full benefits of our global redesign efforts.
We also expect Ford credit's EBT to be strong, but lower than 'twenty, one 2021 profits and we expect mobility and corporate other EBIT to be roughly flat <unk>.
Lastly, we expect to generate adjusted free cash flow of between $5 5 billion and $6 5 billion.
Now other assumptions, we factored into our guidance include <unk>.
First we expect customer demand enthusiasm to remain strong for our new and iconic nameplates. We will have a full year of production of the award winning Bronco and Maverick. In addition to our robust Bev lineup with Mustang Mach E E Transit and F 150 lightning all in production.
With wholesales up about 10% to 15%, we anticipate the pricing environment remained strong although the interplay between volume and pricing will remain dynamic.
Third we expect commodity headwinds of about $1 5 billion to $2 billion.
Fourth we anticipate other inflationary pressures, which will impact a broad range of costs and fifth at Ford credit, we expect auction values to remain strong in 2022 as supply constraints persist. However, as I mentioned, we anticipate lower EBT, reflecting primarily non recurrence of reserve releases.
Fewer returned off lease vehicles and more normalized credit losses.
Most importantly, we're committed to our Ford plus plan and we'll continue to invest aggressively to drive growth and value creation.
This includes devoting resources to customer facing technology connectivity, our always on relationships with customers and electrification.
We are confident the long term payback from those investments will be substantial.
So that wraps up our prepared remarks, we'll use the balance of the time to hear and address what's on your mind. Thank you.
Operator, please open the line for questions.
Yes.
Yeah.
Thank you and as a reminder, if you would like to ask a question. Please press Star then one on your telephone keypad. If you would like to withdraw your question press the pound key in order to allow as many callers as possible a chance to ask a question. Please limit yourself to one question. Thank you.
And our first question is going to come from the line of John Murphy with Bank of America.
Good evening everybody.
Thanks for the time Tonight.
First question Jim.
There's been a lot of speculation that you might consider spinning a portion of the future car business, whether it be E D.
Or a b with Argo.
There's also the backside of that that it might make more sense to spin some of your legacy ice assets and have the entire company become a more pure play <unk> company in totality. So I mean, how do you. How do you think about this and what would you be your motivations either way and how I mean.
How are you strategizing, yes.
Thanks, John Yeah, I don't want to speculate on rumors or or speculate on the speculation in the press.
But it will go back to something we said and I've said over and over again, which is <unk>.
<unk> is successful ice business and a successful bad business are not the same.
The customers are different we think to go to market is going to have to be different.
The product development process and the kinds of products, we develop are different.
The procurement supply chain are all different.
Talent is different.
The level of in sourcing is different.
And actually the rhythm of the business is different fundamentally different so I'm not going to talk about.
Speculation in the press, but I will tell you that the way we're operating the businesses acknowledges those differences.
And I'm really excited about the company's commitment to operate the businesses as they should be.
Thank you. Our next question will come from the line of Rod Lache with Wolfe Research.
Everybody.
I wanted to ask you a little bit about margins.
It's as John said it looks like you guys will hit.
8%, if you hit the high end of your target range and Jimmy you said that youre targeting improving margins from here. So maybe you can give us a little bit more color on that how we should think about it.
I'm not I'm not sure that 8% is the benchmark anymore, just given how many years ago, that's been and how many changes there are to the business youre ramping up a lot of spending on engineering and standing up and EV infrastructure, but you're also going to grow the fourth pro business. So maybe you can just give us some of the puts and takes how to think about it and then as part of it if you you might.
Just give us a data point on where Ford pro stood in 2021.
Yeah, Hi, Ron Stone.
I guess I would say that as Jim just said, but where we're looking at the ice business in the Bev business and we're managing both.
Differently.
When you look at the ice transition I think there are still a lot of opportunities for us to improve that business.
We're very focused on reducing our structural costs, we've done a lot already but theres a lot more that we think we can do there.
We're looking at operating with much lower stock levels as our business continues to develop so we'll operate it leaner inventories than we have in the past, which will help our top line and continue to strengthen that top line.
We're improving our quality, which is importantly saw that come through this year from a year over year warranty standpoint was down roughly $1 4 billion and we want to be the top in quality in every segment and that's gonna have opportunity for the business.
We're also working to revitalize our business through our digital capabilities leveraging what we have from the connected vehicle to improve warranty even further as well as improve what we're doing from a manufacturing standpoint, and leverage that technology to bring those types of costs down theres opportunities in <unk>.
<unk>, our parts business, and we're going to lower our distribution costs theres opportunity. There. So we see that over time as we.
Manage the ice business, there's opportunity to improve margins even further from there.
Then when you talk about beds.
So you know as we've talked about in past calls our best margins are not where we intend to be we have opportunity, but we need to do that through scaling them.
We're not going to chase top paths, we're going to look at scale, we're going to want to have a strong lineup, where we can lean into it with key vehicles and high volume segments. Like we are to date with Mustang Mach E lightening.
And in our commercial vehicles with the transit we're gonna Rus reduce complexity right. We know that one of the things that we need to do on our vehicles and we saw that as Jim talked about.
With the team finding a thousand dollars a unit on marquee and they just got started is that we need to approach. The design of these vehicles differently and that's what's really important about having the first mover advantage. There were on the road with these were in production with these we understand what we need to do in that second generation and we're off doing that right now.
Proving what we have on the road today, and really bringing that knowledge into our second generation designs and then as I said earlier on the ice business, we're going to leverage the compute on the vehicles to really lower our manufacturing costs and leverage that compute to to simplify what we do coming down the line and bring that down to the bottom line of the vehicle and then distributions we all.
No the difference in the the distribution cost for the legacy system, that's out there versus what we see.
With other manufacturers. So that's an opportunity for us to work with our partners to improve that so on both of those we see opportunities and then as he said rod.
There's opportunities to grow our business and lean into our leading position in commercial vehicles with Ford Pro.
And we're looking to grow that business to a $45 billion in revenues by 2025, and so I think theres opportunities across both of our key segments and with Ford Pro to improve the business as we move forward beyond the 8% and now we need to stay extremely focused and relentless on that execution.
Yeah.
Thank you and our next question is going to come from the line.
Dan Levy with credit Suisse.
Hi, Thank you Dan Levy with credit Suisse.
I'd like to ask about your.
JV with Globalfoundries and just broadly about what you are trying to do with electronic components and sort of the notion of simplification, which you've talked more about so.
We've heard that with global foundries, I think hau Thai Tang mentioned.
He'd like to control more of the of the sub sourcing to suppliers, we'd like to dictate more of the design of some of the electronic products that you know in the past have been handled by suppliers, maybe you could help us.
Unpack this.
Significant change is this in your operating model, where you frankly focused on.
Just a core vehicle itself in outsourcing where you can how achievable is this especially given your concurrently undergoing this transition to E V and broadly how should we think of the financial implications given youre going from what's been more of a just in time approach on inventory.
And components to now more of a just in case and deeper in the supply chain. Thank you.
Thank you for your question.
Perhaps the biggest gift for all the pain, we're going through now in semiconductors is that we have very painfully learned the lesson that we cannot manage the supply chain for these key components as we have in fact, you could argue that in the change of transition to these digital.
Electric vehicles that supply chain could be one of the biggest advantages of particular company has or doesn't have.
The way we look at it.
Is the key electric components.
Memory chips semiconductors, I would break semiconductors into two types.
Come back Globalfoundries and the second feature rich chips, and we still use a lot of window regulator doesn't need to have a four nanometer chip and the advanced.
But we also have sensors power electronics for Inverters the batteries themselves all the way back to the mine.
The the and burgers are different battery chemistries itself have different raw materials and.
Kind of ecosystems that support them.
So this is a very important topic for the company how different is it's really different we need different talent at the company, we need physical inspection of the actual producers we need a direct.
Contract with them, we need to design the S O see ourselves we.
We need to direct in the case in some cases, the even direct.
Prefer build to print or actual use supplier X y Z.
To get out of where we've been.
And this takes talent it takes a different approach it takes more.
It takes more resources on Globalfoundries is kind of the first.
Big bet, but there'll be many many more coming.
For US you know, we're very dependent on TSMC for our feature rich nodes, obviously, the capacities at risk over time as the industry moves to more advanced nodes, including us and as I said, we're gonna need feature rich nodes for many years to come Globalfoundries knows how to build them and added build them in the United States.
We can partner with the government are depending on the chips to act to to capacitor ice here. It will be a few years until we benefit from that but it's a really big thing to descale ourselves on the feature rich chips from the current ecosystem that we depend on around the world and I think Globalfoundries is a really interesting deal with.
When we get into the details we have to put cash app, where we participate those feature rich semis will be used by other companies industrial companies not just Ford.
It's a really interesting deal.
And I'm really I was talking to U S government today about how critical this is for our company you can expect the same kind of thing on advanced nodes and all the other components I mentioned, including more deals on the raw material for various types of battery chemistry, and this is a cultural change at Ford as I said this is part of the rhythm Chi.
<unk> between ice and Bev.
Thank you. Our next question will come from the line of Ryan Brinkman with J P. Morgan.
Hi, Thanks for taking my question.
Slide 20 shows you with $36 $5 billion of cash and investments, which might be a record but it is certainly the most that I can remember and compares to I think like five plus years ago, you used to talk about wanting to have cash or something closer to in excess of $20 billion with like another 10, or a <unk> 13 billion or if more liquidity on <unk>.
Off of that.
I get that there is more uncertainty now with the pandemic and the chip shortage and of course youre investing heavily for electrification. Despite those investments, though I mean, you're still calling for five five to $6 5 billion of FCS This year versus the dividend costs like one five or $1 6 billion. So with the current trajectory it seems like the record.
Cash pile should only grow bigger in 2022 I'm just curious what your thoughts are on this what do we have any updated thoughts on the optimal capital structure over what time under what conditions, you might move toward that more optimal capital structure and it being so far above the earlier targeted cash balance might influence how you go about deciding.
What to do with Iridium stake once the lockup expires.
Thanks, Brian .
Yeah. We're we're really pleased with the position we have from a cash standpoint, because it gives us the flexibility to invest in the business as we go.
Hum.
We've talked about the investments, we'll be making beds will be breaking capacity constraints and we're going to continue to focus on scaling as quickly as we can.
The other thing we need to think about is the supply chain for our events, there's opportunities potentially for vertical integration.
There's opportunities for looking beyond as we move into these connected vehicles with more advanced electronics potentially leveraging capital to secure supply chain. There. So there's a lot of opportunities as we move forward to leverage this cash to improve the business. We're also focused on our shareholders and of course.
<unk>.
Total shareholder returns is important as well so we're going to continue to provide dividends to our consumers.
To our shareholders.
Which is important for us as we move forward given our shareholder base. So I think what you'll see is that that cash balance is going to be a benefit for us as we look to grow the business as we look to expand as we look to vertically integrate as we look to secure our supply chain and we continue to develop our Ford plus plan.
Very interesting thank you.
Our next question will come from the line every man without Rosner with Deutsche Bank.
Alright, Thank you very much good evening.
Wanted to ask you a little bit more detail related to two items.
The 2022 outlook. The first one is your.
Volume and mix assumption.
In the fourth quarter when they look at the North American work.
Wholesale were up something like 60000 units year over year, but the volume mix piece of your North American Bridge was up only $100 million and Thats. Despite what FY 15, maybe up like 34% year over year.
If IHS is ripen. So just curious what's going on in terms of mix and wide at contribution didn't really flow through to the EBIT and how should we think about as you grow your volume, 10% or 15% in 2022, what kind of EBIT contribution can we expect from this that's the first item and then the second one is in terms of.
Additional investment costs, so you've quantified the step up in Capex for 2022, I'm. Just curious if there are things in the income statement that youre able to quantify in terms of additional investments in technology that we should think about this where.
As we model 2022.
Now let me, let me focus on 2021st.
Looking at the walk for 2022.
I have to think about the 10% to 15% and the volume growth, but mix is also a strong part of that on a year over year basis, we expect to see continued strong mix.
Pricing.
As I said in my remarks, we do expect the.
Continued strong pricing environment. So when you look at volume mix and pricing, we expect that to be up about five 5% to $6 5 billion.
And so I'll just walk through what where we see on that on the bridge to 2022.
We are continuing to invest in modernization and that was along with our products, but related spending as we're continuing to build out our bev business, that's about $1 $5 billion headwind, but that's broadly offset with other efficiencies that we're working on.
We also see the commodities are going to be a headwind next year of about one five to 2 billion and then Ford credit is going to be strong, but we do expect them to be down about $1 5 billion and then of course, we've got lower net pension income. So we expect the top line to be strong with volume increase we continue to expect to have strong mix and then we.
Expect pricing to be a strength as well on a year over year basis.
Alright.
I'm.
Sorry, what what's nice about about what we're seeing this year our forecast. This year is we're seeing good <unk>.
<unk> leverage from that incremental top line and I think that's very encouraging.
We'll have lost statistics about.
How that compares in the past, but that Hasnt always been the case at Ford.
Great to see that the topline flow into our profitability increase.
Thank you and our next question is going to come from the line of Colin Langan with Wells Fargo.
Oh, great. Thanks for taking my questions.
Following up on the walk if I, if I actually annualize Q4, youre running at only $8 billion.
Was particularly weaker about this quarter is this sort of starting point itself will sort of down sequentially on higher sales that seasonality higher commodity costs hitting worse this quarter any color there.
From a quarter over quarter basis.
And what how the quarter developed.
We hit the midpoint of the guidance and.
One of the things is I think some expected volumes to be up higher than what we we had guided and just we had some we had supply chain constraints hitting us this quarter omicron disrupted several of our key suppliers. They couldnt produce it couldn't get us products.
But net net when you look at the fourth quarter relative.
Relative to where we were third quarter, let's say as a proxy volume and mix was up slightly.
It was up about six tenths, but then we had additional headwinds in commodities. We had some modernization cost that came through specifically around our I T. As well as connectivity is we're investing in those growth areas and then we saw costs come through from inflation, we saw costs come through on transportation on fuel et cetera.
So we're seeing some of those headwinds were hitting us in the fourth quarter, but demand was strong if we could have met the the demand and the production without the disruptions you would've seen a stronger quarter and so as we go into 2022 as we see those supply constraints ease as we see the demand.
And for a really strong product lineup, we see the top line growing we see continued improvement in mix, we see continued improvement in price and that's going to be much more of a tailwind versus some of the headwinds we are seeing that.
And just following up on the mix any color on how the lightning will impact is it runs and obviously pretty large battery there is that going to be dilutive as we think about second half as that starts to ramp.
No I don't think that as we ramp up at the start with the launch this year that it's going to have a significant impact on what we see from a standpoint of our profits in North America.
And then coming back I think one of the questions. Colin you had asked that I didn't touch upon with the fourth quarter or maybe it was manual earlier.
On the mix side is we did have lower super duty mix in the quarter and that was again driven by supply chain disruptions. There were vehicles that we weren't able to build and complete because of certain commodities that weren't coming through to get those vehicles down the line and done.
Our next question will come from Brian Johnson with Barclays.
Good afternoon.
Wanted to talk a little bit about dealer pricing versus your pricing.
Detroit Press ran some articles in January on taking action toward taking accident at some of the more grievous mark ups on Evs, yet if I look at the broader lineup I see that per J D. Power. Your revenue per unit is up about 3.3 hundred $3800, which puts to your sub point 6 billion prices decided.
Yet the transaction prices are up 5600, meaning you are when you think about 1800 $50 of profit in the dealers' hands, which would be about another $3 6 billion of profit. So just wondering kind of as you kind of go forward as the dealers.
Especially move to this simplified inventory model Youre looking at how you're thinking about the balance between your invoice your revenue per vehicle in the actual transaction prices at the dealer level.
Thank you.
I would say the answer to your question for ice and Bev would be slightly different.
We have about 10% of our dealers last year in this supply constrained environment that.
We're charging above MSRP to our best of our knowledge, we have very good intelligence of who they are and their future allocation of product will be directly impacted because of that policy.
And we've seen.
Really quick action by our team.
On the bed side. This is quite important topic, because the margins that we want to build to inbev are going to be heavily dependent on.
A different go to market and customer experience I won't go into any more than that but this is a quite important lesson for us of the franchise system and the way we will manage going forward.
I'm very optimistic now that our team has the intelligence in the market that we put an allocation.
[noise] trigger in for those dealers, who choose to price that way.
But it's inefficiency no doubt about it.
Thank you. Our next question is going to come from the line of Mark Delaney with Goldman Sachs.
Yes, thanks very much for taking the question. So maybe you could help us better understand the linearity of reaching the 600000 annualized EV.
Target and what kind of visibility you have an end to securing the necessary.
The supply to do that both in terms of things like semiconductors as well as our batteries.
Thank you.
So we have been.
Hard at work at this for quite some time actually we knew we were oversubscribed pretty early in the process and the team has been added we had been working really the primary lift for us as battery availability. So we've actually been securing.
Securing extra batteries for quite some time now.
We have some.
Meaning options for marquee.
So we will move close to 100000 units this year on marquee that'll be a big move this year.
Next year, a big move will be lightening going to 150000 units I won't get into battery chemistries in and all the details, but I'm really excited about the progress we've made so far in securing batteries.
On the F 150 lightning.
We actually had a physical capacity constraint of the facility and so we took the decision already to again redesign that facility. So that we can accommodate the 150000 units we have great capacity on F 154, the non electric components.
So this is just a matter of.
The marquee getting the labor in place and getting the batteries and the up and the F 150 getting the batteries.
Out of Georgia and.
And redesigning the facility. So we can get the final assembly done Oh.
As far as chips, a concern these battery electric vehicles, and the supply chain or a strategic advantage for our company. So we will protect.
In the constrained where we will protect our battery electric supply.
And our production.
Thank you. Our next question will come from the line of Joseph Spak with RBC capital markets.
Thank you.
Jim It's really refreshing to hear you talk about the.
And the two different businesses and how you are managing them and running them and planning for them.
Currently.
I guess, so and it's also good to hear you think you would have more to wring out of the ice business, but I guess.
Question is as you know as CEO of Ford, which is managing those two businesses like to the extent you are able to wring more out of ice does that give.
Give you a leeway to accelerate or increase your investment in EV business, how do you think about.
Combining the two businesses back together in terms of the investment spend.
Absolutely.
Absolutely the profitability of ice is very important because it gives us optionality not only of scaling bad but also vertically integrating bev, which is increasingly becoming important for profit lever. So we definitely want to push our ice business as fast as far as we can we're going into this transition with the free.
<unk> ice lineup I can think of any of our competitors not just in the U S globally.
But we think Theres as John said a ton of other levers.
That we can pull to improve the margins of our ice business.
We see our ice business increasingly in kind.
Specialty groupings of passion brands like Bronco and Mustang in our pickup truck customers retail side using those four for recreation and for everything they use them for.
And so you know look at the success of Maverick. We've had for example, so we're really excited about this opportunity for Bev and you betcha. It gives us all sorts of Optionality as a company to really continue to invest in high growth business, but also focus allow us to focus our cash.
Cash and our investment in building the margin for the high growth business through things like vertical integration and new customer experiences accelerating our physical experiences to the dealers.
On both businesses.
Thank you. Our next question is going to come from the line of E time Micheli with Citi.
Great. Thanks, a lot good evening, everybody I was hoping to go back and get an update on marquee profitability a couple of quarters ago, you mentioned.
You were already positive EBIT. It seems like pricing has been really strong in the last few quarters, you talked about taking out maybe $1000 of cost going forward and of course, just cutting up volume I was hoping maybe you could give an update on kind of where you see marquee profitability. This year versus your original expectations and maybe even relative to ice vehicles, perhaps like the edge.
Yes, hi, Thanks, it's John here, so when we look at our marquee profitability as we said.
We are profitable from marquee standpoint, we're seeing great demand, we're still seeing strong mix. So we've seen the profits improve importantly, what else, we're seeing as opportunities to continue to reduce the cost and reduce the complexity. So we're very focused on improving those margins, but overall as we've said in the Plas are bev margins are.
Not yet quite where we'd like them to be especially relative to our more profitable ice vehicles and so we have to continue to do work there primarily around scaling reducing the complexity.
As we move forward. So we're encouraged by what we're seeing on marquee, so far, especially with the strong demand in the mix, but there's other work that we need to do as well to continue to further improve those margins and.
Our expectation is that we're fully competitive on our Bev margins as we move forward and that's what we need to work towards.
Just to complement John's.
Input.
I'm struck throughout my career I'm struck at how different the rhythm of this digital bad businesses versus ice.
All grew up in a business, where you've kind of launched the vehicle and then you work on a minor change or our next model.
I certainly grew up in that model and what we're finding with ice. Thank goodness, we're scaling now.
Because what we're finding in marquee is that actually most of the exciting work starts after job one.
That's when the Otas really make a customer impact.
But on the cost side on the profit side.
I guess, we have learned so much about the lack of integration in our engineering operations as we compared our engineering, our marquee to others that are best in class and we are finding lots of profit opportunities as we get after that.
Integration between engineering supply chain and manufacturing even within engineering. If I showed you our cooling system for marquee. It has four motors probably needs to be too. It has 60 or 70 hoses probably needs to be a third of that and and those are the opportunities. We're going after and we are not going to wait for next.
Year, we're not going to wait for minor change we are going to reengineer that vehicle now and then use that expertise for lightning E Transit and of course, our all electric platforms.
And I, just I'm really excited about this opportunity being the industry as long as I have I haven't felt this.
Chance to take out so much cost after job one both from the customer's use of the vehicle off the data as well as actually all these integration opportunities and the other thing is the vehicles are much more simple than we thought.
The F 150 has one cat one box.
You know and we for the same kind of ice offering it's like 40 configurations.
So they are much simpler.
And I I'm really excited about I guess, what I'm, saying is we're at the very beginning of this journey.
And it is all it's already very exciting.
On the profit improvement as John said.
And I I.
I haven't seen this kind of opportunity in the past in my career.
Thank you. Our next question is coming from the line of Anil.
India Das with Nomura.
Your line is open.
Okay. Our next question will come from the line of Jeffrey <unk> with Tudor Pickering.
Good afternoon, and thanks for squeezing me in I just wanted to go back to the regional discussion as we think about the thoughts you shared on margins in North America that are embedded in the upper end of the full year 2002, EBIT Guide I Wonder if you could just give us a sense for how youre thinking about the trajectory of margin improvement in Europe and <unk> specifically.
Thinking about the semiconductor shortfall evolving over time to focus on four pro and new product launches potentially helping to accelerate some margin recovery in Europe and then the continued focus on Ranger and new products and IMG.
Europe .
We expect.
Profit improvement, we expect them to be meaningfully profitable.
This year in 2022.
And we're still committed in Europe is on track to deliver the 6% EBIT margin by 2023, they're continuing to move forward, they're seeing favorable pricing environment continue.
They are accelerating into their bounds. The marquee is a very strong product for them and again commercial vehicles, it's a strength of ours and we continue to see that.
Grow next year would be.
Pillar four Europe strength for Europe .
IMG as you go into 2022 International markets group.
We expect them to be down year over year.
But profitable and that's going to be driven by two key things the India transition.
And what we see there as well as the fact that our Ranger.
Volumes are going to be down year over year as we launch the new Ranger and so it's a transition year for us in the international markets groups, so there'll be down year over year, but profitable and then from there with the new Ranger, we're really excited about that product and what we can leverage with that product as we move forward in our international markets group.
Thank you and with that we will conclude today's Ford Motor Company fourth quarter and full year 2021 earnings Conference call you may now disconnect.
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Okay.
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