Q1 2024 Ford Motor Co Earnings Call
After the Speakers' remarks, there will be a question and answer session.
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At this time I would like to turn the call over to Lynn Antipas Tyson Executive director of Investor Relations. Please go ahead. Thanks.
Thanks, Gary welcome to Ford Motor Company's first quarter 2024 earnings call with me today are Jim Farley, President and CEO and John Lawlor, Chief Financial Officer also joining us for Q&A is cassio Callahan CEO of Ford credit today's discussion includes some non-GAAP references. These are reconciled to the most comparable U S GAAP measure.
At this time I would like to welcome you to the Ford Motor Company first quarter 2024 earnings Conference call.
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 or.
All lines have been placed on mute to prevent any background noise.
Our discussion also includes forward looking statements about our expectations actual results may differ from those stated the most significant factors that could cause actual results to differ are included on page 19.
After the Speakers' remarks, there will be a question and answer session.
I 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.
Unless otherwise noted all comparisons are year over year company, EBIT EPS and free cash flow are on an adjusted basis.
Please note this event is being recorded.
Lastly, I want to call out a few of our near term IR engagements may 30th Jim Farley will participate in a fireside chat and New York with Tony Saganaki and Daniel Rosko at the Bernstein annual strategic decisions conference in June 11th John Lawlor participate in a fireside chat and New York with Emmanuel Rosner Deutsche Bank's auto.
Speaker Change: At this time I would like to turn the call over to Lynn Antipas Tyson Executive director of Investor Relations. Please go ahead.
Speaker Change: Thanks, Gary.
Speaker Change: Welcome to Ford Motor Company's first quarter 2024 earnings call with me today are Jim Farley, President and CEO and John Lawlor, Chief Financial Officer also joining us for Q&A is Cathy O'callahan CEO of Ford credit.
Jim.
Thank you Lynn Hi, everyone and thank you for joining us the cornerstone afford plus is pretty straightforward more resilient business model.
Speaker Change: This discussion includes 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.
Higher growth higher margin and more capital efficiency and I would say quarter, one had a lot of great green shoots in that plan. It sets us up for a very strong 2024 and beyond.
Speaker Change: Our discussion also includes forward looking statements about our expectations actual results may differ from those stated the most significant factors that could cause actual results to differ are included on page 19.
Before John goes through the quarter I wanted to highlight four key strategic areas, how our growth drivers are changing our progress on quality.
Speaker Change: Unless otherwise noted all comparisons are year over year company, EBIT EPS and free cash flow are on an adjusted basis.
The resilient Ford Pro business.
Speaker Change: Lastly, I want to call out a few of our near term IR engagements may 30th Jim Farley will participate in a fireside chat and New York with 20, Saganaki and Daniel Road scan at the Bernstein annual strategic decisions conference in June 11th John Lawlor will participate in a fireside chat and New York with Emmanuel Rosner Deutsche Bank's auto.
What we're learning on the electrification journey in quarter one.
On growth.
The portfolio changes, we made in the restructuring we've done in our geographic footprint has really paid off for Ford.
Several years ago, we normally would be reducing our volume and our mix and having good news on pricing.
Speaker Change: Yes.
What's changed in the last year and especially in Q1, you can see as our topline and bottom line profitability are increasing driven by improved volumes and mix.
Speaker Change: Thank you Lynn Hi, everyone and thank you for joining us.
Speaker Change: The cornerstone of forward plus pretty straightforward more resilient business model.
Speaker Change: Higher growth higher margin.
And we're actually seeing pricing headwinds.
Speaker Change: More capital efficiency, and I would say quarter one.
And then new portfolio and geographic footprint is really tremendous to see at Forbes.
Speaker Change: And a lot of great Green shoots in that plan it sets us up for a very strong 2024 and beyond.
There is no better example for this and the portfolio changes we've made in our truck and van business.
Speaker Change: Before John goes through the quarter I wanted to highlight four key strategic areas of our growth drivers are changing our progress.
Florida is the number one best selling pickup manufacturer in the world.
Speaker Change: And quality.
Speaker Change: The resilient Ford Pro business.
And our Ford Transit cargo van is the best selling in the world.
Speaker Change: And what we're learning on the electrification journey in quarter one.
Now our second best selling nameplate at Ford.
Speaker Change: On growth.
Speaker Change: The portfolio changes, we made in the restructuring we've done in our geographic footprint has really paid off for Ford.
And our mid size Ranger not our most affordable pick up.
Is a third best selling vehicle at Ford and together with the Everest makes up our profits outside of China, North America and Europe.
Speaker Change: Several years ago, we normally would be reducing our volume and our mix and having good news on pricing.
It's an incredible new franchise for Ford.
Speaker Change: Whats changed in the last year and especially in Q1, you can see as our topline and bottom line profitability are increasing driven by improved volumes and mix.
These changes in our portfolio at all different sizes and price points in the truck and van business has really played to <unk> strengths.
Speaker Change: And we're actually seeing pricing headwinds.
And it doesn't stop there our growth drivers are diversifying we now have a vibrant software business and physical services business led by Ford Pro.
Speaker Change: And then new portfolio and geographic footprint is really tremendous to see at Forbes.
There is no better example for this and the portfolio changes we've made in our truck and van business.
You don't need to look very far beyond our mobile services as an example.
<unk> has 3500 or more.
Speaker Change: <unk> is the number one best selling pickup manufacturer in the world.
Service vehicles in our fleet globally and last year, we did $2 4 million remote service experiences, both remote service and pickup and delivery, 40% of that was for pro and 60% was for our retail business.
Speaker Change: And our Ford Transit cargo van is the best selling in the world.
Speaker Change: Now our second.
Speaker Change: Bestselling nameplate at Ford.
Speaker Change: And our mid size Ranger on our most affordable pick up.
Speaker Change: Is a third best selling vehicle award and together with the Everest makes up our profit outside.
Ford now has more than 700000 paid subscribers for software.
47% year over year, it's capital efficient and the gross margins of more than 50%.
Speaker Change: <unk> of China, North America and Europe.
Speaker Change: It's an incredible new franchise for Ford.
These changes in our portfolio at all different sizes and price points in the truck and van business has really played to <unk> strengths.
Our quality is making real progress.
Kumar and the team have really focused on key areas are 23 more year three months in service initial quality is 10% better than the previous model year, and we're seeing our current model year that were selling for several months another 10% improvement that should put us in the middle of the pack in many of our vehicles are to lead their segments and initial quality.
Speaker Change: And it doesn't stop there our growth drivers are diversifying we now have a vibrant software business.
Speaker Change: Physical services business led by Ford probe.
Speaker Change: You don't need to look very far beyond our mobile services and examples.
Speaker Change: <unk> has 3500 or more.
<unk>.
But to bend the curve on warranty costs and customer recalls were really focusing on our launches were past the super duty launch now and well into the F 150 launch and we've made a lot of changes to improve and bend that curve.
Speaker Change: Service vehicles in our fleet globally and.
Speaker Change: And last year, we did $2 4 million remote service experiences, both remote service and pickup and delivery.
On the F 150, and others, we've delayed the okay to buy three to six weeks, we've taken a lot of new testing regimens.
Actually we ended the quarter was 60000 units in our plants stock.
We now have a vibrant software business and physical services business led by Ford Pro.
Which hurt our first quarter, but will benefit because we're shipping those now in our second quarter for all of those quality processes and what we are so so far seeing.
You don't need to look very far beyond our mobile services. An example.
Fortinet has 3500 or more remote service vehicles in our fleet globally and last year, we did $2 4 million remote service experiences, both remote service and pickup and delivery, 40% of that was for pro and 60% was for our retail business.
As we avoided about 12 recalls on F 150, and we're seeing the best performance on three of them I guess after a launch in a long time.
And I would like to be specific here.
Normally after a launch we've seen about in the last five years about a 70% spike in our defects.
For now has more than 700000 paid subscribers for software that's up 47% year over year, it's capital efficient and the gross margins of more than 50%.
The industry average is about 20% and the Super duty in Mustang launches were about that industry average, 20% Spike and now we're seeing with the up from 50, even better performance than industry average.
Our quality is making real progress.
And boy do we have a lot of launches in the second half to prove out this new launch process, where we're going to see long term as fewer recalls and lower warranty costs because of this new process I'm really proud of the team's progress on quality and we have so much more to do.
Kumar and the team have really focused on key areas are 23 more year three months in service initial quality is 10% better than the previous model year, and we're seeing our current model year that were selling for several months another 10% improvement that should put us in the middle of the pack in many of our vehicles are to lead their segments and initial quality.
I'd like to talk quickly about Ford Pro <unk>.
When we look at quarter, one we made a $3 billion. It's how much we made the whole year and pro two years ago.
<unk>.
But to bend the curve on warranty cost and customer recalls were really focusing on our launches were past the super duty launch now and well into the F 150 launch and we made a lot of changes to improve and bend that curve.
We're growing revenues EBIT EBIT margin, we're growing our volume.
Our attach rates for high margin software and physical services are improving.
And when you ask yourself why is this different and why why would this business why would these profits will be more resilient than our retail business. It comes down to three things.
On the F 150, and others, we've delayed the okay to buy three to six weeks, we've taken a lot of new testing regimens.
First is the diversity of our customer base about a third of our pro customers with small business. Another third are large companies and about 20% more as governments all different kinds.
Actually we ended the quarter was 60000 units and our plant stock.
Which hurt our first quarter, but will benefit because we're shipping those now in our second quarter for all of those quality processes and what we're so so far seeing.
And the diversity of those customers and all three of them are driving a white hot demand for vehicles and services right now from infrastructure build out road works <unk> onshoring manufacturing and re fleeting for our key government fleets.
As we avoided about 12 recalls on F 150, and we're seeing the best performance on <unk>. After a launch in a long time.
And I would like to be specific here.
Normally after a launch we've seen about in the last five years about a 70% spike in our defects.
One out of four of those fleets are all forward and boy do they trust our company, but more than anything it's the breadth and freshness of our new lineup at pro that's driving our profitability. We have the freshest lineup. We've had in 20 years and pro we have an all new super duty and all new transit from top to bottom.
The industry average is about 20% and the super duty in Mustang launches, we're about that industry average, 20% spike in that we're seeing with the up from 50, even better performance than industry average.
And we have an all new Ranger and five plus plants around the world.
And boy do we have a lot of launches in the second half to prove out this new launch process.
These new products are really attracted to customers and beyond that we have the most diverse class one through seven lineup in North America, our key market.
We're going to see long term as fewer recalls and lower warranty costs because of this new process I'm really proud of the team's progress on quality and we have so much more to do.
And that adjacency sales are important because customers by different kinds of vehicles for us in the same fleet.
I'd like to talk quickly about Ford Pro.
But beyond that.
We look at quarter, one we made a $3 billion is how much we made the whole year and pro two years ago.
And those fresh nameplates, we offer the best choice, we have cabin chassis cutaway versions of our vans different wheel basis in heights, the same on our pickup trucks.
We're growing revenues EBIT and EBIT margin were growing our volume.
And we also have the most choice in terms of <unk>, we have 500 different outfitters across western Europe, and the U S that prefer to work with Ford because of our experience with them and.
Our attach rates for high margin software and physical services are improving.
And when you ask yourself why is this different and why why would this business why would these profits to be more resilient than our retail business. It comes down to three things.
And it doesn't stop there.
We have designed all of our commercial vehicles with a multi energy platform that allows our customers to choose electric partial electric diesel petrol whatever choice on powertrain that best meets their cost of ownership no. One has this kind of lineup in our business globally.
First is the diversity of our customer base about a third of our pro customers a small business. Another third are large companies and about 20% more as governments all different kinds.
And the diversity of those customers and all three of them are driving a white hot demand for vehicles and services right now from infrastructure build out road works <unk> onshoring manufacturing and re fleeting for our key government fleets one out of four of those fleets are all four.
The third key area is the diversification.
And the completeness of our software and physical services experiences for our customers now 13% of Ford <unk> profits in the last 12 years make up these attach services.
Speaker Change: <unk> and boy do they trust our company, but more than anything it's the breadth and freshness of our new lineup at Trop, that's driving our profitability. We have the freshest lineup. We've had in 20 years and CRO, we have an all new super duty and all new transit from top to bottom.
And.
It's a big change for us and what's really driving that is our advantage in physical service. We have the largest repair network you can find of any brand out there and we're widening that gap. We've added 700 commercial service bays in last year.
Speaker Change: And we have an all new Ranger and five plus plants around the world. These new products are really attractive to customers and beyond that we have the most diverse class one through seven lineup in North America, our key market.
And more than 11, very large services meet centers with between 50 and 200 repair.
Base that are open 24, seven for our customers none of our competitors offer this kind of extensive repair network.
Speaker Change: And that adjacency sales are important because customers by different kinds of vehicles for us in the same fleet.
And it doesn't stop there we have over 2000 remote trucks and vans doing remote service for our pro customers No brand can match that either and now we have over 560000 active soft surface.
Speaker Change: But beyond that.
And those fresh nameplates, we offer the best choice, we have cabin chassis cutaway versions of our vans different wheel basis in heights, the same on our pickup trucks and.
And we also have the most choice in terms of up Fitters, we have 500 different outfitters across western Europe, and the U S that prefer to work with Ford because of our experience with them and it doesn't stop there. We have we've designed all of our commercial vehicles with a multi energy platform that allows our customers to choose <unk>.
Subscriptions for our pro customers Thats up 40%.
And that pro intelligence business took many years to build it requires advanced electrical architecture, it's a really hard mode to copy.
Long the short for pros and for a great performance over the next several years, what do we learn on electric so far well as you know we're number two in our home market in electric sales for the last couple of years and boy, we learned a lot since capital markets last year, we continue to adapt to any evolve our.
Speaker Change: Electric partial electric diesel petrol whatever choice on powertrain that best meets their cost of ownership no. One has this kind of lineup in our business globally.
Lynn: The third key area is the diversification.
Our spending and our investment ramp for battery plants and assembly capacity for Evs to match customers' demand and more importantly than all of that match the price expectations were re timing our launches.
Speaker Change: The completeness of our software and physical services experiences for our customers now 13% of <unk> profits in the last 12 years make up these attached services.
And our capital spending in fact this year, we expected to spend about $10 billion as a company.
Speaker Change: And.
Speaker Change: It's a big change for us and what's really driving that is our advantage in physical service. We have the largest repair network you can find of any brand out there and we're widening that gap. We've added 700 commercial service base in last year and more than 11, very large services meet centers with <unk>.
We've now guided eight to nine will probably be on the low end of that range.
And we're being very consistent about our discipline on profitability. We expect every one of our evs to make money in the first 12 months.
And that is a very disciplined process in fact, we delayed the launch of our three row crossover, which is a great product two years not only to match the slower growth in <unk>, but more importantly to take advantage of new battery chemistry and formats.
Speaker Change: <unk> 50, and 200 repair Bay.
Speaker Change: <unk> that are open 24, seven for our customers none of our competitors offer this kind of extensive repair network.
To substantially reduce the cost of the batteries for that vehicle will do everything it takes to be profitable in the first 12 months of our vehicles and <unk>.
Speaker Change: And it doesn't stop there we have over 2000 remote trucks and vans doing remote service for our pro customers No brand can match that either.
What's our bed as the company was pretty simple.
Speaker Change: And now we have over 560000 active soft surface.
We're going to bet on commercial work vehicles, where we do really well we know the customers, where we can innovate for them like pro power onboard with partial in fully electric vehicles, but increasingly our bet would be on a new small affordable platform developed by our team on the West Coast Wise affordability. So important when we look at.
Speaker Change: Descriptions for our pro customers Thats up 40%.
Speaker Change: And that pro intelligence business took many years to build it requires advanced electric architecture, it's a really hard mode to copy.
Speaker Change: Long and the short for pros and for a great performance over the next several years, what do we learn on electric so far well as you know we're number two in our home market in electric sales for the last couple of years and boy, we learned a lot since capital markets last year, we continue to adapt to any evolve.
The connected car data from our <unk> customers, we noticed that people live in the suburbs urban customers they tend to drive shorter distances and those more affordable vehicles more approachable.
And we believe that's where the adoption of EV will grow the fastest.
Speaker Change: Our spending and our investment ramp for battery plants and assembly capacity for Evs to match customers' demands and more importantly than all of that match the price expectations were re timing our launches.
And we believe we can compete in segments of small cars and vehicles more affordable vehicles in a unique way thats forward.
A good example was we learned a lot when we and our more expensive vehicles marquee win in February we dropped the price 17% are our volume went up 141%, that's telling us that the more affordable we can make great product the more attractive it is to these mainstream <unk> adopters.
And our capital spending in fact this year, we expected to spend about $10 billion as a company.
Speaker Change: We've now guided eight to nine will probably be on the low end of that range.
And we're being very consistent about our discipline on profitability. We expect every one of our evs to make money in the first 12 months and that is very disciplined process. In fact, we delayed the launch of our three row crossover, which is a great product two years not only to match the slower growth in EV, but more importantly.
And the last thing I'd say is we're learning about the importance of choice.
Our growth in the first quarter and hybrids as a good example, we grew 36% we think the full year will be 40%. We're now approaching 400000 units of volume for hybrid business and we're now number three and hybrids in the U S. It is a big advantage, we have been in the business for more than 20 years and what's really.
Speaker Change: To take advantage of new battery chemistry and formats.
Speaker Change: Substantially reduce the cost of the batteries for that vehicle will do everything it takes to be profitable in the first 12 months of our vehicles.
Exciting for US is for the first time some of our contribution margins on hybrids are above or at similar contribution margins than a pure.
Speaker Change: And what's our bed as the company was pretty simple.
Speaker Change: We're going to bet on commercial work vehicles, where we do really well we know the customers, where we can innovate for them like pro power onboard with partial in fully electric vehicles, but increasingly our bet will be on our new small affordable platform developed by our team on the West Coast Wise affordability, so important when we <unk>.
Internal combustion engine marches with that I'll turn it over to John.
Okay. Thanks, Jim.
So our team around the globe is becoming more focused and adapted applying the <unk> plus strategy.
And we really did deliver a solid quarter.
Speaker Change: Look at the connected car data from our <unk> customers, we noticed that people live in the suburbs urban customers they tend to drive shorter distances and those more affordable vehicles more approachable and.
We are transforming <unk> into a higher growth higher margin more capital efficient and more resilient business. We're progressively shutting behaviors that have weighed down performance and valuation of legacy auto companies for.
And we believe that's where the adoption of EV will go the fastest.
For most of the industry's history.
Speaker Change: And we believe we can compete in segments of small cars and vehicles more affordable vehicles in a unique way thats for it.
Our strong global product lineup is differentiated offering customers freedom of powertrain choice and drove first quarter revenue of 43 billion up 3%.
A good example was we learned a lot when we and our more expensive vehicles marquee win in February we dropped the price 17% are our volume went up 141%, that's telling us that the more affordable we can make great product the more attractive it is to these mainstream <unk> adopters and the.
Our revenue has grown in each of the last three years and we expect 2024 to be no different.
Wholesales were down 1% more than explained by the late quarter launch timing of the new F 150.
We delivered $2 8 billion and adjusted EBIT with a margin of six 5%, reflecting continued strength in <unk> pro.
Speaker Change: Last thing I'd say is we're learning about the importance of choice.
Speaker Change: Our growth in the first quarter and hybrids as a good example, we grew 36% we think the full year will be 40%. We're now approaching 400000 units.
Costs were up $1 2 billion, but if you double click on this you'll see that $1 1 billion of that was investments in growth by Ford pro including new products for Blue and Ford model E costs were roughly flat and we're on track to deliver 2 billion of cost efficiencies for the full year.
Speaker Change: Volume for hybrid business, and we're now number three and hybrids in the U S. It's a big advantage, we have been in the business for more than 20 years, and what's really exciting for US is for the first time some of our contribution margins on hybrids are above or at similar contribution margins than a pure.
Adjusted free cash flow was a use of $500 million more than explained by the vehicles in inventory and this impact will reverse in the second quarter.
Our balance sheet remains strong with $25 billion in cash and close to 43 billion in liquidity.
Speaker Change: Internal combustion engine margins with that I'll turn it over to John.
John T. Lawler: Okay. Thanks, Jim.
And earlier this week, we also completed the renewal of our $18 billion corporate credit facilities, extending maturities by an additional year.
John T. Lawler: So our team around the globe is becoming more focused and adapted applying the <unk> plus strategy and we really did deliver a solid quarter.
Overall, our strong liquidity provides significant flexibility for us to invest in profitable growth.
John T. Lawler: We are transforming <unk> into a higher growth higher margin more capital efficient and more resilient business. We're progressively shutting behaviors that have weighed down performance and valuation of legacy auto companies.
Consistent with our commitment to return, 40% to 50% of adjusted free cash flow to shareholders. Today. We also declared a regular second quarter dividend of <unk> 15 per share payable June 30 to shareholders of record on May eight.
John T. Lawler: For most of the industry's history.
John T. Lawler: Our strong global product lineup is differentiated offering customers freedom of powertrain choice and drove first quarter revenue of 43 billion up 3%.
I'll spend a few minutes summarizing the financial performance of each of our customer focused segments and there is evidence in every one of them of how Ford plus is making our business stronger.
John T. Lawler: Our revenue has grown in each of the last three years and we expect 2024 to be no different.
John T. Lawler: Wholesales were down 1% more than explained by the late quarter launch timing of the new F 150.
<unk> delivered a 36% increase in revenue on a 21% increase in wholesales.
The segment has consistently delivered year over year revenue growth each quarter since we re segmented our business EBIT more than doubled to $3 billion with a margin of 16, 7%, reflecting increased super duty and transit production, Richard Super duty mix and higher net pricing and.
John T. Lawler: We delivered $2 8 billion and adjusted EBIT with a margin of six 5%, reflecting continued strength in <unk> pro.
John T. Lawler: Costs were up $1 2 billion, but if you double click on this you'll see that $1 1 billion of that was investments in growth by Ford pro including new products for Blue and Ford model E costs were roughly flat and we're on track to deliver 2 billion of cost efficiencies for the full year.
In addition over the past 12 months, roughly 13% afford pros EBIT came from software and physical services.
On the glide path to reaching 20% in a few years now.
John T. Lawler: Our adjusted free cash flow was a use of $500 million more than explained by the vehicles in inventory and this impact will reverse in the second quarter.
This important revenue stream generate sticky and recurring gross margins in the 40% to 50% range.
And as you can see given the breadth and depth of <unk> competitive moats and investments in growth drive tremendous operating leverage. This segment's results this quarter demonstrate the consistency predictability and earnings power of this growth business.
John T. Lawler: Our balance sheet remains strong with $25 billion in cash and close to 43 billion in liquidity.
John T. Lawler: And earlier this week, we also completed the renewal of our $18 billion corporate credit facilities, extending maturities by an additional year.
Ford model E generated a loss of $1 3 billion as significant industry pricing pressure more than offset flat costs as wholesales declined 20%.
John T. Lawler: Overall, our strong liquidity provides significant flexibility for us to invest in profitable growth.
John T. Lawler: Consistent with our commitment to return, 40% to 50% of adjusted free cash flow to shareholders. Today. We also declared a regular second quarter dividend of <unk> 15 per share payable June 30 to shareholders of record on May eight.
In the quarter, we took action to bring down inventory levels. For example, after being at a price premium to come to competition in 2023, we lowered pricing on Mustang Mach E and the U S by 17%, bringing us in line with the two year old crossover segment.
Speaker Change: I'll spend a few minutes summarizing the financial performance of each of our customer focused segments and there is evidence in every one of them of how Ford plus is making our business stronger.
And as Jim mentioned, we did see elasticity with an improved mix of higher trends in the U S retail sales jumped 77% versus the total EV segment, which was up roughly two 6% or.
Speaker Change: <unk> delivered a 36% increase in revenue on a 21% increase in wholesale segment.
Our total EV market share grew by three four points to seven 5% and marquee was the second best selling SUV only behind Tesla model Y. The bottom line is that we're more competitive and doing well in the market plus place we've reduced our stock levels significantly and the pace of sales has increased.
Has consistently delivered year over year revenue growth each quarter since we re segmented our business EBIT more than doubled to $3 billion with a margin of 16, 7%, reflecting increased super duty and transit production, Richard Super duty mix and higher net pricing and.
And Ford Blue revenue Wholesales, and EBIT were down all impacted by the F 150 production ramp and vehicles in inventory.
Speaker Change: In addition over the past 12 months, roughly 13% of Ford Pros EBIT came from software and physical services.
EBIT margin was four 2% and our international operations continued to be profitable across the board.
On the glide path to reaching 20% in a few years and this important revenue stream generated sticky and recurring gross margins in the 40% to 50% range.
<unk> global product portfolio remains strong and our hybrid sales continued to grow up 36% in the quarter as we get the benefit of hybrid products plan two years ago, our global mix of hybrids is currently at 7% up two points year over year with more products on the way.
Speaker Change: And as you can see given the breadth and depth of Ford price competitive moats investments and growth drive tremendous operating leverage.
The segment's results this quarter demonstrate the consistency predictability and earnings power of this growth business.
Additionally, China exports increased 33%, including Lincoln Nautilus, and Thats consistent with our strategy to better leverage that asset light footprint.
Speaker Change: Ford model E generated a loss of $1 3 billion as significant industry pricing pressure more than offset flat costs as wholesale declined 20%.
Ford credit generated <unk> of $326 million in the quarter financing margin improve and credit loss performance continued to normalize and remains below our historical average and importantly, we continue to see a high quality book based on strong FICO scores, which continue to exceed 750 and as <unk>.
Speaker Change: In the quarter, we took action to bring down inventory levels. For example, after being at a price premium to the competition in 2023, we lowered pricing on Mustang Mach E and the U S by 17%, bringing us in line with the two year old crossover segments.
Speaker Change: And as Jim mentioned, we did see elasticity with an improved mix of higher trends in the U S retail sales jumped 77% versus the total EV segment, which was up roughly two 6% or.
And auction values have declined by roughly 10% as lease return rates continue to normalize.
So we are beginning to unlock the huge potential for customers and all of our stakeholders with the freedom of choice made possible by Ford plus there is plenty of work ahead to fulfill that potential. However, the progress. We've made so far is undeniable, we're delivering growth and profitability sharpening capital efficiency and fortifying.
Our total EV market share grew by three four points to seven 5% and marquee was the second best selling SUV only behind Tesla model Y. The Bottomline is that we're more competitive and doing well in the market plus place we've reduced our stock levels significantly and the pace of sales has increased.
The resilience of our business.
Accordingly, turning to our outlook, we continue to expect full year company adjusted EBIT of $10 billion to $12 billion and are tracking towards the high end of this range and that would be a record for Ford, we're raising our adjusted free cash flow guidance to $6 5 billion to $7 5 billion supported by the underlying strength of the business.
Speaker Change: And Ford Blue revenue Wholesales, and EBIT were down all impacted by the F 150 production ramp and vehicles in inventory.
EBIT margin was four 2% and our international operations continued to be profitable across the board.
Speaker Change: <unk> global product portfolio remains strong and our hybrid sales continued to grow up 36% in the quarter as we get the benefit of hybrid products plan two years ago, our global mix of hybrid is currently at 7% up two points year over year with more products on the way.
And lower than planned Capex, our adjusted free cash flow guidance is consistent with our cash flow conversion target of 50% to 60%.
We're tightening our capex range to $8 billion to $9 billion at the team adjust to the dynamic EV landscape. We're scrutinizing every dollar and driving efficiencies that we believe to Atlanta at the lower end of this revised Capex range.
Speaker Change: Additionally, China exports increased 33%, including Lincoln Nautilus, and Thats consistent with our strategy to better leverage that asset light footprint.
Our outlook for 2024 assumes a flat to slightly higher <unk> in both the U S and Europe, our planning assumption is for the U S.
Speaker Change: Ford credit generated <unk> of $326 million in the quarter financing margin improve and credit loss performance continued to normalize and remains below our historical average and importantly, we continue to see a high quality book based on strong FICO scores, which continue to exceed 750 and as <unk>.
16% to $16 5 million units.
Full year of customer demand for all new Super duty contributing to better market factors for Ford Pro.
Industry supply demand normalizing from a planning perspective, we're assuming lower industry pricing of roughly 2% driven by higher incentive spending as we move through the year. We expect this to be partially offset by top line growth from the launch of our new products.
Speaker Change: <unk> auction values has declined by roughly 10% as lease return rates continue to normalize.
So we are beginning to unlock the huge potential for customers and all of our stakeholders with the freedom of choice made possible by Ford plus there is plenty of work ahead to fulfill that potential. However, the progress. We've made so far is undeniable, we are delivering growth and profitability sharpening capital efficiency and fortifying.
There is no change to our segment outlook, which anticipates.
Continued strength in <unk> pro leading to EBIT of $8 to $9 billion and Thats driven by the continued growth and favorable mix, partially offset by moderated pricing as expected loss in the range of $5 to $5 billion for model E driven by continued pricing pressure and investments in new vehicles and for Ford Blue EBIT of <unk>.
The resilience of our business.
Speaker Change: Accordingly, turning to our outlook, we continue to expect full year company adjusted EBIT of $10 billion to $12 billion and are tracking towards the high end of this range and that would be a record for Ford, we're raising our adjusted free cash flow guidance to $6 5 billion to $7 5 billion supported by the underlying strength of the business.
7% to $7 5 billion, reflecting a balanced market equation and also cost efficiencies offsetting higher labor in product costs, and we expect Ford credit's EBT to be about $1 5 billion up slightly year over year.
And lower than planned Capex, our adjusted free cash flow guidance is consistent with our cash flow conversion target of 50% to 60% were tightening our.
Our performance this quarter continues to demonstrate the positive momentum afford plus <unk>.
Capital discipline is driving the right global footprint portfolio of products and consistent cash generation, we continue to see growth opportunities and remain focused on delivering improvements in both quality and cost.
Speaker Change: Our capex range to $8 9 billion at the team adjust to the dynamic EV landscape.
Speaker Change: <unk> every dollar and driving efficiencies that we believe to Atlanta at the lower end of this revised Capex range.
So that wraps up our prepared remarks, and we'll use the balance of the time to address what's on your minds.
Speaker Change: Our outlook for 2024 assumes a flat to slightly higher <unk> in both the U S and Europe, our planning assumption is for the U S is.
So thank you and operator, please open up the line for questions.
We will now begin the question and answer session.
Speaker Change: Is 16% to $16 5 million units full year of customer demand for all new Super duty contributing to better market factors for Ford Pro.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: Industry supply demand normalizing from a planning perspective, we're assuming lower industry pricing of roughly 2% driven by higher incentive spending as we move through the year. We expect this to be partially offset by top line growth from the launch of our new products.
To withdraw your question. Please press Star then two please.
Please limit yourself to one question and one follow up.
The first question today is from Adam Jonas with Morgan Stanley. Please go ahead.
Hi, everybody I got one question for John and one for Jim.
Speaker Change: There is no change to our segment outlook, which anticipates.
Speaker Change: Continued strength in <unk> pro leading to EBIT of $8 9 billion and Thats driven by the continued growth and favorable mix, partially offset by moderated pricing as expected loss in the range of $5 billion to $5 billion for model E driven by continued pricing pressure and investments in new vehicles and for Ford Blue EBIT of <unk>.
John you were just on Bloomberg, saying Evs are needed to meet compliance regulations now. It is my understanding that forward does not disclose penalties or zev credit purchases.
For forward on clean Air regulation can you confirm that that's not disclosed right.
So let me clarify a few things Adam.
Speaker Change: 7% to $7 5 billion, reflecting a balanced market equation and also cost efficiencies offsetting higher labor and product costs and.
<unk> is that.
It's not an option for us not to be compliant.
Speaker Change: And we expect Ford Credit's EBT to be about $1 5 billion up slightly year over year.
If you don't comply with your reserve or your greenhouse test greenhouse gas emissions requirements you can't pay fines.
Speaker Change: Our performance this quarter continues to demonstrate the positive momentum afford plus <unk>.
As you can't sell and Thats consistent across the industry. So it's.
Speaker Change: Capital discipline is driving the right global footprint portfolio of products and consistent cash generation, we continue to see growth opportunities and remain focused on delivering improvements in both quality and cost.
That's for all Oems all Oems are under those rules and so there's really three levers that we have we can sell evs and hybrids, we can sell fewer ice or we can contract to buy credits from another OEM and when we do contract to buy credits, we will disclose that as we did in our 10-K at.
Speaker Change: So that wraps up our prepared remarks, and we will use the balance of the time to address what's on your minds.
Speaker Change: Thank you and operator, please open up the line for questions.
We will now begin the question and answer session.
The end of the year.
And so those are the three levers and we.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
I would say monthly if not weekly are working to optimize across those three levers to drive the highest profitability and the highest cash flow for the company. So.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: Please limit yourself to one question and one follow up.
We continue to sell.
The ice vehicles.
Speaker Change: The first question today is from Adam Jonas with Morgan Stanley. Please go ahead.
We are going to need to sell evs, and we're going to optimize across the profitability now the most important thing as Jim said is we need to get the EV business to stand on its own to be profitable and return on the capital. We've invested and then all the levers will be accretive to afford and we will.
Adam Michael Jonas: Hi, everybody I got one question for John and one for Jim.
Adam Michael Jonas: John you were just on Bloomberg, saying Evs are needed.
Adam Michael Jonas: To meet compliance regulations now it is my understanding that forward does not disclose penalties or zev credit purchases.
Be able to make it really positive. So that's what we're focused on and that's what I intended to communicate earlier today.
Adam Michael Jonas: For forward on clean Air regulation can you confirm that that's not disclosed right.
But you did so you do disclose.
Does that mean.
Yes, we disclosed last year in the 10-K that we had forecast.
Speaker Change: So let me clarify a few things Adam on that is that.
Commitments of $700 million.
Speaker Change: Got.
Speaker Change: It's not an option for us not to be compliant.
And.
Will that increase the share.
In the first quarter, there wasn't anything material.
Speaker Change: If you don't comply with your reserve or your greenhouse gas greenhouse gas emissions requirement you can't pay fines. What happens is you cant sell and thats consistent across the industry. So.
As we go through the year.
With the right lever to pull as I said as we're optimizing we will report it I.
Alright, I appreciate that John just a follow up for Jim.
Fourth pro is kicking.
Speaker Change: That's for all Oems all Oems are under those rules and so there's really three levers that we have we can sell evs and hybrids, we can sell fewer ice or we can contract by credits from another OEM and when we do contracted by credits we will disclose that as we did in our <unk>.
Mike just kicking butt okay.
And at a 10 times EBIT.
That business can be worth like double for the entire market cap. So the market kind of implying at the rest of the business would be valued at negative many many tens of billions.
Speaker Change: 10-K at the end of the year.
And another way your stock I mean, this business is incredible people die to have this doesn't happen.
Speaker Change: And so those are the three levers and we.
I think folks are aware it is not a secret anymore. Jim that people are aware of how good this business as yet your stock rank 491 out of 500 companies in the S&P 500 on P/e multiple on that Jim I know you don't like it and I know you don't agree with it but can you explain why does the market value of your company is one of the lowest multiple companies in the world in any industry wide.
Speaker Change: I would say monthly if not weekly are working to optimize across those three levers to drive the highest profitability and the highest cash flow for the company. So.
Speaker Change: To continue to sell.
Speaker Change: The ice vehicles, we are going to need to sell evs and we're going to optimize across the profitability now the most important thing as Jim said is we need to get the EV business to stand on its own to be profitable and return on the capital. We've invested and then all the levers will be accretive before and we will we'll be able to make it really positive.
To rationalize that for me because it seems important to you as a leader of this organization to understand that if you can address that problem.
<unk>.
Thank you Adam first of all thanks for your report on Pro I. Appreciate you taking the time to understand the business look I mean musically.
Speaker Change: That's what we're focused on and that's what I intended to communicate earlier today alright.
As John as John mentioned, we have to make tremendous progress in model. It's a huge drag not just on Ford, but on our whole industry, even for pure play EV player.
Speaker Change: Alright, but you did so you do disclose.
Speaker Change: Does that mean.
Speaker Change: Yes, we disclosed last year in the 10-K that we had forecast.
Players so.
And we're very clear eyed about that we're very committed to transparency lot Oems.
Speaker Change: Sure.
Speaker Change: Commitments of $700 million.
Speaker Change: And.
We'll handle E. EV is very different we won't.
The increase this year.
Speaker Change: In the first quarter, there wasn't anything material and so as we go through the year.
It's like if we had unprofitable regional business and we rolled it up and it wouldn't be transparent to investors, we would never do that and we're not going to do that with Evs and we're not going to subsidize our pro and <unk>.
With the right lever to pull as I said as we're optimizing we will report it.
Speaker Change: I appreciate that John just as my follow up for Jim.
Speaker Change: <unk> pro is kicking.
Blue business Bye bye not being transparent about E and it's how we run the business.
Jim Farley: Yes, Kevin.
Jim Farley: Okay.
Jim Farley: And at a 10 times EBIT.
Investors should understand for me as the leader is that we're going to build a sustainably profitable EV business with terminal value.
That business can be worth like double <unk> entire market cap. So the market's kind of implying at the rest of the business would be valued at negative. Many many tens of billions seen another way your stock I mean this business is incredible people die to have this does not.
And we and it needs to return the cost of capital on its own and not be subsidize as I mentioned.
Jim Farley: I think folks are aware it is not a secret anymore gem that people are aware of how good this business as yet your stock rank 491 out of 500 companies in the S&P 500 on P/e multiple on that Jim I know you don't like it.
And the real turning point for us not only is our flat costs and modestly this year, but most importantly, it will be the profitability in our next cycle of products.
And I know you don't agree with it but can you explain why does the market value of your company is one of the lowest multiple companies in the world in any industry wide kind of rationalize that for me because it seems important to you as a leader of this organization to understand that you can address that problem.
And I'm proud of the work that our team has done to make the adjustments in our capital spending and to make sure that all of our next evs are profitable.
And the evidence will be there.
And I think that is the main drag on the company right now as it will be for our whole industry Blue is in really good shape.
Thank you Adam first of all thanks for your report on Pro I. Appreciate you taking the time to understand the business look I mean these are key.
I wonder out loud, Adam if everyone really understands the resilience of the probe business over time, we're very profitable now, but we believe that this business will be profitable and durable for many years to come and I'm not sure the full market understands that personally.
Speaker Change: As John as John mentioned, we have to make tremendous progress in model. It's a huge drag not just on Ford, but on our whole industry, even for pure play EV players.
Players so.
And we're very clear eyed about that we're very committed to transparency lot Oems.
No you've gone through the business.
Understanding the demand and I encourage everyone to understand and ask us more questions about <unk>.
Speaker Change: We will handle E evs very different we won't.
Speaker Change: It's like if we had our unprofitable regional business and we rolled it up and it wouldn't be transparent to investors, we would never do that and we're not going to do that with Evs and we're not going to subsidize our pro and improved the blue business Bye.
Thanks, Jim.
The next question is from John Murphy with Bank of America Merrill Lynch. Please go ahead.
Good afternoon guys.
The freedom of choice is a great marketing tool to go out to market with it.
Reasonably or should be very effective.
Speaker Change: By not being transparent about is how we run the business.
But Jimmy as you think about this.
Speaker Change: Investors should understand for me as the leader is that we're going to build a sustainably profitable EV business with terminal value.
<unk> is shifting towards hybrids at least in the near term.
I'm just curious what kind of capacity you have to ramp up significantly in hybrids of the demand really is there.
Speaker Change: And.
And if you think about sort of the competitive threat really coming from Toyota with a lot of capacity on this side is there risk that this market share losses to them.
Speaker Change: And it needs to return the cost of capital on its own and not be subsidized as I mentioned.
Speaker Change: And the real turning point for us.
Over time or do you have the ability to really step up here I think you mentioned something about 400000 hybrids at an LTM basis, but can you do a whole lot more and really sort of garner your fair share of the market.
Speaker Change: Not only is our flat costs and modestly this year, but most importantly, it will be the profitability in our next cycle of products.
Speaker Change: And I'm proud of the work that our team has done to make the adjustments in our capital spending and to make sure that all of our next evs are profitable.
Hi, John.
We made we made a lot of capacity decision several years ago on hybrid and I am very thankful. We did for example, we just radically increase the capacity for F. 150 that will launch now up to 25%. It takes as you said it takes a long time for suppliers to ramp to that capacity. It's not assembly capacity is a constraint.
Speaker Change: And the evidence will be there.
Speaker Change: And I think that is the the main drag on the company right now as it will be for our whole industry Blue is in really good shape I wonder out loud, Adam if everyone really understands the resilience of the pro business over time, we're very profitable now, but we believe that this business will be profitable and durable for many years.
So that 400000 is almost double what we did a couple of years ago that was all very intentional.
And we made the decision a couple of years ago to actually make hybrid more pervasive in our lineup and we're actually now going to we've now committed publicly we're going to offer hybrid on all of our vehicles across our lineup and of course the capacity has to be there.
Speaker Change: To come and I'm not sure the full market understands that personally I know you've gone through the business.
Speaker Change: Understanding the demand in <unk>.
Speaker Change: Encourage everyone to understand and ask us more questions about <unk>.
Speaker Change: Okay.
Adam Michael Jonas: Thanks, Jim.
Adam Michael Jonas: The next question is from John Murphy with Bank of America Merrill Lynch. Please go ahead.
But if you look at the pricing premium today, which is maybe the most important thing to look for because.
John Joseph Murphy: Good afternoon guys.
Because now that contribution margin for hybrid is covering the cost of the hybrid incremental.
John Joseph Murphy: The freedom of choice is a great marketing tool to go out to market with and I think it is.
John Joseph Murphy: Reasonably or should be very effective.
Material cost that's really meaningful development.
John Joseph Murphy: But Jimmy as you think about this.
And I think we're in good shape.
John Joseph Murphy: Market is shifting towards hybrids at least in the near term I'm just curious what kind of capacity you have to ramp up significantly in hybrids of the demand really is there and if you think about sort of the competitive threat really coming from Toyota with a lot of capacity on our side is there risk that this market share losses to them.
Of course, our hybrid business is different than the others.
We're number three in the U S number one and number two is as close to Toyota and Honda.
But our hybrid capacity is in trucks.
Where most of our hybrid sales are in North America.
And we don't see a lot of competition.
John Joseph Murphy: Over time or do you have the ability to really step up here I think you mentioned something about 400000 hybrids and LTM basis, but can you do a whole lot more and really sort of garner your fair share of the market.
So far for that business and we will see over time.
So I feel really good about the decisions we made several years ago about our capacity expansion will it be more than 40% growth it could be.
Speaker Change: Hi, John.
Speaker Change: We made we made a lot of capacity decision several years ago on hybrid and I'm very thankful. We did for example, we just radically increase the capacity for F. 150 that will launch now up to 25%. It takes as you said it takes a long time for our suppliers.
And I think we have flexibility now.
Now, we have really meaningful scale for our suppliers.
A lot of our competitors will be starting from scratch.
And I have one follow up on pro.
Speaker Change: To ramp to that capacity, it's not assembly capacity is constrained.
It seems like Theres, a lot of pent up demand on the fleet side, both on commercial and government I was just wondering if you can comment on that.
Speaker Change: So that 400000 is almost double what we did a couple of years ago that was all very intentional.
What sort of a unit basis as well as potentially a service basis.
Speaker Change: And we made the decision a couple of years ago to actually make hybrid more pervasive in our lineup and we're actually now going to we've now committed publicly we're going to offer hybrid on all of our vehicles across our lineup and of course the capacity has to be there.
And just really kind of talk about what kind of benefit that may sort of still garner towards <unk>, which is as you said shooting the lights out or we should say that.
It just seems like there's a lot of opportunity here still just from a market release of pent up demand and that might be even more structural overtime.
Speaker Change: But if you look at the pricing premium today, which is maybe the most important thing to look for.
It's true that.
The demand is.
Demand on pro was fundamentally different in retail there is no doubt about it our retail customers and not re fleeting than not doing road works in <unk>.
Speaker Change: Because now that contribution margin for hybrid is covering the cost of the hybrid incremental.
Speaker Change: Material cost that's really meaningful development.
<unk> infrastructure build out I mean, these are all fundamental drivers the ambulance market in the U S. The average <unk> is 15 years old.
Speaker Change: And I think we're in good shape.
Speaker Change: Of course, our hybrid business is different than the others.
<unk> been waiting for transit for a long time, we're now increasingly capacity, which is great, but I mean, we're oversubscribed on the new Super duty two to one.
Speaker Change: We're number three in the U S number one and number two is as close to Toyota and Honda.
Speaker Change: But our hybrid capacity is in trucks.
Speaker Change: Where most of our hybrid sales are in North America.
So.
I wish I could say, we got that right.
Speaker Change: And we don't see a lot of competition.
We didn't but we are expanding capacity.
Speaker Change: So far for that business and we will see over time.
I think in.
We have this freshness lineup that we've never had so we have this kind of double.
Speaker Change: So I feel really good about the decisions we made several years ago about our capacity expansion will it be more than 40% growth.
<unk> our lineup is fresh we have the most choice at the same time, our customers are in the right.
It could be.
Speaker Change: And I think we have flexibility.
Kind of a white hot demand that we saw in retail two years ago during the supply shock.
Speaker Change: Now, we have really meaningful scale for our suppliers.
Speaker Change: A lot of our competitors will be starting to scratch.
And we're doing everything we can increase our capacity for our customers is very frustrating for them.
Speaker Change: And I have one follow up on pro.
Speaker Change: It seems like Theres, a lot of pent up demand on the fleet side, both on commercial and government I. Just wondering if you can comment though on that.
Great. Thank you very much.
The next question is from Ryan Brinkman with Jpmorgan. Please go ahead.
Hi, Thanks for taking my question I'd love to get some more of your thoughts on capital allocation, including after in the release you repeat the intention to return $40 to 50% of free cash flow to shareholders I guess with Capex coming further down in Mcf up theres more to return, but at the same time targeting to return only up to half of what you generate obviously implies you want.
Speaker Change: Sort of a unit basis, as well as potentially a service basis.
Speaker Change: It's really kind of talk about what kind of benefit that may sort of still garner towards <unk>, which is as you said shooting lights out or we can say that.
Speaker Change: It just seems like there's a lot of opportunity here still just from a market release of pent up demand and that might be more structural overtime.
Continue to grow cash on hand, despite the current 28 billion being.
Speaker Change: Through the.
Speaker Change: The demand is.
Well more than the over 20 billion that you've historically targeted and of course, they've got lots of available liquidity beyond that close to a record I think so just curious what might be driving the conservatism here, whether it relates to more of a macro or industry uncertainty are wanting to preserve some other optionality or for some contingency I'm not thinking of it I think in the past when I'd add.
Speaker Change: Demand on pro was fundamentally different in retail there is no doubt about it our retail customers and not re fleeting theyre not doing road works and <unk> infrastructure build out I mean these are all fundamental drivers of the ambulance market in the U S. The average immune to 16 years old.
Speaker Change: <unk> been waiting for transits for a long time, we're now increasingly capacity which is great.
This question that you would sort of point to the industry transition towards evs, but it seems like the last couple of quarters. Now your focus is more on improving the EBIT EV business by trying to spend less not needing to spend more to alright. So so just wanted to check in how you are feeling about capital allocation, what youre seeing that caused you to want to be conservative now and then what could cause.
But I mean, we're oversubscribed on the new Super duty two to one.
Speaker Change: So.
Speaker Change: I wish I could say, we got that right.
Speaker Change: We didn't but we are expanding capacity I think.
Speaker Change: We have this freshest lineup that we've never had so we have this kind of double.
You to potentially once it become more aggressive in the future.
Speaker Change: Opportunity our lineup is fresh we have the most choice at the same time, our customers are in the right.
Thank you.
<unk>.
So we have our stated policy as you said, 40% to 50% of free cash flow our balance sheet is strong our cash position we ended the year strong.
Speaker Change: Kind of White hot demand that we saw in retail two years ago during the supply shock.
Speaker Change: And we're doing everything we can increase our capacity for our customers is very frustrating for them.
We're at $25 billion this quarter and we've talked about the fact that our guidance for this year went up.
Speaker Change: Alright, Thank you very much.
So.
When we look at it.
Speaker Change: The next question is from Ryan Brinkman with Jpmorgan. Please go ahead.
We believe that right now in the transition point for the industry, we would rather invest in accretive growth opportunities.
Hi, Thanks for taking my question I'd love to get some more of your thoughts on capital allocation, including after in the release you repeat the intention to return 40% to 50% of free cash flow to shareholders I guess with Capex coming further down in Mcf up they're smarter returned but at the same time targeting to return only up to half of what you generate obviously implies you want to.
And we've always said that if those opportunities don't come to fruition, then we will need to look at other allocation.
Decisions that we would need to make but we're not there yet so we're continuing to talk about this as a <unk>.
<unk> consistently but we think at this point the position we're at we're comfortable with given where we're at in the transition.
Speaker Change: Continue to grow cash on hand, despite the current 28 billion being.
Speaker Change: Well more than the over 20 billion that you've historically targeted and of course, you've got lots of available liquidity beyond that close to a record I think so just curious what might be driving the conservatism here, whether it relates to more of a macro or industry uncertainty are wanting to preserve some other optionality or for some contingency I'm not thinking of it I think in the past when I'd ask.
Out of 40%, 50% of free cash flow in the last couple of years, it's been at the high end of that range.
And <unk>.
Eventually as we continue to execute on our 40 plus plants, if those accretive opportunities to allocate capital for additional accretive growth aren't there then we'll look at other ways of returning that cash to our shareholders.
Speaker Change: This question that you could sort of point to the industry transition towards evs, but it seems like the last couple of quarters. Now your focus is more on improving the EBIT EV business by trying to spend less not needing to spend more to alright. So so just wanted to check in how you're feeling about capital allocation. What you are seeing that caused you to want to be conservative now and then what could cause.
Very helpful. Thank you.
The next question is from Bruno Disanto with Wolfe Research. Please go ahead.
Hi, everyone. Thanks for taking the questions.
I wanted to ask skin model E and I understand that reaching breakeven depends on the timing of the launch of the nexgen vehicles.
Speaker Change: You to potentially once it become more aggressive in the future.
Speaker Change: Yeah. So thank you.
Speaker Change: <unk>.
So we have our stated policy as you said, 40% to 50% of free cash flow our balance sheet is strong our cash position we ended the year strong.
But in the intermediate term can you tell us how youre thinking about the trajectory of losses in knee and specifically the potential to work down the structural costs associated with this business. So.
Speaker Change: We're at $25 billion this quarter, we've talked about the fact that our guidance for this year went up.
So we are critical through I don't know if you could share I guess laser focused on it.
Speaker Change: So.
Speaker Change: When we look at it.
On the all the costs around models.
Speaker Change: We believe that right now in the transition point for the industry, we would rather invest in accretive growth opportunities and.
And.
For the year.
When you look at.
Well, let's just take it back up a second the last couple of years. When you look at modeling, we've actually reduced the cost of our vehicles significantly a marquee we've taken over $5000 of cost out, but the revenue keeps dropping faster than we're able to take out the costs and we're being very thoughtful about what we're putting in as far as structural cost et cetera.
Speaker Change: And we've always said that if those opportunities don't come to fruition, then we will need to look at other allocation <unk>.
Speaker Change: Decisions that we would need to make but we're not there yet so we're continuing to talk about this as.
Speaker Change: As a team consistently.
Speaker Change: But we think at this point the position we're at we're comfortable with given where we're at in the transition we'll pay out the 40% 50% of free cash flow in the last couple of years, it's been at the high end of that range and.
And so we're going to continue to work on driving every dollar of cost out of the business in the near term and.
If the pricing stabilizes and we don't see these significant reductions continuing across the industry. Then I think that you could probably start to see some of those cost reductions flow to the bottom line.
Eventually as we continue to execute on our 40 plus plants, if those accretive opportunities to allocate capital for additional accretive growth aren't there then we'll look at other ways of returning that cash to our shareholders.
But so far the law.
Last 12 months to 18 months, it's just been a continuous march down on the topline, which is offsetting any of the savings we've had from a cost standpoint. So.
Speaker Change: Very helpful. Thank you.
Speaker Change: The next question is from Bruno <unk> with Wolfe Research. Please go ahead.
It's in our control we have to take cost out we know that that's what we're marching towards and we're understanding the dynamics and the competitiveness of the market equation as we set up the cost structure for our second Gen vehicles and as Jim said, we pushed out the three row SUV, because we need more cost to come out of that for that to be.
Bruno: Hi, everyone. Thanks for taking the questions.
I wanted to ask skin model E and I understand that reaching breakeven depends on the timing of the launch of the nexgen vehicles.
Bruno: But in the intermediate term can you tell us how youre thinking about the trajectory of losses in knee and specifically the potential to work down the structural costs associated with this business.
At the margin levels, we expect.
Okay.
On a similar vein is the comments you made around cost and pricing for the marquee.
If we look at your combustion.
Speaker Change: So we are critical.
Blue and.
Speaker Change: So it's a cliche I guess laser focused on.
Blue and pro we see the costs are up $1 2 billion year over year, presumably from material content on some new launches warranty.
Speaker Change: These all the costs around models.
Speaker Change: For the year.
Maybe offset by some savings and we also see that pricing in these businesses was up about a $1 billion.
Speaker Change: When you look at.
Speaker Change: Well, let's just take backup a second the last couple of years. When you look at modeling, we've actually reduced the cost of our vehicles significantly a marquee we've taken over $5000 of cost out, but the revenue keeps dropping faster than we're able to take out the costs and we're being very thoughtful about what we're putting in as far as structural cost et cetera.
But can you give us some insight in to if or when youll see some improvement in variable costs relative to pricing.
And.
Forward beginning to close the variable cost gap compared to peers. Thanks, yes. So.
Speaker Change: And so we're going to continue to work on driving every dollar of cost out of the business in the near term and.
So you look at that most of the cost this quarter was up and Ford Pro and is all related to the material costs for our new product launches both the super duty and the transit that we launched in Europe.
Speaker Change: If the pricing stabilizes and we don't see these significant reductions continuing across the industry. Then I think that you could probably start to see some of those cost reductions flow through the bottom line.
As well as manufacturing cost for the increased volumes that we're bringing across as Jim mentioned, so thats what drove most of the cost increase in the quarter.
But so far the <unk>.
Speaker Change: Last 12 to 18 months, it's just been a continuous march down on the topline, which is offsetting any of the savings we've had from a cost standpoint. So.
We're on track to deliver the $2 billion of cost reductions we talked about.
At.
Speaker Change: It's in our control we have to take cost out we know that that's what we're marching towards and we're understanding the dynamics and the competitiveness of the market equation as we set up the cost structure for our second Gen vehicles and as Jim said, we pushed out the three row SUV, because we need more cost to come out of that for that to be at.
At the beginning of the year of around manufacturing cost material cost as well as freight and overhead.
And so youll start to see that really gained traction as we move through the second half of the year and Thats when youll start to see it on our.
Our quarterly results.
Speaker Change: The margin levels, we expect.
Speaker Change: Okay.
Speaker Change: On a similar vein is the comments you made around cost and pricing for the marquee.
The next question is from <unk> with Citi. Please go ahead.
Great. Thanks, Good afternoon, everyone. Just two questions from me firstly back to grow with.
Speaker Change: If we look at your combustion blue and <unk>.
Blue and pro we see the costs are up $1 2 billion year over year, presumably from material content on some new launches warranty.
It was a $3 billion outcome in Q1 can you maybe talk about the puts and takes if I think about the rest of the year.
Speaker Change: Maybe offset by some savings and we also see that pricing in these businesses is up about a $1 billion.
And maybe should we think about the full year at the high end of the <unk>.
Range, and then going back to the model.
Speaker Change: But can you give us some insight in to.
The press release did did allude to EV costs, improving going forward, but an offset from topline pressure was hoping you could help dimension, what youre assuming for EV prices.
Speaker Change: Or when you will see some improvement in variable costs relative to pricing.
And.
The rest of the year and as the volume kind of respond to these price cuts is there a level where model you can still become contribution margin positive over the next 12 plus months.
Speaker Change: Toward beginning to close the variable cost gap compared to peers.
Speaker Change: So you look at that most of the cost this quarter was up and Ford Pro and is all related to the material costs for our new product launches both the super duty and the transit that we launched in Europe.
So.
Let me, let me unpack that so.
Speaker Change: As well as manufacturing costs for the increased volumes that we're bringing across as Jim mentioned, so thats what drove most of the cost increase in the quarter. We're on track to deliver the $2 billion of cost reductions we talked about.
Yes.
For the year, we're not projecting where.
Sharing where we expect the cost to come down if you look at what recently happened in the quarter when it comes to pricing on model.
We had entered the year, assuming that prices would come down about 20%. They came down much more than that we had to take our prices down about 17% to remain competitive and mass competition. As we went through the quarter. So we've seen prices coming down quite dramatically and that's why we haven't been able to keep up from a cost reduction standpoint.
Speaker Change: At.
At the beginning of the year of around manufacturing cost material cost as well as freight and overhead.
Speaker Change: And so youll start to see that really gained traction as we move through the second half of the year and Thats when youll start to see it on R.
Speaker Change: Our quarterly results.
Right.
We're targeting to take out as much cost this year as we can our model E.
And all of the spirit of driving towards that contribution margin positive. So we can have some leverages as we move volumes through the chain. So that definitely is our intention.
Speaker Change: The next question is from <unk> Kelly with Citi. Please go ahead.
Kelly: Great. Thanks, Scott Good afternoon, everyone. Just two questions from me firstly back to grow with.
As we.
Continuing to work on modeling in the near term.
Kelly: It was a $3 billion outcome in Q1 can you maybe talk about the puts and takes if I think about the rest of the year.
On on pro obviously Q1.
Kelly: And maybe should we think about the full year at the high end of the <unk>.
Pro is is really structured not necessarily on tradition demand like retail it's actually deliveries.
Kelly: Range, and then going back to the model.
Kelly: The press release did did allude too easy cost improving going forward, but an offset from topline pressure I was hoping you could help dimension, what youre assuming for EV prices.
So our delivery volume in Q1, it's kind of it's a cyclical business globally and we have a lot of strong delivery in the first quarter.
Kelly: The rest of the year and as the volume kind of respond to these price cuts is there a level where model. He can still become contribution margin positive over the next 12 plus months.
Because of the contractual agreements with our customers, including retail and when you look at the rest of the year, we have shutdowns through a lot of other we have launches there are a lot of reasons why.
We feel really comfortable even with a strong result in the first quarter.
Speaker Change: So let.
That our guidance is still accurate for Ford Pro.
Speaker Change: Let me, let me unpack that so.
Speaker Change: For the year were not projecting where her.
Given all the puts and takes.
But we will revisit in the second quarter, we will see how pricing lands, we're going to be doing quite a bit of fleet tail business this quarter as well as looking at locking in.
Speaker Change: Sharing where we expect the cost to come down if you look at what recently happened in the quarter when it comes to pricing on model E.
Speaker Change: We had entered the year, assuming that prices would come down about 20%. They came down much more than that we had to take our prices down about 17% to remain competitive and mass competition. As we went through the quarter. So we've seen prices coming down quite dramatically and that's why we haven't been able to keep up from a cost reduction standpoint.
Pricing for some of our large corporate fleets later in the year. So we're going to learn a lot more this quarter.
On whether there is tailwind or headwinds on pro.
Terrific. That's all very helpful. Thank you.
The next question is from Joseph Spak with UBS. Please go ahead.
We're targeting to take out as much cost this year as we can our model E.
Thanks.
Jim first.
To start.
Speaker Change: And all of the spirit of driving towards that contribution margin positive. So we can have some leverages as we move volumes through the chain. So that definitely is our intention.
I appreciate all the commentary you talked about on the F 150 launches in.
As well as.
In the Super duty in Mustang and some of the improvement there.
Speaker Change: As we.
Speaker Change: Continuing to work on modeling in the near term.
As you mentioned, you've got some other big launches coming up lenders here, I think explorer and a number of others. So.
Speaker Change: On a pro obviously Q1.
Speaker Change: Pro is is really structured not necessarily on traditional demand like retail it's actually deliveries.
What is the lesson learned that you will go more cautious and careful and is that.
Should we expect a slower ramp up and we've seen historically for for some of these new launches later in the year.
Speaker Change: So our delivery volume in Q1.
Speaker Change: Kind of it's a cyclical business globally, and we have a lot of strong delivery in the first quarter.
I would say, we're seeing real benefits to our customers and the company I believe long term and taking this new approach to launches. It's also it also requires our industrial system under Kumar to work differently solve problems to do different kinds of testing and that goes into kind of a longer term.
Speaker Change: Because of the contract shall agreements with our customers Cooney retail and when you look at the rest of the year. We have shutdowns. There are a lot of other we have launches there are a lot of reasons why.
Speaker Change: We feel really comfortable even with the strong result in the first quarter.
<unk>.
Speaker Change: That our guidance is still accurate for Ford Pro.
Lessons learned and we're now really spending a lot of time on long term durability, which is an area where Ford.
Speaker Change: Given all the puts and takes.
Have standards that maybe maybe didn't look to lead the industry, which we now look to.
Speaker Change: But we will revisit in the second quarter, we will see how pricing lands, we're going to be doing quite a bit of fleet tail business this quarter as well as looking at the at locking in pricing for some of our large corporate fleets later in the year. So we're going to learn a lot more this quarter.
And so we're not going to change our approach to these launches we.
I think this new more measured approach with more physical testing a lot more time for problem solving for our team is the right approach for the company in the mid term and long term, we do have some very significant launches coming up we have.
Speaker Change: On whether there is tailwind or headwinds on pro.
Speaker Change: Terrific. That's all very helpful. Thank you.
The next question is from Joseph Spak with UBS. Please go ahead.
Explorer and aviator as you mentioned, which are high volume in both North America and in China, We have a new wave we call wave two for the onetime transit in Europe, which is super profitable and we're going to be building and launching the higher end derivatives that we have.
Speaker Change: Yes.
Joseph Spak: Thanks, Jim first.
Joseph Spak: To start.
I appreciate all the commentary you talked about on the F 150 launches.
Joseph Spak: As well as the Super duty in Mustang and some of the improvement there as.
The Bronco in China.
I can go on and on we have a fresh in Maverick and in Bronco sport coming in even more models in that so given all that complexity, it's actually even more important for us to take our time.
Joseph Spak: As you mentioned, you've got some other big launches coming up lenders here I think explore in a number of others. So.
Joseph Spak: Yeah.
Joseph Spak: What is the lesson learned that you will go more cautious and careful and is that.
And then may like quarter, one it may it.
Joseph Spak: Should we expect a slower ramp up than we've seen historically for for some of these new launches later in the year.
It may mean that in some quarter ends we may have some company stock and plants to make sure that we do the right thing on quality. So our earnings maybe a little bit lumpy you will see how that works out based on this new approach.
Joseph Spak: I would say, we're seeing real benefits to our customers and the company I believe long term. It taken this new approach to launches. It's also it also requires our industrial system under Kumar to work differently solve problems to do different kinds of testing and that goes into kind of a longer term.
Okay. Thanks for that.
And just back to the hybrid conversation because as you pointed out your hydro portfolio is much different than it is.
Toyota Honda.
It's pretty limited I think you only have three hybrids right now.
<unk>.
Joseph Spak: Lessons learned and we're now really spending a lot of time on long term durability, which is an area where Ford.
How should we think about.
Joseph Spak: Have standards, but maybe maybe didn't look to lead the industry, which we now look to.
Scaling that too.
The rest of the portfolio as you mentioned is it really like taking existing power plants, you have and trying to fit it make it fit on on more models are or are there real new investments that need to be made for for hybrids.
Joseph Spak: And so we're not going to change our approach to these launches. We think this new more measured approach with more physical testing a lot more time for problem solving for our team is the right approach for the company in the midterm and long term, we do have some very significant launches coming up we have.
Okay.
It's a good question so I would say, mostly it's it's taking our current.
Internal combustion engines, and adding new hybrid components and doing the engineering to fit that look look at the T. Six platform. We hit the Ranger, we had ever stuff that we have the Bronco thats an obvious candidate we have our full size Suvs candidate we have the explore.
Joseph Spak: Explorer and aviator as you mentioned, which are high volume in both North America and in China, We have a new wave we call wave two four the one ton transit in Europe, which is super profitable and we're going to be building and launching the higher end derivatives that we have.
Platform and I.
I think we were lucky we have the right engines. Some of them may have to go to an Atkins cycle engine from a normal combustion cycle, we have the components in our system from the hybrid the towards splitting devices.
Joseph Spak: The Bronco in China.
Joseph Spak: Can go on and on we have a fresh in Maverick and in Bronco sport coming in even more models in that so given all that complexity, it's actually even more important for us to take our time.
We do have to up the investment in some capacities like our hybrid transmissions, but we've made the decision to do that already and that's in our spending plan this year.
Joseph Spak: And then may like quarter, one in May.
It may mean that in some quarter ends we may have some company stock and plants to make sure that we do the right thing on quality. So our earnings maybe a little bit lumpy you will see how that works out based on this new approach.
So I think we're in really good shape it doesn't require.
Wholesale inventing new powertrains.
But it does involve some engineering and investment in capacity I would say kind of.
Speaker Change: Okay. Thanks for that.
Modest investments, mostly in the capacity side and some engineering.
Speaker Change: And just back to the hybrid conversation because as you pointed out your hydro portfolio is much different than it is.
Okay. Thank you for that.
Yeah.
Toyota or Honda.
The next question is from Colin Langan with Wells Fargo. Please go ahead.
Speaker Change: It's pretty limited I think you only have three hybrids right now.
Oh, great. Thanks for taking my questions.
Speaker Change: How should we think about.
It sounds like you're pretty optimistic about pickup demand.
Speaker Change: Scaling that too.
Speaker Change: The rest of the portfolio as you mentioned is it really like taking existing power plants, you have and trying to fit it make it fit on on more models are or are there real new investments that need to be made for for hybrids.
There's many reports of some of the data showing pricing such that we can Q1 inventories looked pretty high. So are you seeing any any risks in the market.
Where do you see.
Pricing for some of these models coming for the rest of the year I guess, you've got maybe some of the 2020.
It's a good question so I would say, mostly it's it's taking our current.
Trying to race out.
Where should inventory really end.
Speaker Change: Internal combustion engines, and adding new hybrid components and doing the engineering to fit that look look at the T. Six platform, we have the range or we had the ever stuff that we have the bronco thats an obvious guarantee we have our full size Suvs candidate we have the explore.
Yes, so what you saw on pickups for US as we came out of the end of last year into the first quarter of this year here in the U S is we built up stock because we knew we were coming into the launch. So we built stocks 23 models.
And.
Speaker Change: Platform in.
And then we were selling those down in the first quarter throughout the majority of the quarter.
Speaker Change: I think we were lucky we have the right engines. Some of them may have to go to an Atkins cycle engine from a normal combustion cycle, we have the components in our system and the hybrid the torque splitting devices.
And Thats why you saw to stay competitive with our competitors that had 24 year model.
Pick up trucks.
We saw some.
Speaker Change: We do have to up the investment in some capacities like our hybrid transmissions, but we've made the decision to do that already and that's in our spending plan this year.
Top line come down so we had higher incentives to sell the 23 model year longer through the quarter.
You see now that our 24 F 100, <unk> are at dealers and selling they're turning in about seven days Youll see as you look at the data that our average transaction prices are going up and our incentives spend is coming down because of some.
Speaker Change: So I think we're in really good shape it doesn't require.
Wholesale inventing new powertrains.
Speaker Change: But it does involve some engineering and investment in capacity I would say kind of.
Some of your mix.
So that's a big part of what moved it for us on pickup trucks.
Speaker Change: Modest investments, mostly in the capacity side and some engineering.
And it was because we're such a big player it was moving in.
Speaker Change: Okay. Thank you for that.
I just want to emphasize.
The next question is from Colin Langan with Wells Fargo. Please go ahead.
I don't think that's a brand out there that has.
Colin M. Langan: Oh, great. Thanks for taking my questions.
The Maverick that's pretty much alone in this segment and we still are in a supply shock for Maverick, it's one of our fastest growing vehicles.
It sounds like you're pretty optimistic about pick up demand, but I think there's many reports of some of the data showing pricing such that we can Q1 inventories look pretty high.
We have an all new F 150, with hybrid option as John said, turning really fast we have a super duty on the pro side. This oversubscribed two to one and we were brand new Ranger.
Colin M. Langan: Are you seeing any any risks in the market.
Colin M. Langan: Do you see.
Colin M. Langan: Pricing for some of these models coming for the rest of the year I guess now that you've got maybe some of the 'twenty 'twenty.
So we.
Colin M. Langan: Trying to race out.
We're a bit of a unicorn.
Colin M. Langan: Where should inventory really end.
Since that yes, we're big.
Colin M. Langan: Yes, so what you saw on pickups for US as we came out of the end of last year into the first quarter of this year here in the U S is we built up stock because we knew we were coming into the launch. So we book stocks 23 models.
And there is some risk, but I would say the risk is for people who have aged product.
And I think Ford is in a particularly advantaged situation.
And what about inventory levels I think some of that data showing up in the high nineties.
Colin M. Langan: And.
Colin M. Langan: And then we were selling those down in the first quarter throughout the majority of the quarter.
Or do you kind of come down yes.
Yes, thats come down considerably and if you look at us on an overall basis, our dealer base supplies mid fifties.
Colin M. Langan: And that's why you saw to stay competitive with our competitors that had 24 year model.
Colin M. Langan: Pick up trucks.
Yeah.
We're completely out of stock on Rangers Maverick is like 30 day supply or something like that F. 150 came down because we had quite a few 20 threes, but now now with the launch and the quality effort I think the stocks are really in good shape and Super duty, we have very few in stock for retail.
Colin M. Langan: We saw some.
Colin M. Langan: Top line come down so we had higher incentives to sell the 23 model year longer through the quarter.
Colin M. Langan: <unk> seen now that are 24 F 100, fifty's are at dealers and selling or turning in about seven days Youll see as you look at the data that our average transaction prices are going up and our incentives spend is coming down because of <unk>.
<unk>.
You got to look at the dealer base supply and that that's that's in a good place.
Colin M. Langan: Some of your mix.
Colin M. Langan: That's a big part of what moved it for us on pickup trucks.
And just as a follow up.
Colin M. Langan: And it was because we're such a big player it was moving.
Maybe a color on industry pricing what is sort of embedded in your guidance at this point, how is pricing holding up I guess sequentially because I think some of the comps are all tough with launches year over year, yes.
Colin M. Langan: And I just want to emphasize.
Colin M. Langan: I don't think Thats a brand out there that has.
Colin M. Langan: The Maverick that's pretty much alone in this segment and we still are in a supply shock for Maverick, it's one of our fastest growing vehicles.
Yes, first quarter pricing held up pretty well.
Q4 into Q1.
Planning perspective, we assume that the industry.
Colin M. Langan: We have an all new F 150, with hybrid option as John said, turning really fast.
We expect to see pricing pressure of about 2% negative pricing across the industry and it really comes back to affordability.
Colin M. Langan: Super duty on the pro side. This oversubscribed two to one and we were brand new Ranger.
Colin M. Langan: So we.
Speaker Change: We're a bit of a unicorn.
Many folks across the industry have been talking about pricing coming down.
Speaker Change: Since that yes, we're big.
Speaker Change: And there is some risk, but I would say the risk is for people who have aged product.
And it Hasnt yet again, we saw in the first quarter of it remained pretty robust, but we keep looking at it from an affordability standpoint from the consumer perspective, and when you look at where consumers were pre COVID-19 that we have the supply shocks and we had a <unk>.
Speaker Change: And I think Ford is in a particularly advantaged situation.
Speaker Change: And what about inventory levels I think some of the data is showing up in the high <unk>.
Speaker Change: Martin.
Barry and balance between supply and demand, but now that's normalized we would expect that affordability should go back to where it was pre COVID-19 and that's about 13% to 14% of monthly disposable income.
Martin: It comes down to us yes.
Yes, thats come down considerably and if you look at us on an overall basis, our dealer day supplies mid fifties.
Martin: We're completely out of stock on Rangers Maverick is like 30 day supply or something like that F. 150 came down because we had quite a few 20 threes.
And you also have to factor in right now with interest rates that payment prices have gone up insurance rates have gone up as well as.
Martin: Now now with the launch and their quality effort I think the stocks are really in good shape and Super duty, we have very few in stock for retail.
Maintenance rates and so when you take all of that together, we think about affordability, we say, okay, if you're going to be back towards that range of affordability for the consumer then prices are going to have to come off a couple of points or so across the industry and so that's that's how we think about it and thats, what we have planned and we'll see where that runs with Q2 and then as we.
Martin: So you.
Martin: You got to look at the dealer base supply and that that's that's in a good place.
And just as a follow up.
Martin: Yes.
Martin: <unk> on industry pricing, what is sort of embedded in your guidance at this point, how is pricing holding up I guess sequentially because I think some of the comps are all tough with launches year over year.
Go through the second half of this year.
Okay, all right. Thanks for taking my questions.
The next question is from Tom Narayan with RBC. Please go ahead.
Speaker Change: Yes, first quarter pricing held up pretty well.
Thanks for taking the question.
Speaker Change: Q4 into Q1 from a planning perspective, we assume that the industry.
Jim we heard from your guys' commentary that pricing has dropped stabilized then the losses with lesson, but as we've heard from some.
Speaker Change: Expect to see pricing pressure of about 2% negative pricing across the industry and it really comes back to affordability.
The earnings yesterday Tesla GM.
The opposite is happening it seems like the Oems are trying to make cheaper you mean.
Speaker Change: They don't.
Speaker Change: Many folks across the industry have been talking about pricing coming down.
And that pricing is really only going to go lower I guess, how confident are you that you could reduce EV losses in this environment and EDC prices just keep on going down.
And it Hasnt yet again, we saw in the first quarter that it remained pretty robust, but we keep looking at it from an affordability standpoint and from a consumer perspective, and when you look at where consumers were pre COVID-19 that we have the supply shocks and we had a very balanced between supply and demand, but now is thats normal.
Okay.
So.
When you look at it it's clear that.
When the EV craze started it was over.
But it looked like demand was going to be well long supply, but that was with the early adopters and they were willing to pay a higher price what we're finding with being in the marketplace is that EV prices are normalizing and our early majority of customers are not willing to pay a premium and thats what were seeing and so we think that prices for evs is within the norm.
Speaker Change: So we would expect that affordability should go back to where it was pre COVID-19 and thats about 13% to 14% of monthly disposable income.
Speaker Change: And you also have to factor in right now with interest rates that payment prices have gone up insurance rates have gone up as well as.
Speaker Change: Maintenance rates and so when you take all that together, we think about affordability, we say, okay, if you're going to be back towards that range of affordability for the consumer then prices are going to have to come off a couple of points or so across the industry and so that's that's how we think about it and thats, what we have planned and we'll see where that runs with Q2 and then as we can.
<unk> around where gasses of the consumers hasn't gone away the value proposition of that propulsion choice either.
For their duty cycle, what works for them, either it's going to be an EV or a traditional ice engine or a diesel or hybrid.
And pricing is going to have to be realm.
Relatively consistent across all choices of propulsion and the customer will make a choice based on the value of that and that's how we're building the business model for electric vehicles.
Through the second half of this year.
Speaker Change: Okay, all right. Thanks for taking my questions.
Speaker Change: The next question.
Speaker Change: <unk> is from Tom Narayan with RBC. Please go ahead.
I don't think that youre going to find that youre going to have electric vehicles, well below gas prices unless there is so much capacity pushing against the demand curve and it's in an imbalance on that end of it.
Unknown Attendee: Thanks for taking the question.
Unknown Attendee: Jim we heard from your guys' commentary that pricing has dropped stabilized then the losses with lesson, but as we've heard from some.
But eventually rational players will have to come to the marketplace. We launched our first small it should be this year in Europe in Cologne, our explore.
Unknown Attendee: Although the earnings yesterday Tesla GM.
Unknown Attendee: The opposite is happening it seems like Oems are trying to make cheaper you mean.
So the two ROE crossover is relatively small vehicles certainly in the U S.
And that pricing is really only going to go lower I guess, how confident are you that you could reduce EV losses in this environment. It is easy prices just keep on going down.
And you can expect as I mentioned several times that our new affordable platform, we use for most of our volume in their next cycle of product.
Unknown Attendee: Okay.
What's really exciting for us is that we see an opening in the market. We see a lot of brands having to launch complaints vehicles that lose money and they probably don't want to sell a lot of volume, but they have to we believe that we can be profitable at 25% to $30000 or it's a huge opportunity for Ford.
Unknown Attendee: So.
Unknown Attendee: When you look at it it's clear that.
Unknown Attendee: When the EV craze started right it was over.
Unknown Attendee: But it looked like demand was going to be well long supply, but that was with the early adopters and they were willing to pay a higher price what we're finding with being in the marketplace is that EV prices are normalizing and our early majority of customers are not willing to pay a premium and that's what we're seeing and so we think that prices for evs is within the norm.
And what we're learning with Blue crews and our productivity software on pro is that all of those vehicles will be great platforms for software and services.
And so we're really excited about that new more affordable vehicle lineup, starting with explore in Europe. This year.
Unknown Attendee: <unk> around where gas is in the consumer something on the way the value proposition of that propulsion choice either.
Unknown Attendee: For their duty cycle, what works for them, either it's going to be an easy or a traditional ice engine or a diesel or hybrid.
And then as a follow up maybe this is a something that could help here.
Battery raw mat.
Costs have lithium down like 80% since it peaked in 2022.
Unknown Attendee: And pricing is going to have to be realm.
Unknown Attendee: Relatively consistent across all choices of propulsion and the customer will make a choice based on the value of that and that's how we're building the business model for electric vehicles.
Could you just remind us or.
The higher contracts, where I think there's we've referenced of other Oems that theres still some benefits to come in and actually getting better given how contracts work and you could actually see some benefits on battery raw mats later in the year.
Unknown Attendee: I don't think that youre going to find that youre going to have electric vehicles well below <unk>.
Unknown Attendee: Gas prices unless theres, so much capacity pushing against the demand curve and it's in an imbalance on that end of it.
Yes, we're seeing the same thing.
We're no different.
I would say that the.
Unknown Attendee: But eventually rational players will have to come to the marketplace. We launched our first small it should be this year in Europe in Cologne, our explore.
The biggest leverage on the battery cost is still going to be taking nickel out of them and those kind of things it's great to see the easing of some of the raw materials.
And that will definitely cascade into our business depending on our contracts.
Unknown Attendee: So the two ROE crossover.
Unknown Attendee: Relatively small vehicles certainly in the U S.
The most important thing strategically is to get to new chemistries that have a lot less expensive materials in them and we see that right around the corner at Ford and.
Unknown Attendee: And you can expect as I mentioned several times that our new affordable platform be used for most of our volume in their next cycle of product.
Unknown Attendee: What's really exciting for us is that we see an opening in the market. We see a lot of brands having to launch complaints vehicles that lose money and they probably don't want to sell a lot of volume, but they have to we believe that we can be profitable at 25% to $30000. So it's a huge opportunity for Ford.
And we're changing our launch timing to take advantage of that.
Okay.
Yes.
Our final question today is from James Picariello with BNP Paribas Exane. Please go ahead.
Unknown Attendee: And what we're learning with Blue crews and our productivity software on pro is that all of those vehicles will be great platforms for software and services.
Hi, everyone.
Just back on Joe's question regarding this year's heavy slate of model launches I know the hyper focus is on improved launch quality I believe Jim you mentioned at some point or lost $1 billion in profit last year from a more deliberate super duty launch excluding the impact from the strike.
Unknown Attendee: And so we're really excited about that new more affordable vehicle lineup, starting with explore in Europe. This year.
Speaker Change: And then as a follow up maybe this is something that can help here.
My question is if we already saw the F 150, refreshed this quarter results and 60000 units getting push is there rest of four blues guide from lower launch volumes as its already factored into the range or is it mainly expected forego avoids any material slowdown from here.
Battery raw mat.
Speaker Change: Costs have lithium down like 80% since it peaked in 2022.
Speaker Change: Could you just remind us.
Speaker Change: Higher contracts work I think we've referenced of other Oems that theres still some benefits to come in and actually getting better given our contracts work can you could actually see some benefits on battery raw mats later in the year.
It's already factored in.
Alright, okay.
Okay.
Can you also can you just unpack hell the implied asps for modeling in the corner finished in.
Speaker Change: That we're seeing the same thing.
Speaker Change: We're no different.
10000 to $14000 range and then just given the slow volume start to the year should we still be expecting modest full year growth for modeling yes.
Speaker Change: I would say that the.
The biggest leverage on the battery cost is still going to be taking nickel out of them and those kind of things it's great to see the easing of some of the raw materials and that will definitely cascade into our business depending on our contracts.
Yes.
We we expect high single digit growth in the modeling.
It primarily with launch of the explorer as Jim mentioned in Europe.
Speaker Change: The most important thing strategically is to get to new chemistries that have a lot less expensive materials in them and we see that right around the corner at Ford.
When you look at the average selling price with the math.
It's difficult because of the quarter so.
Speaker Change: And we're changing our launch timing to take advantage of that.
We had quite a few units in stock.
And as we saw the competitive pricing in the industry come down we took our prices down too. So then we have to take the prices down of all units in stock.
Speaker Change: Yes.
Our final question today is from James <unk> with BNP Paribas Exane. Please go ahead.
Equally and that was about $300 million of.
Pack there. So when you look at the 10th of revenue for the quarter for modeling you need to add that 300 in if you want to do the math based on the wholesale in the quarter.
Hi, everyone.
James: Just back on Joe's question regarding this year's heavy slate of model launches I know the HEICO focuses on improved launch quality I believe Jim you mentioned at some point or loss of $1 million in profit last year from a more deliberate super duty launch excluding the impact from the strike.
Got it maybe my first question doesn't count.
Given that we need to be answered.
Just just on the $2 billion in material and manufacturing cost savings for this year I know, they're not going to be clean numbers that stand out in the French quarter to quarter, but can you just give a high level assessment on the progress today.
James: The question is we already saw the F 150, refreshed. This quarter result, and 60000 units getting push is there rest of Ford Blues guide from lower launch volumes as its already factored into the range or is it mainly expected formal award any material slowdown from here.
So really showing through and any color youre willing to share on first half versus second half timing on those initiatives. Thanks, Yes. So majority of them are going to be towards the second half I'm really encouraged by the progress that cooler in the industrial platform are making around the.
James: <unk> already factored in.
James: Okay.
James: Okay.
The design changes and those design changes are tying to be implemented as we get the new model year changeover in the second half and as we bring vehicles online in the second half. So that's one area, where I have seen tremendous progress by the <unk> as they are working on those design reductions to come through the other area, we're seeing progress.
James: Can you also can you just unpack how the implied ASP for modeling in the corner finished in the 10 to.
James: $14000 range and then just given the slow volume start to the year should we still be expecting modest full year growth for modeling.
Speaker Change: Yeah, we we expect high single digit growth in the modeling.
As in manufacturing.
Speaker Change: It primarily with launch of the explorer as Jim mentioned in Europe.
Bryce and his team as they are working to drive efficiencies to help offset the increases we have this year based on the contract that we signed last year. So in both areas I'm seeing green shoots there enlist is doing a really nice job on the.
Speaker Change: When you look at the average selling price with the math.
Speaker Change: It's difficult because of the quarter so.
Speaker Change: We had quite a few units in stock.
Speaker Change: And as we saw the competitive pricing in the industry come down we took our prices down too. So then we had to take the prices down of all units in stock equally.
<unk>.
On the supply chain side as well, we've got better systems and tools and processes. We are working more collaboratively with the supply base she's changing the culture.
Equally and that was about $300 million of.
And so across all three of those areas in the industrial platform between doing leading the team with price and Liz.
Speaker Change: Pact there. So when you look at the 10th of revenue for the quarter for modeling you need to add that 300 in if you want to do the math based on the wholesale in the quarter.
We're seeing green shoots and we're confident on the $2 billion this year, but mostly time towards the second half.
Speaker Change: Got it maybe my first question doesn't count.
And one of the most important priorities for us as the team is to take that cost down and improve quality at the same time. So on the design side. For example, we have specific windows, where the team can make design changes and not to protect our quality I just want to emphasize that because.
Speaker Change: Given how easy the ashwin.
Speaker Change: Just just on the $2 billion in material manufacturing cost savings for this year I know, they're not going to be clean numbers that stand out in the <unk> quarter to quarter, but could you just give a high level assessment on the progress today.
Speaker Change: So really showing through and any color youre willing to share on first half versus second half timing on those initiatives. So majority of them are going to be towards the second half I'm really encouraged by the progress that cooler in the industrial platform are making around the.
We're trying to do both at the same time improve quality and improve our costs in the industrial system and to do that we have to be very intentional.
Thanks.
This concludes the Ford Motor Company first quarter 2024 earnings Conference call. Thank you for your participation you may now disconnect.
Speaker Change: <unk> <unk>.
Speaker Change: Design changes and those design changes are tying to be implemented as we get the new model year changeover in the second half and as we bring vehicles online in the second half. So that's one area, where I have seen tremendous progress by the <unk> that they are working on those design reductions to come through the other area. We're seeing progress is.
Speaker Change: In manufacturing and Bryce and his team as they are working to drive efficiencies to help offset the increases we have this year based on the contract that we signed last year. So in both areas I'm seeing green shoots there enlist is doing a really nice job on the.
Speaker Change: Tom.
Speaker Change: On the supply chain side as well, we've got better systems and tools and processes. We are working more collaboratively with the supply base.
Speaker Change: Changing the culture.
Speaker Change: And so across all three of those areas in the industrial platform between what the market's doing leading the team with price in lives.
Speaker Change: We're seeing green shoots and we're confident on the $2 billion this year, but mostly time towards the second half.
Speaker Change: One of the most important priorities for us the team is to take that cost down and improve quality at the same time. So on the design side. For example, we have specific windows, where the team can make design changes.
Speaker Change: And not to protect our quality I just want to emphasize that because.
Speaker Change: We're trying to do both at the same time improve quality and improve our cost and the industrial system and to do that we have to be very intentional.
Speaker Change: Thanks.
Speaker Change: Yes.
Speaker Change: This concludes the Ford Motor Company first quarter 2024 earnings Conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
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