Q3 2023 Ford Motor Co Earnings Call
Speaker 1: transcript
Speaker 1: Good day everyone. My name is Gary and I will be your conference operator today.
Good day, everyone. My name is Gary and I will be your conference operator today.
Speaker 1: transcript
Speaker 1: At this time, I would like to welcome you to the Ford Motor Company Third Quarter 2023 Earnings Conference Call.
At this time I would like to welcome you to the Ford Motor Company third quarter 2023 earnings Conference call.
Speaker 1: transcript
Speaker 1: all lines are the place on mute to prevent any background noise.
All lines have been placed on mute to prevent any background noise.
Speaker 1: transcript
Speaker 1: after the speaker's remarks, there will be a question and answer session.
After the Speakers' remarks, there will be a question and answer session if.
Speaker 1: transcript
Speaker 1: If you would like to ask a question during this time, you may press Star then 1 on your telephone keypad. To withdraw your question, please press Star then 2. Please note that the phone is not on the phone.
If you would like to ask a question. During this time you May Press Star then one on your telephone keypad.
To withdraw your question. Please press Star then two.
Please note this event is being recorded.
Speaker 1: transcript
Speaker 1: At this time, I would like to turn the call over to Lynn Antipa Tyson, Executive Director of Investor Relations. Please go ahead.
At this time I would like to turn the call over to Lynn Antipas Tyson Executive director of Investor Relations. Please go ahead.
Speaker 2: transcript
Speaker 2: Thank you, Gary. Welcome to Ford Motor Company's third quarter 2023 earnings call. With me today, our Jim Farley, President and CEO , John Lawler, Chief Financial Officer, and Peter Stern, President, Ford Integrated Services. Also joining us for Q&A is Mary and Harris, CEO , Ford Credit. Today's discussions include some non-GAP references. These are reconciled to the most comparable US GAAP measures in the appendix of our earnings.
Thank you Gary welcome to Ford Motor Company's third quarter 2023 earnings call with me today are Jim Farley, President and CEO, John Lawlor, Chief Financial Officer, and Peter Stern President for integrated services 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 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 at shareholder Dot for Dot com.
Speaker 2: transcript
Speaker 2: You can find the deck along with the rest of our earnings materials and other important content at shareholder.ford.com. Our discussion also includes forward-looking statements about our expectations. Actual results may differ from those stated. The most significant factors that could cause results to differ are included on page
Our discussion also includes forward looking statements about our expectations actual results may differ from those stated the most significant factors that could cause results to differ are included on page 20.
Speaker 2: transcript
Speaker 2: Unless otherwise noted all comparisons are year over year, company, EBIT, EPS, and free cash flow are on an adjusted basis. Not...
Unless otherwise noted all comparisons are year over year company EBIT EPS and free cash flow are on an adjusted basis now I'd like to turn the call over to Jim.
Speaker 3: transcript
Speaker 3: Thank you, Lynn. Hello, everyone. And thanks for joining us today.
Thank you Lynn Hello, everyone and thanks for joining us today.
Speaker 3: transcript
Speaker 3: I wanted to start by thanking the four team who worked tirelessly and creatively over the past several months to reach a tentative agreement with the United Auto Workers. I am pleased, so pleased,
I wanted to start by thanking the <unk> team, who worked tirelessly and creatively over the past several months to reach a tentative agreement with the United Auto workers.
I am pleased so please for our employees.
Speaker 3: transcript
Speaker 3: This week I was able to visit each of these struck plants. I was impressed by their preparation for startup and the feeling I got.
This week I was able to visit each of the stroke plants.
I was impressed by their preparation for startup in.
And the feeling I got as people just want to get back to work.
Speaker 3: transcript
Speaker 3: Once the deal is ratified, we will provide all of you a deeper look at the contract and its impact on our business.
Once the deal is ratified you will provide all of you a deeper look at the contract and its impact on our business right. Now we're focused on restarting three important assembly plants.
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Speaker 3: Right now, we're focused on restarting three important assembly plans.
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Speaker 3: Calling back more than 20,000 Ford employees to work.
Pulling back more than 20000 afford employees to work.
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Speaker 3: Supporting our suppliers as they restart and shipping lots of super duties, explorers, and broncos to our customers. It's been a challenge.
Supporting our suppliers as they restart.
And shipping lots of Super duties explores and Broncos to our customers.
It's been a challenging situation for sure.
Speaker 3: transcript
Speaker 3: matter of fact, our business is never short of challenges, especially right now with the evolution of the EV market and new global competitors from China, as well as the technology disruptions.
Matter of fact, our business has never short of challenges, especially right now with the evolution of the EV market and new global competitors from China.
As well as the technology disruptions.
But I am more excited and motivated than ever.
Speaker 3: transcript
Speaker 3: Our team is making tremendous progress every day towards building a Ford that thrives at the intersection of fantastic and iconic vehicles. Terrific brands.
Our team is making tremendous progress every day towards building afford that thrives at the intersection of fantastic and iconic vehicles.
Terrific brands.
Especially software and services.
Speaker 3: transcript
Speaker 3: We are deep into the development of our future software platforms, which provide the foundation for rapid innovation and a profitable new software and services business and constantly improving experiences for our customers.
We are deep into the development of our future software platforms, which provide the foundation for rapid innovation and a profitable new software and services business and constantly improving experiences for our customers.
Speaker 3: transcript
Speaker 3: We believe Ford Plus is the right strategy to win in this constantly evolving industry transformation.
We believe Ford plus is the right strategy to win in this constantly evolving industry transformation.
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Speaker 3: We're building a more dynamic and less cyclical company and we are nowhere near peak profitability.
We're building a more dynamic and less cyclical company and we are nowhere near peak profitability.
Speaker 3: transcript
Speaker 3: We have the right team and talent, and we are in the process of building a culture of excellence and execution. In a moment, John will detail the quarter, which I would call MIX.
We have the right team and talent and we're in the process of building.
Sure of excellence and execution.
In a moment John will detail the quarter.
Which I would call mixed with.
Speaker 3: transcript
Speaker 3: strength of our products and revenues and businesses to find definitely came through in our results. But at the same time, we were never negatively impacted by the strike and our cost and quality remained a drag on our business.
The strength of our products and revenues and businesses define definitely came through in our results, but at the same time, we were nevertheless negatively impacted by the strike and our cost and quality remain a drag on our business.
Speaker 3: transcript
Speaker 3: Now last week, we made some important leadership changes. Kumar Gahaltra as COO will now control the key levers for transformative change in our industrial system. Power train, ice and hybrid products.
Now last week, we made some important leadership changes Kumar go hold true as COO will now control the key levers for transformative change in our industrial system powertrain.
Powertrain ice and hybrid products.
Speaker 3: transcript
Speaker 3: Vehicle Hardware Engineering, Cycle Plan, Quality, Supply Chain, and Manufacturing.
Vehicle hardware engineering cycle plan quality supply chain and manufacturing it.
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Speaker 3: He'll work in tandem, of course, with Doug Fields, chief of our EV.
Work in tandem of course, with Doug fields Chief of our EV.
Speaker 3: transcript
Speaker 3: digital and design officer to move us forward. I believe this will accelerate our progress on cost and quality. And I hope we get into that in the Q&A. These are my top two priorities.
Digital and design officer.
To move us forward.
I believe this will accelerate our progress on cost and quality.
We get into that in the Q&A. These are my top two priorities.
Speaker 3: transcript
Speaker 3: Overall, we see we are seeing the clear benefits of creating three distinct growth businesses now with Fort Blue, Model E and Pro.
Overall, we see we are seeing the clear benefits of creating three distinct growth businesses now with Ford Blue modestly and pro.
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Speaker 3: The story of Ford Blue comes down to product strength.
The story of Ford Blue comes down to product strength.
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Speaker 3: Incredibly strong brands like Mustang and Bronco and Raptor. They have durable pricing power and real choice between gas and hybrid.
Incredibly strong brands like Mustang, and Bronco and Raptor, they have durable pricing power and real choice between gas and hybrid.
Speaker 3: transcript
Speaker 3: Ford is America's best selling brand now through three quarters, even with the effects of the strike.
Ford is America's best selling brand now through three quarters, even with the effects of the strike.
Speaker 3: transcript
Speaker 3: And we have a wave of new products coming in the next few months.
And we have a wave of new products coming in the next few months.
The new F 150.
Speaker 3: transcript
Speaker 3: the Ranger, a brand new Explorer, an Expedition and Navigate.
The Ranger.
Brand, new explore an expedition and navigator.
Speaker 3: transcript
Speaker 3: In fact, close to 60% of our volume revenues in the US will be new and refreshed next year.
In fact close to 60% of our volume and revenues in the U S will be new and refreshed next year.
Speaker 3: transcript
Speaker 3: I am so thankful we've kept our foot on the gas.
I am so thankful, we've kept our foot on the gas.
Speaker 3: transcript
Speaker 3: to freshen our ice and ATV products as we enter a changing market.
To freshen, our ice and <unk>.
<unk> products as we enter a changing market.
Speaker 3: transcript
Speaker 3: In Europe , we bring out new versions of Puma Kuga, our high volume gas and hybrid SUVs. And the Ranger pickup and our Everest SUV, it is based on it, continue to gain share in international markets.
In Europe, we bring out new versions of Puma, Cougar, Ohio volume gas and hybrid Suvs and the Ranger pickup and our Everest SUV. That's based on it continued to gain share in international markets. So bottom line for Blue will be strong and a growing business for years to come.
Speaker 3: transcript
Speaker 3: So bottom line, Ford Blue will be strong in a growing business for years to come.
Speaker 3: transcript
Speaker 3: We also remain bullish on Model E and our EV future, but clearly the market is a moving target.
We also remain bullish on model Lee and our EV future, but clearly the market is moving it's a moving target.
Speaker 3: transcript
Speaker 3: I'm optimistic because customers are smart and they're rational. And for many of them, EVs are a great choice.
I'm optimistic because customers are smart and the rational and for many of them Evs are a great choice.
Speaker 3: transcript
Speaker 3: I've been spending a ton of time in our Proc development center with both Doug Fields and Alan Clark.
I've been spending a ton of time and our product development center with both Doug fields and Alan Clark.
Speaker 3: transcript
Speaker 3: and you should see the Gen 2 and Gen 3 EVs were working on.
And you should see the Gen two and Gen. Three Evs, we're working on.
Speaker 3: transcript
Speaker 3: Are Gen 2 all new full-size pickup truck? For example, is one of the most thrilling vehicles I've ever seen in my career? Let me-
Our Gen. Two all new full size pickup truck for example is one of the most thrilling vehicles I've ever seen in my career.
Let me be specific.
Speaker 3: transcript
Speaker 3: stunning performance like no truck has ever performed.
Stunning performance like no truck has ever performed.
Speaker 3: transcript
Speaker 3: Unexpected innovation for truck customers far beyond the normal truck at
Building unexpected innovation for truck customers far beyond the normal truck out to abuse.
Speaker 3: transcript
Speaker 3: a super flexible cabin that feels like a lounge or a tiny office. Take the wheels off this truck and it's still a mind blowing prop.
Super flexible cabin that feels like a lounge or a tiny office take the wheels off the trucks and it's still a mind blowing product.
Speaker 3: transcript
Speaker 3: and a digital experience that totally is immersive and personalized.
And a digital experience that totally immersive and personalize.
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Speaker 3: I take this truck seven days of the week over a cyber truck.
I take this truck seven days of the week over a cyber truck.
Speaker 3: transcript
Speaker 3: Great product is not enough in EV business anymore.
Great product is not enough in the EV business anymore.
Speaker 3: transcript
Speaker 3: We have to be totally competitive on cost.
We have to be totally competitive on cost.
Speaker 3: transcript
Speaker 3: Tessa actually gave us a huge gift, with the laser focus on costs and scaling them out of why.
Tessa actually gave us a huge gift with the laser focus on costs and scaling the model y <unk>.
Speaker 3: transcript
Speaker 3: They set the standard. And we are now making real progress on our second and third cycle EVs that are in the midst of being developed today.
They set the standard in.
And we are now making real progress on our second and third cycle Evs that are in the midst of being developed today.
As we get closer to the introduction.
Speaker 3: transcript
Speaker 3: While our Gen 2 EVs were targeting to deliver an EBIT margin comparable to ICE by 2026,
While our Gen. Two evs, we're targeting and to deliver an EBIT margin comparable to ice and by 2026.
Speaker 3: transcript
Speaker 3: The dynamic changes in the market, pricing, adoption rates, regulations, are forcing us to further reduce the cost of our EVs.
The dynamic changes in the market.
Icing adoption rates regulations are forcing us to further reduce the cost of our evs.
Speaker 3: transcript
Speaker 3: The key levers to deliver this competitive cost structure are scaling, vertical integration, and batteries. So let's double click on each of these three.
The key levers to deliver this competitive cost structure are scaling.
<unk> integration and batteries, so let's double click on each of these three.
Speaker 3: transcript
Speaker 3: Unscaling. This is much more than building new facilities or scaling high quality batteries, a thermal propagation.
On scaling.
This is much more than building new facilities or scaling high quality batteries of thermo propagation.
Speaker 3: transcript
Speaker 3: We're leveraging digital prognostic capabilities in our manufacturing lines to improve quality.
We're leveraging digital prognostic capabilities and our manufacturing lines to improve quality. We are also reducing complexity.
Speaker 3: transcript
Speaker 3: And we are optimizing our vehicle design and engineering for manufacturability. Yup.
And we are optimizing our vehicle design and engineering for manufacture ability yeah.
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Speaker 3: We're designing these vehicles for our manufacturing.
We're designing this these vehicles for our manufacturing team.
Speaker 3: transcript
Speaker 3: On vertical integration, this is the most fundamental change. We are in sourcing batteries in voters, scaling production of our drive units in gearboxes, and designing and producing unit castings in house at Ford. In addition,
On vertical integration. This is the most fundamental change we are in sourcing batteries inverters scaling production of our drive units and gearboxes and designing and producing unit castings in house at Ford In addition.
Speaker 3: transcript
Speaker 3: On our next generation utility vehicles, vertical integration will increase by nearly 50%.
On our next generation utility vehicles vertical integration will increase by nearly 50%.
Speaker 3: transcript
Speaker 3: This level of integration allows along with the new zonal electric architecture and designing in-house modules.
This level of integration allows along with the news on electrical architecture and designing in house modules.
Speaker 3: transcript
Speaker 3: and battery cell to structure will allow us to significantly reduce material cost. Now none of this will be easy and has some risk. And you've seen our competitors struggles. They build out and ramp up these capabilities.
And battery cell to structure will allow us to significantly reduce material cost.
Now none of this will be easy and has some risk.
And you've seen our competitors struggle as they build out.
And ramp up these capabilities. So we are so glad we started years ago on this journey.
Speaker 3: transcript
Speaker 3: and finally batteries. They're the single biggest cost component of any EV.
And finally batteries.
Our single biggest cost component of any EV.
Speaker 3: transcript
Speaker 3: Our more energy-efficient Gen 2 products will use Xtreme Aero.
Our more energy efficient Gen. Two products, we use extreme arrow.
Speaker 3: transcript
Speaker 3: to get the very smallest batteries possible for a competitive range.
To get the very smallest batteries possible for our competitive range.
Speaker 3: transcript
Speaker 3: And with our LAP batteries, we'll have the lowest, or one of the lowest.
And with our L. P batteries will have.
The lowest.
We're one of the lowest cost batteries assembled in the U S.
Speaker 3: transcript
Speaker 3: Our overall EV priorities are very clear. Discipline capital allocation and investment that drives profitable, high-returning, and enduring EV business. We will constantly balance growth, scale,
Our overall EV priorities are very clear disciplined capital allocation and investment that drives profitable high returning and enduring EV business and we will constantly balanced growth.
Scale.
And profitability.
Speaker 3: transcript
Speaker 3: These great EVs will be paired with modern shopping and buying experiences that are transparent, we'll have non-negotiated pricing, and a streamlined checkout and delivery that will come to life early in 2024. And this is also a significant cost reduction.
These great Evs will be paired with modern shopping and buying experiences that are transparent will have non negotiated pricing and a streamlined checkout and delivery that will come to life early in 2024 and this is also significant cost reduction.
Speaker 3: transcript
Speaker 3: I saved Ford Pro for the last because it's a massive driver of Ford's growth and profitability.
I saved Ford pro for the last because it's a massive driver affords growth and profitability.
Speaker 3: transcript
Speaker 3: Our competitors seem to be trying to cut and paste our strategy. But the reality is the most we've built over many decades for our pro business won't be easy to cross.
Our competitors seem to be trying to cut and paste our strategy, but the reality is the most we've built over many decades for our pro business won't be easy to cross.
Speaker 3: transcript
Speaker 3: The network of literally thousands of local upfitters across Europe , North America, and China. And customer-driven engineering we have for vehicles like App Series and Transit is formable across all those regions.
The network of literally thousands of local outfitters across Europe, North America, and China and customer driven engineering, we have for vehicles F series and transit is for mobile across all those regions.
Speaker 3: transcript
Speaker 3: Our commercial order banks are healthy. This may be a surprise to everyone.
Our commercial order banks are healthy this may be the surprise to everyone.
Speaker 3: transcript
Speaker 3: We see large backlog of infrastructure projects. Thank you, 5G and roadworks. And we have.
We see large backlog of infrastructure projects. Thank you five G and road works.
And we have very loyal customers fleet.
Speaker 3: transcript
Speaker 3: Fleet orders, for example, for the 2024 Super Duty are coming in faster than last year's orders. And we expect strong demand to continue as more customers recognize what Ford has to offer in total.
Fleet orders for example for the 2024 Super duty are coming in faster than last year's orders and we expect strong demand to continue as more customers recognize what Ford has to offer in total.
In addition to the new Super duty, we are preparing to launch the new transit custom in Europe think of this product is a super duty for Europe.
Speaker 3: transcript
Speaker 3: We are preparing to launch the new transit custom in Europe . Think of this product as a super duty for Europe .
Speaker 3: transcript
Speaker 3: It's the best selling vehicle in the UK, not the best selling commercial vehicle, the best selling vehicle, and the leading one tons.
It is the best selling vehicle in the U K not the best selling commercial vehicle the best selling vehicle.
And the leading one ton ban in Europe.
Speaker 3: transcript
Speaker 3: And it's a key profit pillar for Europe and one of the reasons why you stayed there.
And it's a key profit pillar for Europe, and one of the reasons why we stayed there.
Speaker 3: transcript
Speaker 3: When it comes to software and services, Ford Pro is the tip of our digital spear. Customers know and trust our vehicles, of course, and we're building on this with software driven services that provide businesses with data insights, vehicle access, even vehicle control.
When it comes to software and services Ford Pro is the tip of our digital sphere.
<unk> No. One trust are vehicles of course, and we're building on this with software driven services that provide businesses with data insights vehicle access even vehicle control.
Speaker 3: transcript
Speaker 3: and functionality. This helps them drive productivity and efficiency in their fleet operation.
And functionality this.
It helps them drive.
Productivity and efficiency in their fleet operations and.
Speaker 3: transcript
Speaker 3: And I've asked Ted Kanis to also lead our large and profitable after sales business.
And I've asked Ted Kennedy to also lead our large and profitable after sales business.
Speaker 3: transcript
Speaker 3: His focus will increase our post warranty service, business and profitability. He's already adding mobile service capability and delivering an effortless experience to both commercial and retail costs.
His focus will increase our post warranty service business and profitability he.
He is already adding mobile service capability and delivering an effortless experience to both commercial and retail customers. There is so much upside and this after sales parts repair and collision business, especially with Ted leading it and for Ford probe.
Speaker 3: transcript
Speaker 3: There is so much upside in this after sales parts repair and collision business.
Speaker 3: transcript
Speaker 3: Especially with Ted leading it in 4.4 Pro.
Speaker 3: transcript
Speaker 3: I want to briefly touch on China work or strategy to turn our business around as gaining traction.
I want to briefly touch on China, where our strategy to turn our business around is gaining traction.
Speaker 3: transcript
Speaker 3: The restructuring of EV business there is nearly complete and the internal combustion engine business is now profitable. We are now just...
The restructuring of our EV business, there is nearly complete and the internal combustion engine business is now profitable.
We are now expanding China's role.
Speaker 3: transcript
Speaker 3: to a profitable export hub, including Ford Pro.
Two a profitable export hub, including Ford Pro.
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Speaker 3: We've already exported a record number of vehicles so far from China to markets like Mexico, South America, and Asia.
We've already exported a record number of vehicles, so far from China to markets like Mexico, South America and Asia.
Speaker 3: transcript
Speaker 3: There was so much more opportunity ahead for us. Yes, the China market is extremely competitive in the middle. But Ford can succeed by staying asset light, partnering where it makes sense, and competing in very narrow segments where we can clearly win. Like commercial vehicles, off-road vehicles, large SUVs, and Lincoln.
There was so much more opportunity ahead for US yes, the China market is extremely competitive in the middle of <unk>.
Ford can succeed by Sting asset light.
Partnering where it makes sense and competing in very narrow segments, where we can clearly win like commercial vehicles off road vehicles large Suvs and Lincoln.
Speaker 3: transcript
Speaker 3: Finally, I'm so pleased to have Peter Stern on today to share more about our newly formed Ford Integrated Services, which will create and market valuable software enabled customer experiences across blue, E and Pro. Now this is transformation.
Finally, I'm so pleased to have Peter stern on today to share more about our newly formed <unk>.
<unk> integrated services, which will create and market valuable software enabled customer experiences across blue E and probe now this is transformational.
Speaker 3: transcript
Speaker 3: because the cornerstone of Ford Plus, the plus in our plan, is creating incredible customer services and experiences enabled by not just hardware, but software. There's simply no one in the world better able than Peter, who is a driving force behind services of Apple to build this strategically vital business for us.
The cornerstone afford plus the plus and our plan is creating incredible customer services and experiences enabled by not just hardware but software.
There is simply no one in the world better able than Peter who was the driving force behind services with Apple to build this strategically vital business.
For us Peter over to you. Thanks.
Thanks, Jim.
Speaker 4: transcript
Speaker 4: I've spent my career creating new customer experiences and launching businesses at the intersection of hardware, software, and services.
I've spent my career, creating new customer experiences and launching businesses at the intersection of hardware software and services.
Speaker 4: transcript
Speaker 4: And I came to Ford because this company puts that kind of innovation at the center of its long-term strategy. As you said, it's literally the plus in Ford Plus.
And I came to afford because this company puts that kind of innovation at the center of its long term strategy. As you said, it's literally the plus and <unk> plus.
Speaker 4: transcript
Speaker 4: Now over two months in, I'm even more excited to be here and to be part of this exceptional team that's working together to bring the Ford Plus Plan to life for our customers, employees, and shareholders.
Now over two months and I'm, even more excited to be here and to be part of this exceptional team. That's working together to bring the Ford plus plan to life for our customers employees and shareholders.
Speaker 4: transcript
Speaker 4: Our vision for integrated services is to transform every aspect of the Ford customer experience across our three segments.
Our vision for integrated services is to transform every aspect of the Ford customer experience across our three segments, we're making our vehicles, even more connected convenient productive secure.
Speaker 4: transcript
Speaker 4: We're making our vehicles even more connected, convenient, productive, secure, and exhilarating.
And exhilarating.
Speaker 4: transcript
Speaker 4: Over the past couple of months, we've identified a portfolio of services that will improve our customers' lives and businesses by building on our industry leading early successes with Ford Pro Intelligence and Blue Cruise. This portfolio will elevate the Ford brand and introduce us to millions of new customers who may have never considered a Ford,
Over the past couple of months, we've identified a portfolio of services that will improve our customers' lives and businesses.
Building on our industry, leading early successes with Ford Pro intelligence and Blue crews. This.
Folio will elevate the Ford brand and introduce us to millions of new customers, who may have never considered afford before.
Speaker 4: transcript
Speaker 4: It will drive new high margin, A cyclical, recurring revenue streams for Ford, and result in stronger relationships with our customers.
It will drive new high margin a cyclical recurring revenue streams for Ford and result in stronger relationships with our customers.
Speaker 4: transcript
Speaker 4: And we'll do this while adhering to the values that distinguish board from our competitors, like our respect for customer privacy, safety, and very importantly, choice. Whether you choose to add our services or not, you'll have an amazing view.
And we'll do this while adhering to the values that distinguished board from our competitors like a respect for customer privacy safety and very importantly choice, whether you choose to add our services or not you'll have an amazing vehicle.
Speaker 4: transcript
Speaker 4: Our momentum around software and services is building fast. Here are three examples.
Our momentum around software and services is building fast here are three examples.
Speaker 4: transcript
Speaker 4: First, Ford Pro Intelligence builds on Ford's industry-leading share in the commercial vehicle space by making the people who drive our vehicles even more productive and by reducing total cost of owners.
First Ford Pro intelligence builds and for its industry, leading share in the commercial vehicle space by making the people who drive our vehicles, even more productive and by reducing total cost of ownership.
Speaker 4: transcript
Speaker 4: adoption of vehicle telematics, fleet management, and charging optimization, were up 20% sequentially in the third quarter, and our average revenue per subscription was up nearly 10% over the past six months, both contributing to strong revenue growth. And we're still in the early
Adoption of vehicle Telematics fleet management, and charging optimization, we're up 20% sequentially in the third quarter and our average revenue per subscription was up nearly 10% over the past six months.
Contributing to strong revenue growth.
And we're still in the early stages of our rollout.
Speaker 4: transcript
Speaker 4: We ended the quarter with 476,000 paid subscriptions for our commercial solutions, a jump of nearly 50% year over year.
We ended the quarter with 476000 paid subscriptions for our commercial solutions, a jump of nearly 50% year over year.
Speaker 4: transcript
Speaker 4: And we have an ambitious product roadmap for Pro. For example, over the next few weeks, we'll launch the Ford Pro Dashboard.
And we have an ambitious product roadmap for prep for example over the next few weeks, we'll launch the Ford Pro Dash Cam.
Speaker 4: transcript
Speaker 4: This product uses machine vision and in-vehicle intelligence to detect in-cab and on-road events, simplify fleet operations and encourage safer driving.
This product uses machine vision and in vehicle intelligence to detect in cab and on road events simplify fleet operations and encourage safer driving.
Speaker 4: transcript
Speaker 4: While we're still early in our journey, pro intelligence is an area that will continue to expand and drive value for both our customers and Ford.
While we're still early in our journey pro.
<unk> is an area that we'll continue to expand and drive value for both our customers and port <unk>.
Second.
Speaker 4: transcript
Speaker 4: In September , we announced that the 2024 F-150 will be the first vehicle available in North America with Ford's stolen vehicle services. This is a fully integrated theft prevention and recovery service that provides unique features like inclination and movement alerts. So you get notified if your truck is jacked up or moved while the engine is off.
In September we announced that the 'twenty 'twenty four F 150 will be the first vehicle available in North America with Ford stolen vehicle services. This is a fully integrated theft prevention and recovery service that provides unique features like inclination and movement alerts. So you get notified if youre if youre truck is.
Jack up or moved while the engine is off.
Speaker 4: transcript
Speaker 4: And third, the Blue Cruise is one of the most consequential consumer applications of artificial intelligence in the world today. Some of you experienced our last version at Capital Market's day. If you haven't felt what it's like to take your hands off the wheel and your foot off the gas, and let Blue Cruise take over steering, acceleration, and braking, please visit a four-dealer so we can demonstrate it.
And third Blue cruise is one of the most consequential consumer applications of artificial intelligence in the world today.
Some of you experienced our last version at capital markets Day, If you haven't felt what it's like to take your hands off the wheel and your foot off the gas and the blue cruise takeover steering acceleration and braking. Please visit a ford dealers. So we can demonstrate it.
Speaker 4: transcript
Speaker 4: launch to date, our vehicles have been driven hands-free for 125 million miles. That's the equivalent of 500 trips to the moon, which I imagine would be largely hands-free as well.
Launched to date, our vehicles have been driven hands free for 125 million miles. That's the equivalent of 500 trips to the moon, which I imagine would be largely hands free as well.
Speaker 4: transcript
Speaker 4: Real-world driving data from Mustang Mach-E vehicles using Blue Cruise shows a more than 10 times reduction in lane departures compared with unassisted driving.
Real world driving data from Mustang Mach E vehicles, using blue crews shows a more than 10 times reduction in lane departures compared with unassisted driving.
Speaker 4: transcript
Speaker 4: And for the second time in a row, Blue Cruise was just rated the best hands-free system on the market.
And for the second time in a row blew cruise was just rated the best hands free system on the market.
Speaker 4: transcript
Speaker 4: And this was based on BlueCruise 1.0.
And this was based on Blue crews one dot up.
Speaker 4: transcript
Speaker 4: BlueCruise 1.3 is rolling out now and adds lane change support and other refinements that keep drivers in hand-fremode on average 5 times longer than version 1.0.
Look who's one dot three is rolling out now and adds lean change support and other refinements that keep drivers enhance free mode on average five times longer than version one <unk>.
Speaker 4: transcript
Speaker 4: Our technology team, led by my partner, Doug Field, is the best in the business. And Blue Cruise is the proof.
Our technology team led by my partner, Doug Field is the best in the business and Blue crews is the proof.
Speaker 4: transcript
Speaker 4: Despite these encouraging successes, what we're about to do in integrated services won't be.
Despite these encouraging successes, what we're about to do an integrated services won't be easy.
Speaker 4: transcript
Speaker 4: Our multi-year playbook depends on our next generation vehicles that are even more connected.
Our multiyear playbook depends on our next generation vehicles that are even more connected we must also round out our customer centric portfolio of services and evolve our customer relationship management technologies.
Speaker 4: transcript
Speaker 4: We must also round out our customer-centric portfolio of services and evolve our customer relationship management technology.
Speaker 4: transcript
Speaker 4: Our dealers are a key competitive advantage for Ford and with them we need to make it easier to become and stay a services.
Our dealers are a key competitive advantage for Ford and with them, we need to make it easier to become and stay services customer we need to build a relationship centered around the customer not the vehicle because in the services space. The sale of the vehicle should be the beginning of a beautiful long term.
Speaker 4: transcript
Speaker 4: We need to build a relationship centered around the customer, not the vehicle. Because in the services space, the sale of the vehicle should be the beginning of a beautiful long-term relationship with our customers.
Relationship with our customers.
Speaker 4: transcript
Speaker 4: And that necessitates not only new people, processes, and technologies, but also new measures of success.
And that necessitates not only new people processes and technologies, but also new measures of success.
Speaker 4: transcript
Speaker 4: So as we progress in our services evolution, you're going to hear us talk about key metrics like addressable units in operation, attach rates, and average revenue per subscription.
So as we progress in our services evolution Youre going to hear US talk about key metrics like addressable units in operation attach rates and average revenue per subscription.
Speaker 4: transcript
Speaker 4: And as we move each of these levers in the context of a low variable cost, high margin service business, it will have a multiplicative effect on profit.
And as we move each of these levers in the context of a low variable cost high margin service business.
We'll have a multiplicative effect on profits.
Speaker 4: transcript
Speaker 4: There's incredible value to be unlocked here for our customers and for Ford. And I'm proud to be a part of the team making that happen during this pivotal moment in our history. John , over to...
There's incredible value to be unlocked here for our customers and for Ford and I'm proud to be a part of the team making that happen. During this pivotal moment in our history John over to you.
Thanks, Peter through.
Speaker 5: transcript
Speaker 5: Through the first three quarters, we delivered 9.4 billion in adjusted fees.
Through the first three quarters, we delivered $9 4 billion and adjusted EBIT. A strong result that is indicative of our underlying run rate.
Speaker 5: transcript
Speaker 5: a strong result that is indicative of our underlying run rate of the business. Now, given our year-to-date
The business now given our year to date performance, we were on track to comfortably deliver our full year adjusted EBIT guidance of $11 billion to $12 billion.
Speaker 5: transcript
Speaker 5: transcript
Speaker 5: That said, the U.A.W. strike created significant uncertainty regarding our full year results. And even though we have reached a tentative agreement, in our employees are starting to return to work. We have withdrawn our guidance for the...
That said the UAW strike created significant uncertainty regarding our full year results and even though we have reached a tentative agreement and our employees are starting to return to work we have withdrawn our guidance for the year.
Speaker 5: transcript
Speaker 5: This is in part because of the continued disruption in the industry with ongoing strikes, the follow-on impact to our shared supply base, the ramp-up production in our plants, and at our supplier partners, as well as other ancillary effects.
This is in part because of the continued disruption in the industry with ongoing strikes.
Follow on impact to our shared supply base.
Ramp up of production in our plants and at our supplier partners as well as other ancillary effects.
Provide some context in the third quarter, the strike had an EBIT impact of roughly $100 million.
Speaker 5: transcript
Speaker 5: In a third quarter, the strike had an even impact of roughly 100 million.
Speaker 5: transcript
Speaker 5: And so far, the strike has trimmed about 80,000 units from our plane.
And so far the strike is trimmed about 80000 units from our player.
Speaker 5: transcript
Speaker 5: This would reduce 2023 EBIT by roughly 1.3 billion.
This would reduce 2023 EBIT by roughly one 3 billion.
Speaker 5: transcript
Speaker 5: Once we have a ratified agreement and begin to ramp operations, we will be in a better position to update you on our full year.
Once we have a ratified agreement and begin to ramp operations, we will be in a better position to update you on our full year guidance.
Speaker 5: transcript
Speaker 5: So let me now turn to our third quarter results, which was once again
So let me now turn to our third quarter results, which was once again.
Speaker 5: transcript
Speaker 5: It once again showed our Ford Plus plan in action and the benefits of our diversified portfolio. Our leading pro-business and resilient ICE and hybrid products continue to deliver solid results that more than offset the investments we are making in our EV future.
Once again showed our Ford plus plan and accident and the benefits of our diversified portfolio, our leading pro business and resilient ice and hybrid products continued to deliver solid results that more than offset the investments, we're making in our EV future Ah.
Speaker 5: transcript
Speaker 5: Our revenue remains strong, up 11%, reflecting a product lineup that resonates with customers driving higher net pricing that remains resilient. Also, as we're flat, dampened by supply constraints, affecting both a series in transit production, additional unit holes for quality assurance, and the first UAW work stoppage for Ford in almost 50 years.
Our revenue remained strong up 11%, reflecting a product lineup that resonates with customers driving higher net pricing that remains resilient wholesales.
Wholesales were flat dampened by supply constraints affecting both F series and transit production additional unit holds for quality assurance and the first UAW work stoppage for Ford and almost 50 years.
Speaker 5: transcript
Speaker 5: Adjusted EBIT in the quarter was 2.2 billion with a margin of 5 percent. Both improved year over year. However, costs increased underscoring. That fact that we still have more work to do, especially on warranty expense.
Adjusted EBIT in the quarter was $2 2 billion with a margin of 5% both improved year over year. However costs increased underscoring. The fact that we still have more work to do.
Especially on warranty expense and material costs.
Speaker 5: transcript
Speaker 5: Adjusted free cash flow was 1.2 billion in the quarter, down year over year driven by unfavorable work.
Adjusted free cash flow was $1 2 billion in the quarter down year over year, driven by unfavorable working capital.
Speaker 5: transcript
Speaker 5: Through the first nine months, we generated 4.8 million of adjusted pre-cashelope, resulting in a conversion rate of 51% in line with our target range. Our discipline cap on allocation continues to drive strong pre-cashelope, which we will be critical as we adjust our spending to match the pace of EVDOT.
Through the first nine months, we generated $4 8 billion of adjusted free cash flow, resulting in a conversion rate of 51% inline with our target range. Our disciplined capital allocation continues to drive strong free cash flow, which we will will be critical as we adjust our spending to match the pace of EV adoption.
Speaker 5: transcript
Speaker 5: We ended the quarter with over 29 billion in cash and 50 billion in liquidity, one of our strongest quarters ever. And this includes the new four billion contingent liquidity facility we put in place in August to help withstand uncertainties in the present environment. Step.
We ended the quarter with over 29 billion in cash and 50 billion in liquidity one of our strongest quarters ever and this includes the new 4 billion contingent liquidity facility. We put in place in August to help withstand uncertainties in the present environment.
Now turning to our customer focus segment.
Speaker 5: transcript
Speaker 5: Ford Pro generated even a 1.7 billion and delivered a strong double digit margin of 12%. Both metrics improved, driven by our super duty and transit franchises that helped deliver a 16% improvement in revenue that's reflecting strong demand and continued pricing power. In addition, we are launching a new version of our flagship product in Europe , the Transit Custom, which along with the new super duty and F-150 will give pro its precious vehicle lineup in years.
<unk> generated EBIT of $1 7 billion and delivered strong double digit margin of 12% both metrics improved driven by our super duty in transit franchises that helped deliver a 16% improvement in revenue.
Selecting strong demand and continued pricing power. In addition, we are launching a new version of our flagship product in Europe, The transit custom, which along with the new Super duty F. 150, we'll give pro it's fresh it's vehicle lineup in years.
Speaker 5: transcript
Speaker 5: We also continue to see strong growth in both our new software subscriptions and mobile repair orders, up roughly 50% and 200% respectively for the quarter.
We also continue to see strong growth in both our new software subscriptions and mobile repair orders up roughly 50% and 200% respectively for the quarter.
Speaker 5: transcript
Speaker 5: Regarding Model E, our ED startup incurred 1.3 billion of losses in the quarter, reflecting continued investment in our next generation products, and a more challenging market for our Gen 1 product.
Regarding model E. R. EV startup incurred $1 3 billion of losses in the quarter, reflecting continued investment in our next generation products and a more challenging market for our Gen. One products.
Speaker 5: transcript
Speaker 5: Given the dynamic EV environment, we are being judicious about our production and adjusting future capacity to better match markets.
Given the dynamic environment, we are being judicious about our production and adjusting future capacity to better match market demand for.
Speaker 5: transcript
Speaker 5: For example, we have taken out some Mustang Machee production, and we are also slowing down several investments, including making a decision with SK on to delay the second Blue Oval SKJV battery plant in contact.
For example, we have taken out some Mustang Mach E production and we are also slowing down several investments, including making a decision with S. KR to delay the second Blue Oval SK JV battery plant in Kentucky.
Speaker 5: transcript
Speaker 5: And we have also said we are evaluating our Blue Oval Battery Park, Michigan plant to determine the best path forward. In fact, all told, we have pushed about $12 billion of EV spend, which includes CapEx, direct investment, and expense.
And we have also said we are evaluating our global Battery Park, Michigan plant to determine the best path forward.
<unk> all told we have pushed about $12 billion of EV spend which includes capex direct investment and expense.
Speaker 5: transcript
Speaker 5: The ultimate success of our EV transition will be driven by our Gen2 and Gen3 products, which will be cost-optimized and guided by the learnings of our first generation vehicles that are currently in the market.
The ultimate success of our EV transition will be driven by our Gen. Two and Gen three products, which will be cost optimized and guided by the learnings of our first generation vehicles that are currently in the market.
Speaker 5: transcript
Speaker 5: Turning to Ford Blue. In the third quarter, we delivered an EBIT of 1.7 billion, of 300 million, driven by lower commodity costs and higher net pricing, that more than offset higher warrant.
Turning to Ford Blue in the third quarter, we delivered EBIT of $1 7 billion up $300 million, driven by lower commodity costs and higher net pricing that more than offset higher warranty costs. The higher warranty was driven by recalls and higher per unit repair costs due to inflation.
Speaker 5: transcript
Speaker 5: The higher warranty was driven by recalls and higher per unit repair costs due to inflation.
Speaker 5: transcript
Speaker 5: Importantly blue continues to be profitable in all regions with a strong fresh portfolio Poise for continued global success Hi Brits
<unk> Blue continues to be profitable in all regions with a strong fresh portfolio poised for continued global success.
Hybrids also continues to be a success our strategy. We've had in place now for almost two decades, we are the clear leader of the hybrid pickup truck segment in the U S. Thanks to Maverick and F. 150, we expect to extend this lead next year. When we introduced our refreshed 2020 for F 150 with more advanced technologies.
Speaker 5: transcript
Speaker 5: Strategy we've had in place now for almost two decades. We are the clear leader of the hybrid pickup truck segment in the US thanks to Maverick and F-150. We expect to extend this lead next year when we introduce our ReFresh 2024 F-150 with more advanced technologies. The F-150 PowerBoost Hybrid not only offers a 25% improvement in CO2 emissions, but on average, they are more profitable than our highest volume gas power.
The F 150 power boost hybrid not only offers a 25% improving cotr emissions, but on average they have more they are more profitable than our highest volume gas powertrains and hybrid arent just limited to North America. As we are launching a P have ranger for Europe, and IMG exit year.
Speaker 5: transcript
Speaker 5: And hybrids aren't just limited to North America, as we are launching a PHEV Ranger for Europe and IMG next year.
Speaker 5: transcript
Speaker 5: for credit generated EBT of 358 million. As expected, our results were down year over year reflecting lower lease residuals and financing margin and the non-reacurance of the riveted market valuation.
Ford credit generated EBIT of $358 million as expected our results were down year over year, reflecting lower lease residuals and financing margin and the non recurrence of derivatives market valuation gains.
Speaker 5: transcript
Speaker 5: Credit loss performance remains strong and below our historical average, but continues to normalize. Auction values remain strong, but are down sequentially in line with our expectation.
Credit loss performance remained strong at below our historical average, but continues to normalize auction values remained strong but are down sequentially in line with our expectations.
Speaker 5: transcript
Speaker 5: Finally, turning to software and services, we continue to see sustained quarter over quarter growth and subscriptions across all our.
Finally, turning to software and services, we continue to see sustained quarter over quarter growth in subscriptions across all our business segments and most importantly at gross margins of around 50% at our next generation digital platform will enable a step function change in capability, allowing us to scale and deliver value to both our <unk>.
Speaker 5: transcript
Speaker 5: and most importantly, at gross margins of around 50%.
Speaker 5: transcript
Speaker 5: And our next generation digital platform will enable a step function change in capability, allowing us to scale and deliver value to both our retail and commercial customers even faster. And as Peter highlighted, as we continue to build out our capabilities here, we expect it to be a significant source of future value creation.
Retail and commercial customers even faster.
As Peter highlighted as we continue to build out our capabilities here, we expect it to be a significant source of future value creation.
Speaker 5: transcript
Speaker 5: In closing, there's obviously a tremendous amount going on in our business, but I'm confident in our 4-plus plan and the underlying run rate of our business.
In closing there is obviously a tremendous amount going on our business, but I am confident in our four plus plan and the underlying run rate of our business.
Speaker 5: transcript
Speaker 5: So that wraps up our prepared remarks. We'll use the balance of the time to address what's on your minds. Thank you. And operator, please open the line for questions. We will now begin.
So that wraps up our prepared remarks, we'll use the balance of the time to address what's on your minds. Thank you.
Operator, please open the line for questions.
We will now begin the question and answer session.
Speaker 1: transcript
Speaker 1: you ask a question, you may press star, then one on your telephone key.
To ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Speaker 1: transcript
Speaker 1: If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press the button.
Speaker 1: transcript
Speaker 1: Our first question today is from Adam Jonas with Morgan Stanley . Please go ahead.
Our first question today is from Adam Jonas with Morgan Stanley. Please go ahead.
Speaker 6: transcript
Speaker 6: Thanks, everybody. So, John , I know you push out the $12 billion of the direct and cap investment and other expenditure on EVs, but I guess I'm saying, I'm interpreting that as just temporary that you still plan on spending it. So, my question is, how long can you keep allocating $10 billion a year, round number, to EVs? Yeah. So, Adam.
Thanks, everybody, so John I know, yes.
You push out the 12 billion of the direct and Capex.
But in other expenditure on Evs.
But I guess, what I'm, saying I'm interpreting that as temporary that you still plan on spending at my question is how long can you keep allocating 10 billion a year round number.
To Evs.
Yeah, So Adam we're going to match.
Speaker 5: transcript
Speaker 5: demand and capital needed to meet that demand. The first step here is given the flatter growth curve that we're seeing relative to what the industry expected. And we expected we've made this decision to push out 12 billion of capital expenditures. But it doesn't mean that we'll actually go ahead and pull the trigger on it if we don't need to.
Demand and capital needed to meet that demand.
First step here is given the flatter growth curve that we're seeing relative to what the industry expected and we expected. We've made this decision to push out $12 billion of capital expenditures, but it doesn't mean that we will actually go ahead and.
Pull the trigger on it if we don't need to.
Speaker 5: transcript
Speaker 5: And we're going to look at the overall EV business and be balanced about that. You know, there's a lot that's going to change between now and 26 and 30, and, you know, we're going to adjust appropriately.
And we're going to look at the overall EV business and be balanced about that.
There's a lot that's going to change between now and 2630.
We're going to adjust appropriately.
Speaker 5: transcript
Speaker 5: So, you know, it's something that's going to adjust as we move and how that business develops and we'll adjust that capital allocation appropriately and, you know, we'll change our strategy and make different decisions as well.
So.
It's something that's going to adjust as we move.
And how that business develops and we will adjust that capital allocation appropriately and we will change our strategy and make different decisions as well.
Speaker 7: transcript
Speaker 7: And one of the other things I'd say is that, well, I'll pass it over Jim because Jim has something he wants to say. Hey, Adam, thank you for your question. I just I just want to emphasize the
And what are the other things I would say is that.
I'll pass it over to Jim because Jim has somebody wants to say hey, Adam. Thanks for taking the question I just I just want to emphasize the.
Speaker 7: transcript
Speaker 7: Importance of our Gen 2 and Gen 3 products because they're very transformation in our profitability in EV. Yeah, we've learned a lot in Gen 1 to reduce some material costs.
The importance of our Gen two and Gen three products, because theyre very transformation in our our profitability in EV, Yes, we've learned a lot in gen. One we reduced material costs, we got the learning loop on the software.
Speaker 3: transcript
Speaker 3: We got the learning loop on the software. We learned how to scale batteries. We have the LFP battery now. We're starting to ship the customers. But there's only so much we can do on Gen 1. On Gen 2, as I said, we have a totally different approach from Aero, Vertical Integration, Design for Manufacturability. And there's a lot of other things we can do beyond allocating less capital to battery plants, for example.
We learned how to scale batteries, we have the LLP battery now, we're starting to ship to customers, but theres only so much we can do on Gen. One Gen. Two I said as I said, we have a totally different approach from arrow vertical integration design for manufacture ability.
And there's a lot of other things, we can do beyond allocating less capital to battery plants. For example, we've learned a lot about derivatives like rally, we're going to push services a lot more like level, two plus or level three autonomy.
Speaker 7: transcript
Speaker 7: We've learned a lot about derivatives like rally. We're gonna push services a lot more, like level two plus a level three autonomy. And we really plan on.
And we really plan on.
Speaker 7: transcript
Speaker 7: even redesign or improving the scale of a component by working with other companies. And the other big breakthrough is going to be, which we're designing in parallel, the Gen 3 product.
Even redesign or improving the scale of our components by working with other companies and the other big breakthrough is going to be which we are designing in parallel the gen. Three products, where we use the batteries a structural member the vehicle.
Speaker 7: transcript
Speaker 7: where we use the battery as a structural member of the vehicle, we go to low-cost sourcing, go to smaller vehicles, we maximize unit casting even more than we are, and radical cost reduction in our distribution. I think the other thing that's important to understand about Ford's strategy on EVs is pro.
We go to low cost sourcing go to smaller vehicles.
We maximize unit casting even more than we are and radical reed cost reduction in our in our distribution I think the other thing that's important to understand about Ford's strategy on Evs is pro we actually followed a very different strategy for pro using a multi energy.
Speaker 7: transcript
Speaker 7: We actually followed a very different strategy for pro using a multi-energy platform.
At form so we didnt Benno pure electric vehicles for transit for example.
Speaker 7: transcript
Speaker 7: So we didn't ban on pure electric vehicles for transit, for example. And we're now launching the transit custom in Europe . And that has diesel, gas, and it will have eventually hybrid and pure electric. And that's a very different, very different ban on our pro. We're even starting to export pro vehicles from China to develop markets around the world that are pure electric. And that part won't change.
And we're now launching the transit customer in Europe, and that has diesel gas.
And it will have eventually hybrid and pure electric and that's a very different.
Very different betting on a pro we're even starting to export CRO vehicles in China to developed markets around the world that are pure electric.
And that part won't change our product strategy.
Speaker 6: transcript
Speaker 6: I appreciate that Jim, and he just to follow up hybrids, you point out in the prepare remarks, the growth there, and I think you've made comments that that technology something you wanna lean in on more as a transition, not that you won't continue to sell your Gen1 EVs, but that there is just real demand for hybrids. Can you refresh us as you kind of turn that dial back up on hybrids categorically, how the margins on those products might compare?
I appreciate that Jim maybe just a follow up are hybrids.
Pointed out in our prepared remarks.
Growth there and I think you've made comments that that that technology is something you want to lean in on more as a transition not that you won't continue to sell your gen. One evs, but that there is just real demand for hybrids can you refresh us as you kind of turn that turn that dial back up on hybrids.
Categorically, how that how the margins on those products might compare.
Speaker 7: transcript
Speaker 7: to your ice, you know, your normal ice margins is it accretive? Is it kind of in the ballpark? I didn't know if there was any kind of sacrifice or gap there between hybrid and the normal pure pure ice.
To your ice.
Ice margins is it accretive is it kind of in the ballpark I didn't know if there was any kind of sacrifice our gap there between hybrid and the normal pure pure ice. Thanks.
Speaker 5: transcript
Speaker 5: Yeah, you want me to jump in? Yep. There's that cost as you'd expect, you know, for the battery and the motors, et cetera. But if you look at, let's just take an F-series example. If you take the hybrid on average, they have a higher margin than our highest volume gas version.
Yes, yes, yes.
That of course as you would expect for the battery.
Orders et cetera.
If you look at let's just take F series for example, if you take the hybrid on average they're they have a higher margin than our highest volume gas versions because of the mix and what we have in the vehicle and the pricing we can get for the hybrid technology and the fuel efficiency that comes along with that.
Speaker 7: transcript
Speaker 7: because of the next and what we have in the vehicle and the pricing we can get for the hybrid technology and the fuel efficiency that comes along with that. And one of the things we learned about hybrid is we're executing very differently than our first gen hybrids is we have pro power on board. We have a lot of other attributes that people willing to pay for like.
One of the things we learned about hybrid because we're executing very differently than our first gen hybrids. As we are pro power onboard we have a lot of other attributes that people are willing to pay for like.
Speaker 7: transcript
Speaker 7: you know, like F-150 powering a job site or your house is backup energy. That's another advantage of having those batteries that maybe some of our competitors haven't had the same price and power. The F-150 now hybrid is a 40% year over year. And we think the new F-150, new hybrid will be 20% mixed.
Like F 150.
Speaker 7: transcript
Speaker 7: and it may be the best-selling hybrid in the United States.
And it may be the best selling hybrid in the United States.
Speaker 7: transcript
Speaker 7: So our hybrid strategy is a little different than our competitors because the work cycle for our products are different, but hybrid has a really big place. We're trying to challenge ourselves, Adam, to execute hybrid so they do more than just for pelvic vehicle, for pricing power.
So our hybrid strategy is a little different than our competitors because the work cycle for our products are different but hybrid has a really big place. We're trying to challenge ourselves Adam to execute hybrid so they do more than just propel the vehicle for pricing power.
Thanks, Jim Thanks, John.
Speaker 1: transcript
Speaker 1: The next question is from John Murphy with Bank of America. Please go ahead.
The next question is from John Murphy with Bank of America. Please go ahead.
Speaker 3: transcript
Speaker 3: Good afternoon guys. Just a first question Jim on on on warranty and it accelerated or said headwind on your your bases accelerated a bit in the quarter
Good afternoon. Good afternoon, guys. Just a first question Jim on on warranty and an accelerated or sort of headwind on year over year basis accelerated a bit in the quarter, but if I look at the full year full year numbers, even if we added back this year I think it's slide 32, if you added back to 1.7 billion on warranty to the $9 4 billion in EBIT, you've done year to date you'd already even be in your.
Speaker 8: transcript
Speaker 8: But if I look at like the full year numbers, even, you know, if we added back this, you know, I think it's slide 32, if we added back to 1.7 billion on warranty to the 9.4 billion in EBIT you've done year to date, it already even be in your range in the first three quarters of the 11 to 12 billion in EBIT you've been talking about before. So, I mean, it's a, it's a major, you know, issue here, you know, for the numbers and results and cash flow, you know, what's going on and how are you going to get a handle on this and reverse this hopefully in the next year or two?
The range in the first three quarters of the $11 billion to $12 billion in EBIT <unk> been talking about before so I mean, it's a.
It's a major issue here.
For the numbers and results and cash flow.
Whats going on and how are you going to get a handle on this and reverse as hopefully in the next year or two.
Speaker 5: transcript
Speaker 5: Yeah, so, Adam, that's exactly right. One of the things we're sorry, John , one of the things we're seeing is that it's not just the quality issues, which are an important piece of this. And I think Jim wants to comment on that, but we're also seeing tremendous inflation from the dealers on the repair.
Yeah, So Adam that's exactly right one of the things were.
Sorry, John.
Whether the things we're seeing is that it's not just the quality issues, which are an important piece of this and I think Jim wants to comment on that but we're also seeing tremendous inflation from.
From the dealers on the repair costs.
Speaker 5: transcript
Speaker 5: And that's driving quite a bit of it. If you look at the increase that we had in the quarter for the warranty on a year over year, the $1.2 billion, let's say that about $300 million of that was inflationary costs and roughly $900 was the issue with warranties. So that's what we're seeing there.
And that's driving quite a bit of if you looked at the increase that we had.
In the quarter for the warranty on a year over year that $1 2 billion, let's say that about $300 million of that was inflationary costs.
900.
Was the issue with warranties so.
That's what we're seeing there.
The issue around the <unk>.
Speaker 7: transcript
Speaker 7: quality, you know, that's something that Jim's going to cover here. Hey, John . Again, thanks for your question. I want to slow it down a little bit and explain kind of our operational headwinds, not just quality, but cost as well, and give a little bit of context and maybe highlight some of the stuff we've done, but the work we have to do. You know, a couple of years ago when we started as a management team, the team that's doing cost and quality is the same team.
Quality, that's something that Jim is going to we're going to cover here John.
Again, thanks for your question I wanted to slow it down a little bit and explain.
Our operational headwinds not just quality, but cost as well and give a little bit of context.
Maybe highlight some of the stuff we've done but the work we have to do.
A couple of years ago, when we started as a management team.
The team that's doing cost and quality is same team.
Speaker 3: transcript
Speaker 3: And we have a lot of revenue power in the company, but we also have a lot of technology. And that technology that we rolled out like cameras before our competitors, it puts a huge burden on that electrical architecture with a lot of extra modules and software.
And we have a lot of revenue power in the company, but we also have a lot of technology and that technology that we rolled out like cameras before our competitors. It puts a huge burden on the electrical architecture with a lot of extra modules and software we definitely had the largest.
Speaker 7: transcript
Speaker 7: We definitely had the largest complexity, customer facing of any brand. We also ran the business on products instead of platforms and systems.
<unk> customer facing of any brand and we also ran the business on products instead of platforms and systems.
Speaker 7: transcript
Speaker 7: Our engineers and supply chain team did not have competitive tools like IT systems and parts release IT
Our engineers and supply chain team did not have competitive tools like it systems and parts release it.
We.
Speaker 7: transcript
Speaker 7: We weren't cooperating with the suppliers the right way on cost reduction. We kind of negotiated them every year, but we weren't really getting into redesigning the parts and getting the complexity out of the suppliers manufacturing system. We didn't really use a lot of strategic sourcing. So we had a lot of concentration or suppliers and a lack of leverage. We had inconsistent application within our manufacturing system for our QOS.
We werent cooperating with the suppliers the right way.
On cost reduction, we kind of negotiating them every year, but we werent really getting into redesigning the parts and getting the complexity out of the suppliers' manufacturing system, we didn't really use a lot of strategic sourcing.
So we had a lot of concentration of our suppliers and a lack of leverage.
We had inconsistent application within our manufacturing system for our Qos. So some plants were fantastic like in China, and Mexico, although plants were completely uncompetitive and run differently.
Speaker 7: transcript
Speaker 7: So some plants were fantastic, like in Johnny in Mexico. Other plants were completely uncompetitive and run differently.
Speaker 3: transcript
Speaker 3: And we traveled hopefully on a lot of the launches. The gateways we would have some issues and the team had kind of a hero mentality to try to close them out the end of the launch and we would get in trouble.
And we travelled hopefully on a lot of the launches the gateways, we would have some issues and the team had.
Kind of a hero mentality trying to close them out at the end of the end of the launch and we would get in trouble I'm really proud of the progress you've made like in the last 18 months, but it may be just the tip above the water in the in the low lying fruit. We now have to get after that systematic issue and that's those issues that I mentioned.
Speaker 7: transcript
Speaker 7: I'm really proud of the progress we made like in the last 18 months, but it's maybe just the tip above the water and the low-lying fruit. We now have to get after that systematic issue and that's those issues that I mentioned, on complexity.
On on complexity.
Speaker 3: transcript
Speaker 3: We have reduced the new F series from 1.4 billion combinations to less than 1,000. And on our new SUVs, we reduced the customer facing complexity by 90 over 90%.
We have reduced the new F series from $1 4 billion combinations to less than 1000, and R&R, new Suvs, we reduced the customer facing complexity by 90 over 90%.
Speaker 3: transcript
Speaker 3: our QS executions getting better. We're about 10% improvement in our problems at three months in service, which is a lot of progress for North America. So the initial quality is getting better. We now have the talent, both the expertise, but also the execution talent.
Our Q1 execution is getting better we're about 10% improvement in our problems at three months in service, which is a lot of progress for North America. So the initial quality is getting better we now have the talent both the expertise expertise, but also the execution talent.
Speaker 3: transcript
Speaker 3: We're now starting to strategically source our EV components, which we now can apply to our ice business.
We're now starting to strategically source, our EV components, which we know can apply to our ice business.
I'm really proud of the <unk>.
Speaker 7: transcript
Speaker 7: The launch progress we made, we're now seeing launch spikes, we've never seen it in a decade at Ford. We are slowing down those launches, and in the case of super duties, costs us a billion dollars, but it was the right trade because it prevents a lot of recalls and issues down the road for the company.
Launched progress we've made we're now seeing launched spikes, we've never seen in decade at Ford, we are slowing down those launches and in the case of Super duty cost, it's a $1 billion, but it was the right trade because it prevents a lot of recalls and issues down the road for the company.
Speaker 3: transcript
Speaker 3: And we have made progress on material. We have billions of dollars of opportunity next year, but we have to deliver and release the parts. And I'm very confident that Kumar's new organization will be able to really get after the part of the iceberg that's below the water that's been a problem at Ford for decades.
And we have made progress on material, we have billions of dollars of opportunity next year, but we have to deliver and released the parts and I'm very confident that kumars, new organization will be able to really get after the the part of the iceberg. This below the water that's been a problem it forward for decades.
Speaker 7: transcript
Speaker 7: So thank you for asking your question and I just want to take a little extra time to give the full contact.
So thank you for asking your question and I just wanted to take a little extra time to give the full context, that's great can I, maybe just sneak in one follow up.
Speaker 8: transcript
Speaker 8: That's great. Can I maybe just sneak in one follow up, you know, EV demand is not materializing quite as robustly as we were expecting this year. Pricing is a little bit down. Costs are going to be up with labor. So, I mean, you know, as you mentioned, EVs are going to become more challenging going forward. But when you think about like a program like the, or a product like the Explorer that, you know, we have at least in car wares launching in,
Demand is not materializing quite as robustly as we were expecting this year pricing is a little bit down costs are going to be up with labor. So I mean.
As you mentioned evs can become more challenging going forward, but when you're thinking about like a program like <unk> or product like the explore that we have at least in <unk> launching in calendar 'twenty. Six has a 25 is our model year 'twenty, six and you might disagree or agree with that but that product's coming at some point soon.
Speaker 8: transcript
Speaker 8: calendar year 26, 25 as a model year 26. And you might disagree or agree with that, but that product's coming at some point soon.
Speaker 8: transcript
Speaker 8: That was an EV variant.
That was an EEV variance and an ice variance.
Speaker 8: transcript
Speaker 8: and an ice variant we had and we were expecting. And it would have been sort of an expectation that maybe you would have crossed out that ice variant and just had an EV six months ago. But now it actually thinks of switching the other direction. You might actually cross out the EV and just keep the ice. I mean, how are you making these decisions right now with sort of these tectonic shifts?
We had and we were expecting and it would have been sort of an expectation that maybe you would've crossed out that ice veer into just had an EV six months ago, but now actually thinks a switch in the other direction you might actually cross out.
And just keep the ice.
How are you, making these decisions right now with sort of these tectonic shifts going on I mean, there's data, there's consumer groups and all sorts of stuff, but theyre incredibly difficult and impactful decisions, but you have to make what's the process Jim that youre going through on these powertrain decisions as youre going through the product.
Speaker 8: transcript
Speaker 8: going on, I mean there's data, there's consumer groups and all sorts of stuff, but they're incredibly difficult and impactful decisions that you have to make. What is the process, Jim, that you're going through on these powertrain decisions as you're going through the product launches over the coming years?
Over the coming years and planning.
Speaker 3: transcript
Speaker 3: Yeah, got it. So things have changed, you know, EVs are still in high demand. It's just as you said, the pricing is much lower and there's a lot of over capacity in the middle of the market. For us, I think we are EV strategy and our ice strategies to go after customers we know really well.
Yeah got it so.
So things are changing you know evs are still in high demand. It's just as you said the pricing is much lower and Theres a lot of overcapacity in the middle of the market.
For Us I think were we are.
Our EV strategy in our ice strategy is to go after customers, we know really well.
Speaker 7: transcript
Speaker 7: And so on our ICE and hybrids, very much of a loyalty target. And in the case of EVs, in many of the same segments, but a conquest strategy. And I would say we feel very confident on that strategy because Ford has a great reputation in those segments, like full-size truck or pickups or vans, commercial vehicles or three-row crossovers.
So on our ice and hybrids very much of a loyalty target.
And in the case of Evs and many of the same segments with a conquest strategy.
<unk>.
And I would say, we feel very confident.
On that strategy because Ford is has a great reputation of segments like full sized truck or pick ups or bands commercial vehicles, a three row crossovers.
Speaker 7: transcript
Speaker 7: But our products are not substitutional, because the customers who are going after are different.
<unk>.
But our products are not substitutional, because the customers who are going after are different.
Speaker 7: transcript
Speaker 7: But they are the same segments. We know the use cycle really well, but the innovation will be pointed at different things.
They are the same segments. So we know the use cycle really well, but the innovation will be pointing to different things.
Speaker 7: transcript
Speaker 7: The F-150, I think, is probably the best example of Ford because we have more class ice. We have a hybrid that will probably be 20% mix. And then we have lightning. And the next generation lightning will work on right now. And when you compare the ice to the hybrid F-150 to the EV F-150, you will be surprised to how much more conquest.
The effluent 50, I think is probably the best example of forward because we have world class ice we have a hybrid that will probably be 20% mix and then we have lightning in the next generation Lightning of we're working on right now and when you compare the I used to the hybrid F 152.
The EV.
F 150, you'll be surprised at how much more conquest the vehicle is.
Speaker 3: transcript
Speaker 3: The vehicle is executed and we believe that innovation will give us pricing power for those EV conquest customers. The first generation has helped us there.
<unk> executed and we believe that innovation will give us pricing power.
For those EV conquest customers. The first generation has helped us there.
Speaker 3: transcript
Speaker 3: But I think that's our strategy as far as the
<unk>.
I think that's our strategy.
As far as the.
Speaker 7: transcript
Speaker 7: changeability of that strategy, flexibility, you certainly have choice. But as John mentioned, we're really flexing the capital and the timing of the capital, especially around battery plants and overall manufacturing capacity.
Changeability of that strategy of flexibility certainly have choice.
But as John mentioned, we're really flexing the capital.
And the timing of the capital.
Especially around battery plants and overall manufacturing capacity.
Speaker 7: transcript
Speaker 7: So we're not changing the product strategy, but we are flexing.
So we're not changing the overall, we're not changing our product strategy, but we are flexing.
Speaker 7: transcript
Speaker 7: And that's our bet is that we will flex the capacity.
And that's our bet.
Is that we will flex the capacity.
Speaker 7: transcript
Speaker 7: From a product planning standpoint, we've made, I think, really good bets on the ICE and HEV side in case the EV market is not as fast as we thought.
From a product planning standpoint, we've made I think really good bets on the ice and HEV side in case, the EV market is not as fast as we thought.
Speaker 7: transcript
Speaker 7: We have affordable mavericks, we have a strong international business now, with Ranger and Everest, those markets won't go EV anytime soon. And the markets where we're in, like F-150 Super Duty Pro, they're not duty cycles that are gonna go EV, and we have really fresh product.
We have affordable Maverick's, we have a strong international business now with Ranger and Everest those markets won't go EV anytime soon in the markets, where we are in like like F 150 Super duty Pro Theyre not duty cycles that are going to go and we have really fresh product.
So.
Speaker 7: transcript
Speaker 7: Our bet is maybe different than others who just said, look, we're gonna get rid of an ice explorer and go to an EV Explorer. That's not our strategy.
Our bed is maybe different than others, who just said look we're going to get rid of an ice explore and go to an EV explore that's not our strategy.
That's very helpful. Thank you.
Speaker 1: transcript
Speaker 1: The next question is from Dan Levy with Barclays. Please go ahead.
The next question is from Dan Levy with Barclays. Please go ahead.
Speaker 9: transcript
Speaker 9: Hi, good evening. Thank you for taking the questions. I appreciate Jim the commentary that you gave on warranty and just cost more broadly, but I wanted to ask the question maybe in a slightly different way. This is obviously, as you pointed out, it's a lingering issue. I think you said at the CMD earlier this year, it's a $7 billion cost.
Hi, Good evening, Thank you for taking the question.
I appreciate Jim the commentary that you gave on.
Warranty costs more broadly, but wanted to ask the question maybe in a slightly different way.
This is obviously as you pointed out the lingering issue I think you said that the CND earlier this year to $7 billion cost gap versus your competitors for blue.
Speaker 9: transcript
Speaker 9: versus your competitors for blue, what exactly is the line of sight or how confident are you that, you know, these issues can be turned around just because it's, you know, these have been issues for some years and specifically in the context of you're pivoting to new architectures here where there's obviously going to be some uncertainty on your end.
What exactly is in the line fit or how confident are you that.
These issues can be turned around just because it's.
Been issues for some years and specifically in the context of Youre pivoting to new architectures here, we're obviously going to be some uncertainty on your end.
Speaker 9: transcript
Speaker 9: Now, what gives you the confidence for the line of sight to actually turning around these costs?
What gives you the confidence or the line of sight to actually turning around these cost headwinds.
Speaker 5: transcript
Speaker 5: Yeah, well, maybe I'll start, Jim, and then hand over to you. What I would say is that.
Yes, maybe I'll start and then hand over to you.
What I would say is that.
Okay.
Speaker 5: transcript
Speaker 5: There's a real focus now in the company and you mentioned it and it's remarks around excellence and delivering right.
There is a real focus now in the company as Jim mentioned in his remarks around excellence and delivering right execution.
Speaker 5: transcript
Speaker 5: When you look at the real fundamental issues that we've had across the industrial platform.
When you look at the real fundamental issues that we've had across the industrial platform.
Speaker 5: transcript
Speaker 5: is the way we work together, our focus of the work, and the structure of the work.
It's the way we work together.
Our focus of the work.
And the structure of the work.
Speaker 5: transcript
Speaker 5: There have been those that have thought this has been an issue for years and others that haven't. And I think we're finally starting.
There have been those that have thought this has been an issue for years and others that have it.
I think we're finally, starting finally.
Speaker 5: transcript
Speaker 5: We are coalesced around those root cause issues. We have
<unk>, we are coalesced around those root cause issues, we have great new talent in the company.
Speaker 5: transcript
Speaker 5: Liz Doar from a supply chain standpoint or domain expertise is outstanding.
His door from a supply chain standpoint, our domain expertise is outstanding.
Speaker 5: transcript
Speaker 5: Bryce Curry from manufacturing standpoint outstanding and then in addition to having Doug bringing Kumar back into the fold who grew up in the system as a design and release engineer and understand the board system and Understand the air states really well
Bryce Curry from a manufacturing standpoint outstanding.
And then in addition to having Doug brings.
Bringing kumar back into the fold, who grew up in the system as a design and release engineer and understand support system and understands the aerospace really well.
Speaker 5: transcript
Speaker 5: Having them all together now, driving this foundational chain.
Having them altogether now driving this foundational change.
Speaker 5: transcript
Speaker 5: is important. And as Jim said, it's the area under the iceberg, right? It's what's under the water, and it's the most important piece of it. And the progress isn't showing up as quickly as we would like in the part you see above the water, but the change is being driven below the water. And it's the same root cause issues that are driving the quality problems as well as the cost.
As important and as Jim said, it's it's the area under the iceberg right. It's what's under the water and it's the most important piece of it.
And the progress is showing up as quickly as we would like and the part you see above the water, but the changes being driven below the water and it's the same root cause issues that are driving the quality problems as well as the cost structure.
Speaker 5: transcript
Speaker 5: And it's the material cost at about four billion. And now we have, you know, warranties about two billion and then you have manufacturing and such.
Issues and it's the material costs at about $4 billion and now we have warranties about $2 billion and then you have manufacturing et cetera in there and.
Speaker 5: transcript
Speaker 5: And so it's the talent, it's what we're attacking, it's the relentless focus on excellence, and it's the way we're working together as a team to go after these issues. And um.
And so it's the talent, it's what we're attacking.
<unk> focus on excellence and it's the way we're working together as a team to go after these issues.
<unk>.
Speaker 3: transcript
Speaker 3: Having the new team in place and having the new talent in place and watching what they're going after and how they're working together as an integrated team is what we need to get this done. And I would just compliment that in two ways.
Having the new team in place and having the talent in place and watching what they are going after and how they're working together as an integrated team is what we need to get this done.
And I would just complement that two ways.
On quality are real tests.
Speaker 3: transcript
Speaker 3: our commitment, talent, all things that John talked about came together in the launches of our most important products like Super Duty. And I am, I am so
Our commitment talent all the things that John talked about came together in the launches of our most important products like Super duty.
And I am I am so confident.
In our.
Speaker 7: transcript
Speaker 7: tackling systemic issues because of what happened on our recent launches. The team does
Tackling systemic issues because of what happened on our recent launches.
The team doubled down on testing.
Speaker 7: transcript
Speaker 7: They did the extra work on supplier quality and read instant in the factory and really tested the vehicle for failure. And we did something that Ford maybe it hasn't done in the past. We held the vehicle until it was right.
They did the extra work on supplier quality and readiness and the in the factory.
And really tested the vehicles for failure and we did something that would maybe it hasn't done in the past we held the vehicle until it was right.
Speaker 7: transcript
Speaker 7: And in the case of super duty, that was a billion dollar plus decision.
And in the case of Super duty that was $1 billion plus decision.
Speaker 7: transcript
Speaker 7: And that was proof to me, this team understands that quality is our top priority. That message was sent throughout the company. Everyone got the message.
And that was proved to me this team understands a quality as our top priority that message was sent throughout the company everyone got the memo.
Speaker 7: transcript
Speaker 7: Uncost, on EV, I'm encouraged because we're designing from scratch. And a lot of the talent we brought in approaches that cost is a pride point for them, designing it in.
On cost on EV I'm encouraged because were designing from scratch and a lot of the talent. We brought in approaches that cost us a price point for them and designing it in the.
Speaker 7: transcript
Speaker 7: The real test for us as a leadership team, beyond quality, is gonna be bringing on material cost and negotiated parts price cost down on our carryover ICU.
The real test for us as a leadership team beyond quality is going to be bringing on material cost and negotiated parts price cost down on our carryover ICF walls.
Speaker 7: transcript
Speaker 7: That is going to be the test. And we believe we have more than a billion dollars of ideas already in the hopper for this year, for 2024. And we've got to deliver it on those ideas. They'll test our standards from rust protection and NVH. They're going to test our standards. They're going to test our parts release process. It's going to be, but it's us to execute.
That is going to be the test.
We believe we have more than $1 billion.
Of ideas already in the Hopper.
For this year for 2024.
And we got to deliver it on those ideas will test our standards rasp.
<unk> protection and VH Theyre going to test our standards are going to test our parts released process, it's going to be.
But it's us to execute.
Okay.
Speaker 9: transcript
Speaker 9: Thank you just a follow-up quickly on pricing which I think has continued to up-reform beyond anyone's expectations.
Great. Thank you just a follow up quickly on pricing, which.
I think.
Continue to outperform beyond anyone's expectations, maybe you can give a little bit of voice over on what youre seeing on pricing, especially in light of.
Speaker 9: transcript
Speaker 9: Maybe you can give a little bit of voiceover on what you're seeing on pricing, especially in light of
Speaker 9: transcript
Speaker 9: All the questions out there on affordability and how long you think some of these pricing tailings can be sustained.
All the questions out there on affordability and how long do you think some of these pricing tailwind can be sustained.
Sure.
Speaker 5: transcript
Speaker 5: Yeah, I think it's different for each of the business segments, right? We're continuing to see incredible downward pressure and pricing in
Yes, I think it's different for each of the business segments right.
We're continuing to see incredible downward pressure on pricing.
Speaker 5: transcript
Speaker 5: this year on the EVs, right? But Pro, really strong pricing power right now. As Jim mentioned in his prepared remarks, we've got really good strength in the orders coming in for the model year. We're good ways through the model year, the pricing is held. And then when you look at the fresh lineup we have on blue, we're continuing to see the pricing.
This year on the Evs right, but pro really strong pricing power right now.
As Jim mentioned in his prepared remarks.
Got really good strength.
The orders coming in or the model year.
Good ways through the model year that pricing has held.
And then when you look at the fresh lineup we have on.
Blue, we're continuing to see the pricing holds.
Speaker 5: transcript
Speaker 5: for the most part. Now, are we starting to see, you know, that there's some pressure on on on pricing sure? And we said there would be, but it's been more resilient than we
For the most part now or are we starting to see.
That there is some pressure on.
On pricing shore, and we said there would be but it's been more resilient than we thought this year, that's for sure, especially through the third quarter.
<unk>.
Speaker 5: transcript
Speaker 5: But affordability, you know, we've talked about this before. Affordability is an issue. Right now it takes a consumer about 14% of their monthly disposable income for a vehicle. Pre-COVID and Pre-The Insulation that we've seen, it was about 13%. So we think it's gonna revert back to that. And then we think it's gonna happen over next 12 to 18 months.
But affordability we've talked about this before affordability is an issue.
Right now it takes a consumer or about 14% of their monthly disposable income.
For a vehicle.
Pre COVID-19 and pre the inflation that we've seen it was about 13%. So we think it's going to revert back to that and then we think it is going to happen over the next 12 to 18 months and so to do that it would be about a net price reduction of <unk> thousand $800, but we also believe that part of that is going to come through the Oems and lower prices, but it's also going to come through dealer margins.
Speaker 5: transcript
Speaker 5: And so to do that, it would be about a net price reduction of $1,800. But we also believe that part of that's going to.
Speaker 5: transcript
Speaker 5: through the OEMs in lower prices, but it's also gonna come through dealer margins because dealers are still trans-backed.
Because dealers are still transacting at a much higher percent of MSRP than they have in the past and so it is going to be both of those now we expected some of that to occur throughout the year, so far it hasnt much.
Speaker 5: transcript
Speaker 5: at a much higher percent of MSRP than they have in the past. And so it's going to be both of those. Now, we expected some of that to occur, you know, throughout the year so far. It hasn't much. And so I think you're going to start to see that come through as we move into next year.
And so I think you're going to start to see that come through as we move into next year.
Speaker 1: transcript
Speaker 1: The next question is from Rod Lashwood Wolf Research. Please go ahead.
The next question is from Rod Lache with Wolfe Research. Please go ahead.
Speaker 10: transcript
Speaker 10: Hi everybody. I wanted to ask a couple things on EVs. I think that
Hi, everybody.
Wanted to ask a couple of things on Evs I think that.
Speaker 10: transcript
Speaker 10: Certainly, I mean, I don't think you've been saying that the deflation that you're seeing in EVs has been steeper than you assume.
Certainly yeah, I mean, I don't think you've been saying that the deflation that youre seeing and Evs has been steeper than you assumed.
Speaker 10: transcript
Speaker 10: But obviously your original plan assumed some level of deflation through 2026.
But I I.
Obviously your original plan assumed some level of deflation through 2026.
Speaker 10: transcript
Speaker 10: I think it was even price parity with ice in some cases. And yet you assume they percent margin.
I think it was even price parity with with ice in some cases and yet you assumed 8% margin.
In that timeframe.
Speaker 10: transcript
Speaker 10: Am I correct in those assumptions that your ultimate view was that you would get to price parity with ICE? And if that's the case...
Am I correct in the end those assumptions that Youre Ultimate view was that you would get to a price parity with ice and if thats the case.
Speaker 10: transcript
Speaker 10: Why what do you need to do in order to push harder? Do you need to actually reduce prices even below ice in order to achieve your plan or do you need to achieve even greater? A greater price premium
Why what do you mean.
Need to do in order to push harder.
Do you need to actually reduce prices even below ice.
In order to achieve your plan or do you need to achieve even greater.
A greater price premium.
Speaker 5: transcript
Yeah Rod John.
<unk>, if you look at our three row SUV.
We thought about that our gen two product was.
It's going to have the exterior of sizes and explore in the interior space of an expedition.
Speaker 5: transcript
Speaker 5: So when we looked at that and setting the targets for the team in 2026, we said, well,
And so when we looked at that and setting the targets for the team in 2026, we said well.
Speaker 5: transcript
Speaker 5: You know, you should, we should start out with a revenue assumption that it would be priced on an ice, you know, but as an ice would be between those two vehicles.
You should we should start out with a revenue assumption that it will be priced on an ice.
A nice would be between those two two vehicles.
Speaker 5: transcript
Speaker 5: And so that's how we set up the affordable targets that we gave the team to design to. You know, in a lot has changed, but the team is working diligently to try to deliver that.
So thats, how we set up the affordable targets that we gave the team to design too.
What has changed but the team is working diligently to try to deliver that.
Speaker 5: transcript
Speaker 5: And we aren't continuing to see pricing pressure in the ED segment, but right now there's still a premium to gas in many areas.
And we are continuing to see pricing pressure in the EV segment, but right now there is still a premium to gas.
Any areas. So I think what youre going to find is over time that premiums going to reduce.
Speaker 5: transcript
Speaker 5: So I think what you're going to find is over time that premiums going to reduce as we move forward. And that's what we're trying, we have built into our planning assumptions for our second generation vehicle. And then as well for our third generation vehicle that you're going to see another step down on pricing so that these vehicles are affordable. And that's all setting up our cost structure that we're targeting and going after, which was the basis of setting our 8% mark.
As we move forward and that's what we're trying to we have built into our planning assumptions for our second generation vehicle and then as well for our third generation vehicles that youre going to see another step down on pricing.
These vehicles are affordable and Thats, all setting up our cost structure that we're targeting and going after which was the basis of setting our 8% margin.
Speaker 10: transcript
Speaker 10: Okay, so that that's still your expectation that you would get to an 8% margin.
Okay. So that's still your expectation that you would get to an 8% margin.
Speaker 10: transcript
Speaker 10: and you would have a cost structure that reflects price parity with ICE.
And and you would have a cost structure that that reflects price parity with ice.
Speaker 5: transcript
Speaker 5: Yep, that is the target that the team is going after.
Yes that is the target that the team is going after.
Speaker 5: transcript
Speaker 5: There's a lot that has changed as you know, and the team is working through that. And the key three L on its gym went over is, most importantly, the size of the battery, the efficiencies of lots needed to move the vehicle.
There's a lot that has changed as you know and the team is working through that.
<unk>.
The key three elements Jim went over it.
Most importantly, the size of the battery the efficiencies of what's.
We needed to move the vehicle the vertical integration the partnering.
Speaker 5: transcript
Speaker 5: the vertical integration, the partnering on what we would say our commodity.
What we would say our commodity parts of the business things that are differentiating for additional opportunity there.
Speaker 5: transcript
Speaker 5: Parts of the business, things that aren't differentiating for additional opportunities there. The scaling and using the capabilities of the vehicle as we build out the manufacturing facilities to be as lean as efficient as possible.
Scaling and using the capabilities of the vehicle as we build out the manufacturing facilities to be as lean as efficient as possible.
Speaker 5: transcript
Speaker 5: And the other team is pushing hard to get every...
The team is pushing hard to get every.
Speaker 5: transcript
Speaker 5: that we can through there to build out our gen to vehicles that are profitable and deliver ultimately the 8% target that we've set.
Save that we can through there to build out our gen. Two vehicles that are profitable and deliver ultimately the 8% target that we've set for them.
Speaker 10: transcript
Speaker 10: Okay. And just secondly, I'm assuming that you still view vertical integration in batteries and LFT is critical to achieving your cost targets. Just given all the issues...
And just secondly, I am assuming that you still view vertical integration in batteries and LSP is critical to achieving your cost targets.
Just given all the issues around that.
Speaker 10: transcript
Speaker 10: Can you just give it and some of the pauses or delays that you've got on some of these plants? Can you just give us an update on what the trajectory is to achieving those lower costs and batteries and how is your plan changing?
Can you just.
Some of the pauses or delays that you've got on some of these plants can you just give us an update.
On what the trajectory is to achieving those lower costs and batteries and how is your plan changing.
Yes so.
Speaker 5: transcript
Speaker 5: We're continuing to move forward the vertical integration on the battery itself, working on the cell design, we're working on the chemistries as we said. We have no real change to what we've put out forward before on the Blue Oval Park battery plant here in Michigan. But LFP is definitely gonna be part of our future.
We're continuing to move forward with vertical integration on the battery itself.
Working.
Cell design, we're working on the.
As we said.
We have no real change to what we are.
We've put out forward before.
Global Park battery plant here in Michigan.
But <unk> is definitely going to be part of our future.
Speaker 5: transcript
Speaker 5: EVs and that is a very important cost reduction.
Evs and that is very important cost reduction.
Speaker 5: transcript
Speaker 5: step in our path for the gen 2 video.
And our path for.
The Gen two vehicles.
Speaker 5: transcript
So it's a combination of all of that it's a combination of the battery size and the efficiency of the vehicle to get the lowest what's possible to hit the ranges that we're looking to hit it's the vertical integration across the vehicles.
Integration across the battery and then it well as well as the Chemistries and all of that comes together to drive the cost reductions we need but it seems to working towards is that part of the vehicles target.
Okay. Thank you.
Yes.
Speaker 1: transcript
Speaker 1: And our final question today comes from Emmanuel Rossner with Deutsche Bank. Please go ahead.
And our final question today comes from Emmanuel Rosner with Deutsche Bank. Please go ahead.
Speaker 1: transcript
Speaker 1: Thank you very much. So I appreciate your kind of assessment of the EV business and as well as all the actions that you detailed in terms of trying to reduce the investment and losses in the near term. At the same time, you rightly acknowledge that impacting change, effecting change on the first generation is not gonna be the easiest. More change would come in gen two, gen three. So anyway, you could just frame for us how much.
Oh, Thank you very much.
I appreciate your candid assessment of the EV business as well as all the actions that you're you details.
In terms of trying to reduce the investment in losses in the near term at the same time you are right.
<unk> acknowledged that impacting changed effecting change on the first generation, it's not going to be.
The ECS more change would come in Gen. Two gen three.
So any way you could just frame for us how much improvement can we expect during these first generation.
Speaker 8: transcript
Speaker 8: improvement, can you expect during this first generation? You're not running it's something like a $5 billion annual loss on Model E.
We're not running at something like $5 billion annual loss on model.
Speaker 8: transcript
Speaker 8: not that long ago, a few months ago, you still had fairly near-term targets to bring that to EBS positive. Obviously, a lot has changed, but then you're addressing these changes with your actions. So, where does it go from here? Does it get worse? Does it get better? Can something be done before Gen 2 and Gen 3 in terms of improving the losses?
Not that long ago, a few months ago, you still had Chilean near term targets to bring that to.
EBIT positive obviously lost a lot of change, but then you addressing this changes with your actions so where does it go from here does it gets worse as it gets better and something to be done before gen. Two and gen. Three in terms of improving the losses.
Speaker 5: transcript
Speaker 5: Yeah, so you're right, Emmanuel. The spec function change is going to be on the Gen 2s where we'll have more degrees of freedom to make the types of changes I just talked about. On the Gen 1s, we've seen the price come down much quicker than we had expected, of course. That's showing up in our results. We're continuing to work.
Yes.
Youre right Emmanuel step function change is going to be on the Gen twos, where we'll have more degrees of freedom to make the types of changes I just talked about.
On the Gen ones, we've seen the price come down much quicker than we had expected of course.
It's showing up in our results we're continuing to work.
Speaker 5: transcript
Speaker 5: very diligently on additional cost and design reductions on the Gen 1 products. And the team is also working very diligently to minimize the impact of the lower prices in the near term in the next couple of years before Gen 2 comes out. And so it's going to be a battle between managing the top line as best we can.
Very diligently.
Additional cost and design reductions on the Gen one products.
Our team is also working very diligently to minimize the impact of the lower prices in the near term in the next couple of years before Gen. Two comes out.
So it is going to be a battle between.
Managing the top line as best we can adjusting.
Speaker 5: transcript
Speaker 5: the supply of products relative to demand so that we can...
The supply of products relative to demand so that we can.
Speaker 5: transcript
Speaker 5: balance the pricing from that standpoint, and then working like crazy to put whatever cost reductions we can on that gen one vehicle through to the bottom line. So I think it's gonna be, you know, in the near term, it's gonna continue to be, you know, just that. It's gonna continue to be quarter to quarter, and the team working very diligently to hold the best revenue as we can and bring as much cost reduction through the product.
Balanced with pricing.
From that standpoint, and then working like Crazy to put whatever cost reductions we can on that Gen. One vehicle.
Through to the bottom line.
So I think it's going to be in.
In the near term, it's going to continue to be.
Just that it's going to continue to be quarter to quarter and the team working very diligently to hold as much revenue as we can bring as much cost reduction through the product as we can.
Speaker 11: transcript
Speaker 11: Thank you. And then a quick follow-up on Ford Pro. Obviously, extremely strong business and very solid quarter. But at the same time, there was a little bit of a pullback in both volume and mix and margin in the quarter. So can you just go over the factors that drove this and the prospects and timing for normalizing back up?
Thank you and then a quick.
Follow up on the <unk> pro.
Obviously extremely strong business and a very solid quarter, but at the same time, there was a little bit of a pullback in both volume and mix.
And margin in the quarter. So can you just go over the factors that drove this and the prospects and timing for normalizing back up.
Speaker 5: transcript
Speaker 5: Yeah, so when you look at Pro, the volume was down a bit. Part of that was we had some disruptions or hiccups from some suppliers, which cost us to lose some F-150 commercial volume in the quarter. We had normal seasonality as well, like on motor homes and things like that.
Yeah. So when you look at pro <unk>.
<unk> was down a bit.
Part of that was.
We had some disruptions or hiccups from some suppliers, which caused us to lose some F 150 <unk>.
Commercial volume in the quarter.
We had normal seasonality as well like on motor homes and things like that.
Speaker 5: transcript
Speaker 5: And then when you look at Ranger in Europe , that was down a bit still because of the ramp that we have going on on the new Ranger. And then there was, you know, a little bit of improvement with Super Duty. So I think you saw some seasonality, you saw some fluctuations due to some supplier constraints and some missed volume in the quarter. And then, of course...
Then when you look at Ranger in Europe that was <unk>.
A bit still because of the ramp that we have going on on the new Ranger.
And then there was a little bit of improvement with Super duty. So I think you saw some seasonality you saw some fluctuations due to some supplier constraints in some missed volume in the quarter.
And then of course.
Speaker 5: transcript
Speaker 5: You know, we continue to see the strength of the pricing on super duty, which is showing up with the higher revenues, yet the volumes were down a bit. So overall, I think it's not that we're seeing a significant reduction in the demand for our pro vehicles. We're not. The order bank is very robust. We have a lot of demand for the model year. And, you know, I think Europe pro is going to continue to be, you know, performing at a high level as we move forward here.
No.
We continue to see the strength of the pricing on Super duty, which is showing up with the higher revenues yet the volumes were down a bit.
So overall I think it's not that we're seeing a significant reduction in the demand for her pro vehicles were not the order bank is very robust we have a lot of demand for the model year.
I think Europe.
Pro is going to continue to be.
Performing at a high level as we move forward here.
Thank you very much.
Speaker 1: transcript
Speaker 1: This concludes the Ford Motor Company's third quarter 2023 earnings gold. Thank you for your participation. You may now disconnect.
This concludes the Ford Motor Company third quarter 2023 earnings Conference call. Thank you for your participation you may now disconnect.