Q4 2024 Ford Motor Co Earnings Call

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Leyla: Good day, everyone. My name is Leyla and I will be your conference operator today.

Lynn Tyson: My name is Layla, and I will be your conference operator today.

Lynn Tyson: At this time, I would like to welcome you to the Ford Motor Company fourth quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Leyla: At this time I would like to welcome you to the Ford Motor Company fourth quarter 2024 earnings Conference call.

Leyla: All lines have been placed on mute to prevent any background noise.

Lynn Tyson: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, and if you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. If you have joined by phone, please dial star nine on your keypad to raise your hand.

Leyla: After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time and if you have joined via the webinar. Please use the raise hand dot com, which can be found at the bottom of your webinar application. If you have joined by phone. Please dial star nine on your key pads to raise your hand.

Lynn Tyson: At this time, I would like to turn the call over to Lynn Antipas Tyson, Executive Director of Investor Relations. Thank you. Welcome to Ford Motor Company's fourth quarter 24 earnings call. With me today are Jim Farley, President and Chief Executive Officer, and Sherry House, our new CFO, effective tomorrow, February 6th. Joining us for Q&A will be John Lawler, Vice Chair and current CFO, and Cathy OCallaghan, CEO of Ford Credit. Today's discussions include some non-GAAP references. These are reconciled to the most comparable U.S. GAAP measures in the appendix of our earnings deck. You can find the deck along with the rest of our earnings materials and other important content at shareholder.ford.com.

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

Lynn Antipas: Thank you welcome to Ford Motor Company's fourth quarter 24 earnings call with me today are Jim Farley, President and Chief Executive Officer, and Sheri House, our new CFO effective Tomorrow February six joining us for Q&A will be John Lawlor, Vice chair and current CFO and Kathy O'callahan CEO of Ford credit today as discussed.

Lynn Antipas: <unk> include some non-GAAP references these are reconciled to the most comparable U S. GAAP measures in the appendix of our earnings deck, you can find the deck along with the rest of our earnings materials and other important contact content at shareholder Dot for Dot com.

Lynn Tyson: 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 23. Unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS, and free cash flow are on an adjusted basis. Lastly, I'd like to call out a near-term IR engagement.

Lynn Antipas: 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 23.

Lynn Antipas: Unless otherwise noted all comparisons are year over year company, EBIT EPS and free cash flow are on an adjusted basis.

Lastly, I'd like to call out a near term IR engagement on February 11th Jim Farley and jewelry helps both participate in as far as such out in New York with Emmanuel Rosner at the Wolf Global Auto Auto Tech and mobility Conference now I'll turn the call over to Jim.

Lynn Tyson: On February 11th, Jim Farley and Sherry House will participate in a fireside chat in New York with Emmanuel Rosner at the Wolf Global Auto Tech and Mobility Conference.

Jim Farley: Now I'll turn the call over to Jim. Thank you, Lynn. And hello, everyone. We appreciate that you're joining us.

Lynn and Hello, everyone. We appreciate that Youre, joining us I want to start by welcoming Sherry House.

Jim Farley: I want to start by welcoming Sherry House. to our first earnings call as our incoming CFO. And I want to thank John Lawler as he transitions to our vice chair.

Lynn Antipas: To her first earnings call as our incoming CFO and I want to thank John Lawlor as he transitions to our vice chair.

Jim Farley: Last year was a year of progress in key areas, building on our found fundamentals at Ford, our global revenue reached an all time record at the company of $185 billion. This was our fourth consecutive year of top line growth, driven by some of the strongest and most durable franchises in our industry. Ford is the undisputed leader of pickup trucks in our industry. The F-Series is once again America's best-selling pickup and the best-selling vehicle of any kind. The Ranger has grown into a strong global franchise for us. It's key to our profitability in many markets around the world at Ford.

Lynn Antipas: Last year was year progress in key areas building on our from fundamentals at Ford.

Lynn Antipas: Global revenue reached an all time record at the company of 185 billion.

Lynn Antipas: This was our fourth consecutive year of top line growth driven by some of the strongest and most durable franchises in our industry.

Lynn Antipas: Ford is the undisputed leader of pickup trucks in our industry.

Lynn Antipas: The F series is once again America's best selling pickup and the best selling vehicle of any kind.

Lynn Antipas: The Ranger has grown into a strong global franchise for US is key to our profitability in many markets around the world at Ford.

Jim Farley: And by the way, Ranger won North America Truck of the Year. That's the fifth time in a row Ford has won that award. Hybrid trucks are a key growth area for us. It's not what you think about when you think of hybrids, but this nontraditional channel is allowing us to capture the lion's share of revenue and command pricing power within the pickup truck market with unique features like Pro Power on board. Vans are another stronghold globally for us with our best-selling transit family. And the story is no different for Pro as a whole. Our commercial business is focused on unit sales and series mix to maximize revenue.

Lynn Antipas: By the way Ranger, one North America truck of the year. That's the fifth time in a row Ford has won that award.

Lynn Antipas: Hybrid trucks are a key growth area for us.

It's not when you think about when you think of hybrids, but this nontraditional channels.

Lynn Antipas: Is allowing us to capture the lion's share revenue and command pricing power within the pickup truck market with unique features like pro power onboard.

Lynn Antipas: Vans or another stronghold globally for us with their best selling transit family.

Lynn Antipas: And the story is no different for pro as a whole our.

Lynn Antipas: Our commercial business is focused on unit sales and series mix to maximize revenue and last year, we really saw that a sizeable growth and mix.

Jim Farley: And last year, we really saw that. A sizable growth in mixed Profitable High Series Super Duties, and Transit Wagon. But at the same time, Pro is building something new, reoccurring revenue streams to our software and physical services business. Pro software subscriptions rose 27% to nearly 650,000 subscriptions last year. Telematics software grew 100%. Mobile service units increased 57%. and the stickiness of that ecosystem of services is increasing. The second half of last year, 25% of all of our brand new telematics customers in North America purchased additional software, including dash cams and fleet management software. and with Blue Cruise.

Lynn Antipas: Profitability High series Super duties and transit wagon.

Lynn Antipas: But at the same time pro is building something new.

Lynn Antipas: Reoccurring revenue streams to our software and physical services business.

Lynn Antipas: Pro software subscriptions rose, 27% to nearly 650000 subscriptions last year Telematics software grew 100% mobile service units increased 57%.

Lynn Antipas: And the stickiness of that ecosystem of services is increasing.

Lynn Antipas: Second half of last year, 25% all of our brand new telematics customers in North America purchased additional software, including Dash Cams and fleet management software.

Lynn Antipas: And with Blue crews equipped units have now in operations and now more than doubled in the last year.

Jim Farley: Equipped units in operations have now more than doubled in the last year. to just under 700,000 vehicles. And since launch, our customers have now driven over 300 miles, 300 million miles hands-free. So you can see our relationship with our customers no longer ends at the point of sale or financing.

Lynn Antipas: To just under 700000 vehicles and since launch our customers now driven over 300 miles 300 million miles hands free.

Lynn Antipas: So you can see our relationship with our customers no longer ends the point of sale or financing.

Jim Farley: We're starting to build lasting relationships and creating new avenues for reoccurring growth at Ford. Last year Ford had the highest share of revenue among all brands in our home market, the U.S. But the key for us is matching this revenue growth with improved execution and discipline on cost and quality. We're working differently and it's starting to show. We've upgraded talent throughout our industrial system. We brought in industry's best third-party experts to inspect and validate our findings. We're identifying best practices to attack our operational issues. We're quantifying the upside, and most importantly, we're bringing home the savings.

Lynn Antipas: We're starting to build lasting relationships and creating new avenues for reoccurring growth at Ford.

Lynn Antipas: Last year for it had the highest share of revenue among all brands in our home market the U S.

Lynn Antipas: But the key for US is matching this revenue growth with improved execution and discipline on cost and quality.

Lynn Antipas: We're working differently and it's starting to show.

Lynn Antipas: We've upgraded talent throughout our industrial system.

Lynn Antipas: Brought in industry's best third party experts to inspect and validate our findings.

Lynn Antipas: We're identifying best practices to attack our operational issues were.

Lynn Antipas: We're quantifying the upside and most importantly, we're bringing home the savings.

Jim Farley: We're changing our culture to be more focused on quality. and with accountable measures for all of our engineering teams and leadership. These changes produced green shoots delivering about a $500 million of net cost reductions in last year's second half.

Lynn Antipas: We're changing our culture to be more focused on quality.

Lynn Antipas: And with Counter-boulle measures for all of our engineering teams and leadership.

Lynn Antipas: These changes produce green shoots delivering about a $500 million.

Lynn Antipas: Of net cost reductions in last year's second half.

Jim Farley: But this is frankly a small down payment on the work to be done at Ford's. We're focused on closing our competitive cost gap over the next few years.

Lynn Antipas: But this is frankly, a small down payment on the work to be done at Ford.

Lynn Antipas: We're focused on closing our competitive cost gap over the next few years.

Jim Farley: And lastly, we continue to monitor and adapt to the changing market conditions, which last year unfolded about what we thought. The EV market, we continue to see new models launch, increased competition, with increased pricing pressure. On hybrids, we continue to see the market grow aggressively. But now in diverse markets like truck customers, we're learning that a hybrid can also mean uncompromised towing, and torque, and payload, and other performance advantages, including fuel economy. In the ice market, the industry's inventories and pricing have normalized. We also see the Chinese OEMs continue to expand and be a major force in our industry.

Lynn Antipas: And lastly, we continue to monitor and adapt to the changing market conditions, which last year unfolded about what we thought the EV market and continue to see new models launch increased competition with increased pricing pressure on.

Lynn Antipas: On hybrids, we continue to see the market grow aggressively but now in diverse markets like truck customers, who learning that a hybrid can also mean, uncompromised towing and torque and payload and other performance advantages, including fuel economy.

Lynn Antipas: In the ice market the industry the industries.

Lynn Antipas: Inventories and pricing have normalized.

Lynn Antipas: We also see the Chinese Oems continue to expand and be a major fortunate industry.

Jim Farley: Their operational fitness is incredible. Their supply chains are now expanding globally and they're increasing their exports around the world.

Lynn Antipas: There are operational fitness is incredible.

Lynn Antipas: Their supply chains are now expanding globally and they're increasing their exports around the world.

Jim Farley: So let's talk about this year. We expect the company's adjusted EBIT of $7 billion to $8.5 billion range. Sherry's gonna get into the details. We wanna be clear though that our guidance has not factored in impacts from changes in policy by the current administration. That said. From an operational standpoint, we believe a few weeks of tariffs are manageable given the rate and flow of our products. As everyone is aware, we're already seeing changes in trade policy and we expect changes in tax policy like the IRA and emissions policy, CO2, that could be very consequential for our industry.

Lynn Antipas: So let's talk about this year, we expect the company's adjusted EBIT of 7 billion to $8 $5 billion range sure. He is going to get into the details we want to be clear, though that our guidance has not factored in impacts from changes in policy by the current administration that said from an <unk>.

Lynn Antipas: Operational standpoint, we believe a few weeks of tariffs are manageable given the rate and flow of our products.

Lynn Antipas: As everyone is aware, we're already seeing changes in trade policy and we expect changes in tax policy like the eye array and emissions policy <unk> that could be very consequential for our industry.

Jim Farley: At this early point, I want to emphasize a few things. There's no question that tariffs at 25% level from Canada to Mexico, if they're protracted, would have a huge impact on our industry, with billions of dollars of industry profits wiped out, an adverse effect on the U.S. jobs, as well as the entire value system in our industry. Tariffs would also mean higher prices for customers. We said that we believe based on our conversations in DC with the Trump administration and congressional leaders, that they are committed to strengthening, not weakening our nation's auto industry. That is certainly our expectation, and we look forward to working with our leaders to make sure that that becomes a reality.

Lynn Antipas: At this early point I want to emphasize a few things.

Lynn Antipas: There is no question that tariffs to 25% level from Canada, Mexico, If theyre protracted would have a huge impact on our industry with billions of dollars of industry profits wiped out and adverse effect on the U S jobs as well as the entire value system in our industry.

Lynn Antipas: Tariffs would also mean higher prices for customers.

Speaker Change: <unk> said that we believe based on our conversations in D. C with the Trump administration and congressional leaders that they are committed to strengthening not weakening our nation's auto industry.

Speaker Change: That is certainly our expectation and we look forward to working with our leaders to make sure that that becomes a reality.

Jim Farley: because they understand and appreciate how vital our industry is to jobs, the economy, our national security, and the communities across our country.

Speaker Change: Because they understand and appreciate how vital our industry is to jobs the economy, our national security and the communities across our country.

Jim Farley: As America's leading auto producer and the leading exporter of automobiles, we applaud the administration for the agreement they announced with Mexico and Canada on Monday, and we're closely monitoring the situation in China. There is a fundamental transformation happening in the backdrop of these policy changes in our industry globally. Of course, the overall tariff and trade situation, the growing importance of digital vehicles, The Chinese OEM is growing to become a global reality. These dynamics will all play out for some time to come.

Speaker Change: As America's leading auto producer.

Speaker Change: And the leading export of automobiles, we applaud the administration for their agreement, they announced with Mexico, and Canada on Monday, and we're closely monitoring the situation in China.

Speaker Change: There is a fundamental transformation happening in the backdrop of these policy changes in our industry globally.

Speaker Change: Of course, the overall tariff and trade situation the growing importance of digital vehicles.

Speaker Change: The Chinese Oems growing to become a global reality. These dynamics will play out for some time to come.

Jim Farley: Ford controls its future. While we are certainly operating in interesting times, at the end of the day, we control our destiny.

Speaker Change: But ford controls its future.

Speaker Change: While we are certainly operating interesting times at the end of the day, we control our destiny.

Jim Farley: Our products and services are compelling, and get even stronger this year with great new launches like the Expedition, the Navigator, the all-new electric Puma, as well as Ford Pro Service Office. We will match that potent revenue power with real progress on cost.

Speaker Change: Our products and services are compelling and.

Speaker Change: And get even stronger this year with great new launches like the expedition and navigator you all new electric Puma as well as Ford Pro service offerings.

Speaker Change: We will match that potent revenue power with real progress on cost to realize this multibillion dollar upside opportunity on cost we will stay focused on the following areas.

Jim Farley: To realize this multi-billion dollar upside opportunity on cost, we will stay focused on the following areas. faster identification of defects and issues in the field. deploying dedicated teams into our supply base to help them improve key manufacturing disciplines to improve their part quality to us. holding suppliers accountable when they send us defects. Reducing Complexity. to eliminate waste. Dramatic increase in our OTA capability. We performed 9 million over-the-air updates in fourth quarter alone. 80% of those were focused on addressing customers' concerns and warrants. We're enhancing our software development process. For example, more upfront experts reviewing coding, not just ours, but our suppliers, to catch potential issues early.

Faster identification of defects and issues in the field.

Speaker Change: Deploying dedicated teams into our supply base to help them improve key manufacturing disciplines to improve their per quality to us.

Speaker Change: Holding suppliers accountable when they send us defects.

Speaker Change: Reducing complexity.

Speaker Change: To eliminate waste.

Speaker Change: Dramatic increase in our OTA capability we.

Speaker Change: We performed $9 million over the air updates in fourth quarter alone, 80% of those were focused on addressing customers' concerns and warranty.

Speaker Change: We're enhancing our software development process for example, more upfront expert to reviewing coding not just ours, but our suppliers to catch potential issues early.

Jim Farley: And we're continuing to integrate AI, data analytics, and other tools and process to further improve our manufacturing efficiency. Early input metrics provide us comfort. in our 2025 cost reduction target. We already have over a billion dollars of product design cost reduction ideas to be implemented this year. We have fewer lost units during our launch. The Improvement in the Number of Days from Warranty Defect and Field Fixed. is an encouraging sign for us in warranty. We're seeing an 18% improvement in the quality of our vehicles leaving our facilities for the 25 mile a year launch. And we're increasing the number of supplier technical assistance site visits for critical suppliers.

Speaker Change: And we're continuing to integrate AI data analytics and other tools and process to further improve our manufacturing efficiency.

Speaker Change: Early input metrics provide us confidence in our 2025 cost reduction target, we already have over $1 billion of product design cost reduction ideas to be implemented this year.

Speaker Change: We had fewer large units during our launches.

Speaker Change: The improvement in the number of days from warranty defect and field fix.

Speaker Change: As an encouraging sign for us and warranty.

Speaker Change: We're seeing an 18% improvement in the quality of our vehicles, leaving our facilities for the 25 multi year launches and we're increasing the number of supplier technical assistant site visits for critical suppliers.

Jim Farley: I want to touch on our EV strategy since it's so critical for any car company. We're on course. We're deep in the development of our next generation of vehicles that we believe will be affordable. High volume and great for our business. On the U.S. retail side, the sweet spot that has emerged is small and medium-sized trucks and utilities. These vehicles' use case fits perfectly for EVs, daily commuters, well-suited as the second vehicle in the household. They require smaller, much lower cost batteries. These vehicles can be offered at lower prices to help adoption of EVs for the customers who really appreciate the lower operating costs.

Speaker Change: I wanted to touch on our EV strategy since it's so critical for any core company. We're on course, we're deepening the development of our next generation of vehicles that we believe will be affordable.

Speaker Change: High volume and great for our business.

Speaker Change: On the U S retail side, the sweet spot that has emerged is small and medium sized trucks and utilities.

Speaker Change: These vehicles use case fits perfectly for Evs daily commuters well suited as a second vehicle in the household.

Speaker Change: They require smaller much lower cost batteries. These vehicles can be offered at lower prices to help adoption of evs for the customers, who really appreciate their lowering lower operating costs.

Jim Farley: but for larger retail electric utilities. The economics are unresolvable. These customers have very demanding use cases for an electric vehicle. They tow, they go off-road, they take long road trips. These vehicles have worse aerodynamics and they're very heavy, which means very large and expensive batteries. Retail customers have shown that they will not pay any premium for these large EVs making them a really tough business case given the expense and the batteries. For Ford, the Our commercial customers do show potential for large EVs. They're willing to pay a premium over ICE because they can really measure the TCO advantages of EV and they can live with depot charging.

Speaker Change: But for larger retail electric utilities.

Speaker Change: The economics are.

Speaker Change: Our on resolvable.

Speaker Change: These customers have very demanding use cases for an electric vehicle. They told the golf road. They take long road trips. These vehicles have worst aerodynamics and theyre very heavy which means very large and expensive batteries.

Speaker Change: Retail customers have shown that they will not pay any premium for these large evs, making them a really tough business case, given the expense and the batteries.

Speaker Change: For Ford.

Speaker Change: D.

Speaker Change: Our commercial customers do show potential for large Tvs, they're willing to pay a premium over ice because they can really measure the <unk> advantages of EV and they can live with depot charging they don't have the same range anxiety that retail customers have.

Jim Farley: They don't have the same range anxiety that retail customers have. Profitability for these larger family haulers that take long trips will be more frequently occurred through partial electric options. Yes, P-HEV, but especially hybrid and E-REV. then on one tank of gas can get over 700 miles of range but still drive most miles all electric. Ford will be developing flexible body-on-frame and unit-body platforms that will be designed for these multi-energy powertrains that are needed given the realities of customer affordability and range requirements.

Speaker Change: Profitability for these larger family haulers that take long trips will be more frequently occurred through partial electric options.

Speaker Change: Yes, P have but especially hybrid and E ribs than on one turnkey gas can get over 700 miles of range, but still drive most miles all electric.

Speaker Change: Ford will be developing flexible body on frame and unit body platforms that will be designed for these multi energy powertrains that are needed given the realities of customer affordability and range requirements.

Jim Farley: We are in the heart of our transformation of Ford. My optimism comes from our improved execution and our commitment to delivering on Ford Plus. creating a more dynamic, more capital efficient, higher margin company.

Speaker Change: We are in the heart of our transformation afford my optimism comes from our improved execution and our commitment to delivering on Ford plus creating a more dynamic more capital efficient higher margin company now I'd like to hand, it over to Sharon you walk you through last year's operating performance in <unk> and.

Sherry House: Now I'd like to hand it over to Sherry to walk you through last year's operating performance and an outlook for this year. Great. Thank you very much, Jim, and greetings to everyone on the call with us today. We really appreciate you taking the time to get a current update on the business.

Sharon: And an outlook for this year.

Sharon: Great. Thank you very much Jim and greetings to everyone on the call with us today.

Speaker Change: Appreciate you taking the time to get a current update on the business before I get started I want to personally thank John Moller, Kim any entire <unk> team for their incredible support over the last several months as I ramped up in this new role and very excited for the opportunity and I'm, especially excited for the future for it.

Sherry House: Before I get started, I wanna personally thank John Lawler, Jim, and the entire Ford team for their incredible support over the last several months as I've ramped up in this new role. I'm very excited for the opportunity and I'm especially excited for the future of Ford. 2024 was another important year for us as we continue to execute against the Ford Plus plan. We finished the year with global wholesales of 1% to 4.5 million units, supported by growth in Ford Pro. Revenue increased 5% to $185 billion, and we delivered 11 consecutive quarters of top-line growth. Our strategic decision to offer retail and commercial customers freedom of choice through a compelling portfolio of products continues to pay off.

Speaker Change: 2024, with another important year for us as we continue to execute against the Port plus plan. We finished the year with global wholesales up 1% to four four and a half million units supported by growth in Fort crowd.

Speaker Change: Revenue increased 5% to 185 billion and we delivered 11 consecutive quarters of topline growth.

Speaker Change: Our strategic decision to offer retail and commercial customers freedom of choice for a compelling portfolio of products continues to pay off.

Sherry House: We delivered $10.2 billion in adjusted EBIT with a margin of 5.5%. Adjusted free cash flow was $6.7 billion, and our cash conversion rate was 65%, above our target range of 50-60%. Our balance sheet is strong, with more than $28 billion in cash and close to $47 billion in liquidity. We believe it's prudent to have extra cash on hand during this dynamic time in the industry, marked by evolving customer needs, regulations in a fluid macro environment. Access Cash also provides us the opportunity to strategically pursue adjacencies in signature partnerships that would be accretive to our growth and ROIC.

Speaker Change: We delivered $10 2 billion in adjusted EBIT with a margin of five 5%.

Speaker Change: Adjusted free cash flow was $6 7 billion and our cash conversion rate was 65% above our target range of 50% to 60%.

Speaker Change: Our balance sheet is strong with more than 28 billion in cash and close to 47 billion in liquidity.

Speaker Change: We believe it's prudent to have extra cash on hand during this dynamic time in the industry marked by evolving.

Speaker Change: Tumor needs regulations in a fluid macro environment.

Speaker Change: Excess cash also provides us the opportunity to strategically pursue adjacencies in signature partnership it would be accretive to our growth and ROIC feed.

Sherry House: We hold ourselves accountable to strong capital discipline if we continue to efficiently invest in our future with plans to consistently reward our shareholders with 40 to 50% of free cash flow.

Speaker Change: We hold ourselves accountable to strong capital discipline is we continue to efficiently invest in our future with plans to consistently reward our shareholders with 40% to 50% of free cash flow.

Sherry House: Over the past three years, we've paid out over $10 billion to our shareholders, and today I'm pleased to announce that we declared our first quarter regular dividend of $0.15 per share, plus a supplemental dividend of $0.15 per share, payable on March 3rd, to shareholders of record on February 18th. Now, let us take a closer look at our segment performance. Strong demand in super-duty chassis cabs and transit wagons helped to lift Ford Pros' revenue by 15% to $67 billion, while wholesales were up 9%. Full year EBIT was $9 billion, with a margin of 13.5%. Software and Physical Services represented 13% of prosiebus.

Speaker Change: Over the past three years, we've paid out over $10 billion to our share with shareholders and today I'm pleased to announce that we declared our first quarter regular dividend of <unk> 15 per share plus a supplemental dividend of <unk> 15 per share payable on March 3rd to shareholders of record on February eight.

Speaker Change: T.

Speaker Change: Now, let's take a closer look at our segment performance.

Speaker Change: Strong demand in Super duty chassis cabs in transit wagon helped to lift <unk> revenue by 15% to $67 billion.

Speaker Change: While wholesales were up 9%.

Speaker Change: Full year EBIT was $9 billion with a margin of 13, 5%.

Speaker Change: Software and physical services represented 13% of Prosiebensat.

Sherry House: Ford Pro Intelligence continues to drive recurring, high margin, non-cyclical revenue. Paid subscriptions, attachment rate, and monthly average revenue per unit were all up strongly in 2024. The Model E team, where I've been spending a lot of my time, did a tremendous job delivering $1.4 billion in cost reductions last year, net of a $100 million increase in spend to launch our new battery plants in next-gen EVs. This cost performance was particularly important given industry pricing pressure, which resulted in year-over-year reductions in revenue and wholesales of 35% and 9% respectively. Model E remains focused on continuous improvements in gross margins and disciplined capital allocation that will drive profitable growth in the future.

Speaker Change: Ford Pro intelligence continues to drive recurring high margin non cyclical revenue.

Speaker Change: Paid subscriptions attachment rate and monthly average revenue per unit were all up strongly in 2024.

Speaker Change: The motto team, where I've been spending a lot of my time did a tremendous job delivering $1 4 billion in cost reductions last year net of a $100 million increase in spend to launch our new battery plants in Nextgen Evs.

Speaker Change: Cost performance was particularly important given industry pricing pressure, which resulted in year over year reductions in revenue and wholesales at 35% and 9% respectively.

Speaker Change: Model <unk> remains focused on continuous improvements in gross margins and disciplined capital allocation that will drive profitable growth in the future.

Sherry House: Ford Blue's full year revenue was flat due to positive net pricing, which offset a 2% decline in wholesales, driven by the discontinuation of low margin products. EBIT was $5.3 billion with a margin of 5.2%. It includes a positive impact of building stock in our home market. In 2024, our Blue Investment Strategy mirrored customer demand with significant investments targeted at the next generation of our most iconic brands, such as F-Series and Explorer, and it's also focused on bringing multi-energy solutions, particularly hybrid powertrains, across a broader part of our product portfolio. Ford Credit generated earnings before taxes of $1.7 billion for the year.

Speaker Change: Or blues full year revenue was flat due to positive net pricing, which offset a 2% decline in wholesales driven by the discontinuation of low margin products.

Speaker Change: EBIT was $5 3 billion.

Speaker Change: With a margin of five 2% and includes a positive impact of building stock in our home market.

Speaker Change: In 2020 for our Blue investment strategy mirrored customer demand with significant investments targeted at the next generation of our most iconic brands such as F series and explore and it's also focused on bringing multi energy solutions, particularly hybrid powertrain across a broader part of our product portfolio.

Speaker Change: Ford credit generated earnings before taxes of $1 7 billion for the year.

Sherry House: So let's turn to our 2025 outlook. For the full year, we expect company-adjusted EBIT of $7 billion to $8.5 billion. adjusted free cash flow of $3.5 billion to $4.5 billion and capital expenditures of $8 billion to $9 billion. relative to tariffs. The precise impact of new tariffs would depend on a number of secondary and tertiary effects. such as price elasticity, how our tier one and tier two suppliers react, substitution effects, possible duty drawbacks, and so on. Other potential changes in policy, such as changes to the Consumer Tax Credit or CTC, Commercial and Production Tax Credits or PTC, would also be harmful.

Speaker Change: So, let's turn to our 2025 outlook.

Speaker Change: For the full year, we expect company adjusted EBIT of $7 billion to $8 5 billion.

Speaker Change: Adjusted free cash flow of $3 5 billion to $4 5 billion.

Speaker Change: Capital expenditures of 8 billion to $9 billion.

Speaker Change: Relative to tariffs.

Speaker Change: The precise impact of new tariffs would depend on a number of secondary and tertiary effects.

Speaker Change: Such as price elasticity, how our tier one and tier two suppliers react substitution effect possible duty drawbacks and so on.

Sherry House: However, the impacts of such changes are much smaller for Ford in 2025 than later years. For example, PTC will become a more meaningful benefit for us later this year with the launch of our BOSS battery factory. And for the longer term, 27 and beyond, changes to these programs would be very material. Hence, we continue to stay in close contact with the administration to support a strong auto sector into the future. Our full-year outlook assumes headwinds related to market factors. We're planning for lower industry pricing of roughly 2%, driven by higher incentive spending throughout the year.

Speaker Change: For example, PTC will become a more meaningful benefit for us.

Speaker Change: Later this year with the launch of our boss battery factory.

And for the longer term 27 and beyond changes to these programs would be very material. Hence we continue to stay in close contact with the administration to support strong auto sector into the future.

Speaker Change: Our full year outlook assumes headwinds related to market factors were planning for lower industry pricing of roughly 2% driven by higher incentive spending throughout the year.

Sherry House: For Ford, we expect this will be partially offset by top-line growth from upcoming launches. We expect these headwinds to be partially offset by about $1 billion of net cost reductions, primarily coming from lower warranty expense and material costs. Our team is aggressively working to deliver more than one billion, which would likely lift us to the higher end of our guidance range. And we expect the majority of these savings to occur in the second half of the year. From a calendarization perspective, we expect our first quarter adjusted EBIT to be roughly break even. This sequential decline in EBIT versus the fourth quarter of 2024 is more than explained by a reduction in wholesales and unfavorable mix, including the impact of launch activity at major U.S.

Speaker Change: For Ford, we expect this will be partially offset by top line growth from upcoming launches.

Speaker Change: We expect these headwinds to.

Speaker Change: To be partially offset by about $1 billion of net cost reductions, primarily coming from lower warranty expense and material costs.

Speaker Change: Our team is aggressively working to deliver more than $1 billion, which would likely lift us to the higher end of our guidance range.

Speaker Change: We expect the majority of these savings to occur in the second half of the year.

Speaker Change: From a calendar inflation perspective, we expect our first quarter adjusted EBIT to be roughly breakeven.

Speaker Change: A sequential decline in EBIT versus the fourth quarter of 2024 is more than explained by a reduction in wholesale and unfavorable mix, including the impact of launch activity at major U S Assembly plants, including Kentucky truck in Michigan Assembly plants.

Sherry House: assembly plants, including Kentucky Truck in Michigan assembly plants. Our plans to utilize Oakville for our next major truck launch will help us better optimize production stability during major launch periods. A benefit we highlighted to you when we announced the repurposing of that manufacturing facility. We expect a more normalized adjusted EBIT in the second quarter, with a plan to hit our underlying EBIT level in the second half, as cost improvements tied to lower material costs start to accrue to the bottom line. To help you better understand this calendarization and the levers for each quarter, we have included a full year 2025 bridge for you in our earnings debt.

Speaker Change: Our plans to utilize Oakdale for our next major truck launch will help us better optimize production stability during major launch period of benefit we highlighted to you when we announced the repurposing of that manufacturing facility.

Speaker Change: We expect a more normalized adjusted EBIT in the second quarter with a plan to hit our underlying EBIT level in the second half as cost improvements tied to lower material costs start to accrue to the bottom line.

Speaker Change: To help you better understand this calendar station and the levers for each quarter. We have included a full year 2025 bridge for you in our earnings deck.

Sherry House: Our segment outlook anticipates another strong year at Ford Pro with EBIT of $7.5 billion to $8 billion at target margins. The fundamentals prove business are strong, especially super duty chassis cabs in transit wagon in North America, in the transit family in Europe, and we continue to grow our mix of profitability coming from software and physical services globally. We expect a loss of $5 billion to $5.5 billion for Ford Model E, holding losses stable year-over-year. While continued industry pricing pressure remains, we plan to materially increase our global volume, driven by the full-year impact of European launches, and we significantly increase investment in our battery facilities and next-generation products, which are just two years away.

Speaker Change: Our segment outlook anticipate another strong year at Ford Crow with EBIT of $7 5 billion to $8 billion at target margins.

Speaker Change: London metals pros business are strong, especially super duty chassis cab in transit wagon in North America in the transit family in Europe.

Speaker Change: We continue to grow our mix of profitability coming from software and physical services globally.

Speaker Change: We expect a loss of <unk> 5 billion to $5 5 billion for Ford Martyrly.

Speaker Change: Holding losses stable year over year.

Speaker Change: While continued industry pricing pressure remains we plan to materially increase our global volume driven by the full year impact of European launches and we significantly increased investment in our battery facilities and next generation products, which are just two years away.

Sherry House: The team started the year with a strong pipeline of cost savings ideas, which together with the launch of our Bosch Battery JV later in 2025, enables meaningful savings through eligibility at a production tax credit. And for Ford Blue, we expect EBIT of $3.5 to $4 billion, reflecting lower volume and unfavorable mix, driven by the non-repeat of last year's stock build and anticipated adverse exchange, partially offset by several cost reductions. initiatives that are already underway. Cost remains our largest value unlock to achieve Blue's Margin Target. Lastly, for credits, EBT will be about $2 billion. Our performance in 2024 demonstrates the positive progress in our four-plus plan, capital discipline, the right product portfolio, and consistent cash generation to reward our shareholders, customers, and employees.

Speaker Change: The team started the year with a strong pipeline of cost savings ideas, which together with the launch of our boss battery JV later in 2025 enables meaningful savings through eligibility of the production tax credit.

Speaker Change: And for Ford Blue, we expect EBIT of three and a half to 4 billion, reflecting lower volume and unfavorable mix driven by the non repeat of last year's stock build in anticipated adverse exchange, partially offset by several cost reductions.

Speaker Change: Initial initiatives that are already underway.

Speaker Change: Cost remains our largest value unlock to achieve believe this margin target.

Speaker Change: Lastly, Ford Credit's, EBT will be about $2 billion.

Speaker Change: Our performance in 2024 demonstrates the positive progress in our four plus plan capital discipline, the right product portfolio and consistent cash generation to reward our shareholders customers and employees importantly, I see us working differently as a company.

Sherry House: Importantly, I see us working differently as a company, evidenced by our second-half cost progress. We are carrying forward that higher level of discipline and execution into 2025, commensurate with our goal to deliver at least $1 billion of net cost reductions this year. We're relentlessly working to make our business better, and we remain highly focused on improving both quality and cost.

Speaker Change: Evidenced by our second half cost progress, we are carrying forward at that higher level of discipline and execution into 2025 commensurate with our goal to deliver at least $1 billion of net cost reductions this year.

We're relentlessly working to make our business better and we remain highly focused on improving both quality and cost.

Sherry House: That concludes our prepared remarks and I'd now like to open it up to your questions.

Speaker Change: That concludes our prepared remarks, and I'd now like to open it up to your questions.

Operator: We will now move to our question and answer session. If you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. If you have joined by phone, please dial star nine on your keypad to raise your hand. When you are called on, please unmute your line and ask your question. We will now pause a moment to assemble the queue.

Speaker Change: We will now move to our question and answer session. If you have joined via the webinar. Please use the raise hand icon, which can be found at the bottom of your webinar application.

Speaker Change: If you have joined by phone. Please dial star nine on your keypad to raise your hand.

Speaker Change: When you are called on it please Amit your line and ask your question.

Speaker Change: We will now pause a moment to assemble the queue.

Dan Levy: Our first question comes from the line of Dan Levy with Barclays. Please go ahead. Hi, good evening. Thank you for taking the questions.

Speaker Change: Our first question comes from the line of Stanley <unk> with Barclays. Please go ahead.

Speaker Change: Hi, good evening, Thank you for taking the questions.

Sherry House: Wanted to double click on your commentary first on calendarization of earnings throughout the year. In the first quarter, you have to assume I think I think something like a 25% volume decline to get the break even if you could just talk through that, you know, what's the confidence of recovery in subsequent quarters is it volume and then should we expect inventory to be fully right sized by the end of the Okay, so as I talked about for, for the You know, year over year, you know, you're really seeing the pricing come in, and also the net net cost improvements year over year.

Speaker Change: Wanted to double click on your commentary on calendar realization of earnings throughout the year.

Speaker Change: In the first quarter you have to assume I said, I think something like a 25% volume decline.

Speaker Change: The breakeven if you could just talk through that.

Speaker Change: What's the confidence of recovery in subsequent quarters is it volume and then should we expect inventory to be fully right sized by the end of the first quarter.

Speaker Change: Okay.

Speaker Change: I'd say talks about four four.

Speaker Change: Or the.

Speaker Change: Year over year, you're really seeing.

Speaker Change: The pricing come in.

Speaker Change: And also the net net cost improvements year over year, but when you go for just the first quarter, what Youre seeing is largely the impact of wholesales that are coming down in the non recurrence of a stock sale. That's happening. We also see adverse exchange primarily in Argentina.

Sherry House: But when you go for just the first quarter, what you're seeing is largely the impact of wholesales that are coming down in the non recurrent of a stock bill that's happening. We also see adverse exchange, primarily in Argentina, Brazil and Turkey. So that's really what's happening in that particular quarter. Again, quarter over quarter, our wholesales are down. Almost 20%. Okay, so it's really clear what's going on, our launches.

Speaker Change: <unk>, Brazil and Turkey.

Speaker Change: That's really what's happening in that particular quarter again quarter over quarter, our wholesales were down.

Speaker Change: Almost 20%.

Speaker Change: Okay. So it's really clear what's going on our launches and the question is where are we on a day supply for a growth stock where we are in good shape.

Sherry House: And the question is, where are we on day supply for our gross stock? We're in good shape. We'll be in good shape after the first quarter even actually gets leaner after the second quarter. I think we finish. That's right. So we finished the year at about 620,000 gross units. And that came down about 5% in January. And we expect that with this activity that's happening in the factories, where it's impacting super duty navigator expedition, that that may come down a bit more as well. Like 40,000 units. So it's a very large reduction in the first quarter.

Speaker Change: We'll be in good shape after the first quarter, even actually gets leaner after the second quarter.

Speaker Change: I think we finish that's great. So we finished the year at about 620000 gross units and that came down about 5% in January and we expect that with this activity that's happening in the factories, where it's impacting super duty navigator expedition that they're making them come down.

Speaker Change: A bit more as well at 40000 units. So it's a very large reduction in the first quarter and we're planning another reduction in Q2 again so.

Dan Levy: And we're planning another reduction in Q2 again. So we'll be, you know, right where we want. Our dealer day supply for our sales would be right in that mid 50 range, which is exactly where we want to be as a company. Great, thank you.

Speaker Change: So we'll be right, where we want our dealer day supply for our sales would be right in that mid 50 range, which is exactly where we want to be as a company.

Speaker Change: Great. Thank you.

Dan Levy: As a follow up, Kim, you frequently talked about the critical nature of EVs. You actually gave a very long blog post on this over the summer. But I think we also know that your strategy is in part driven by compliance. So we've heard President Trump talk about pulling back the, so to speak, EV mandate.

Speaker Change: As a follow up Jen <unk>.

Speaker Change: You frequently talked about the critical nature of Evs, you actually gave a very long blog posts on this over the summer.

Speaker Change: So I think we also know that your strategy is in part driven by compliance.

Speaker Change: So we've heard president Trump talk about pulling back so to speak EV mandate, how should we think about your <unk> plans and resource allocation in this environment and to what extent would you maybe revisit timing of Skunk works of the Nextgen Lightning, which I believe are planned for two H 'twenty seven given the changing environment.

Jim Farley: How should we think about your EV plans and resource allocation in this environment?

Jim Farley: And to what extent would you maybe revisit timing of Skunk Works or the Next Gen Lightning, which I believe are planned for 2H27, given the changing environment? Well, we're really confident of our EV strategy because, believe it or not, most things that are happening are, you know, kind of playing to our strength. We believe that if the EPA or the California waiver is pulled, if there's some change to the CO2 regime in the U.S. starting from 27, by the way, the next two years, nothing happens. So the 27 and beyond, we believe that that will still be some kind of modest CO2 improvement required.

Speaker Change: Well, we're really confident of our EV strategy, because believe it or not most of the things that are happening are.

Speaker Change: Kind of playing to our strengths.

Speaker Change: Sure.

Speaker Change: We believe that if the EPA or the California waivers pulled if theres some change to the Cotwo.

Speaker Change: <unk> in the U S. Starting from 27 by the way. The next two years nothing happens so the 27 and beyond we believe that that will still be some kind of modest improvement required but more importantly.

Jim Farley: But more importantly, you know, EVs are 8% of the U.S. industry. They're growing. The satisfaction with the vehicles is higher than combustion and vehicles and people who buy these vehicles don't go back to combustion for large parts. So this is a very vibrant market. It's also a global capability for Ford. You know, given what's happening around the globe, this is not just happening in the U.S., it's happening everywhere. This capability of making money in high volume EVs, getting new customers is going to be a global capability. So that's why it's strategically important for us. Actually, in this kind of environment.

Speaker Change: You know evs are 8% of the U S industry, the growing the SaaS action with the vehicles is higher than combustion and vehicles and people who buy these vehicles don't go back to combustion for large parts of this are very vibrant market. It's also a global capability for Ford.

Speaker Change: Given what's happening around the globe. This is not just happening in the U S. Nothing everywhere this capability of making money in high volume Evs getting new customers is going to be a global capability. So that's why it's strategically important for us.

Speaker Change: Actually in this kind of environment.

Jim Farley: The Skunk Works platform becomes more important. It's more affordable for customers. Let's say that CTC goes away. In that environment, without a leasing advantage, for example, more affordable on the actual cost of the vehicle becomes more important, not less. So I would say our bet a couple years ago to build that platform, I think winds up being, well, we'll see, but winds up being a good move. We have made some decisions on the three row and others, and we will continue to make adjustments. We are not shy about our lower capital ambition as a team.

Speaker Change: The Skunk works platform becomes more important.

Speaker Change: It's more affordable for customers.

Speaker Change: Let's say that the CTC goes away in that environment without a leasing advantage for example, more affordable on the actual cost of the vehicle becomes more important not less so I would say.

Speaker Change: Our bed a couple of years ago to build a platform I think winds up being what we will see but winds up being a good move.

We have to we have made some decisions on the three ROE and others and we will continue to make adjustments. We are not shy about you know are lower capital ambition as a team and we are we are.

Dan Levy: We're going to make sure that the EVs we produce are not Me Too products, that they play to our strengths. And we know commercial EV customers are out there. We know that they like these vehicles. So those are our two big bets. We can make changes to our lineup. We don't see that at this point in time, but we, as we said, we're, we're not shy about making those adjustments. We need to Dan. Does that make sense? Yeah, thank you.

Speaker Change: We're going to make sure that the Evs, we produce are not me too products that they play to our strengths and we know commercial EV customers are out there we know that they liked these vehicles.

Speaker Change: So those are our two big bets, we can make changes to our lineup. We don't see that at this point in time, but we as we said we were not shy about making those adjustments we need to Dan.

Speaker Change: That makes sense.

Speaker Change: Yes. Thank you that's really helpful color.

Dan Levy: That's really helpful, Colin.

Speaker Change: Okay.

Daniel Roeska: Your next question will come from the line of Daniel Roeska with Alliance Bernstein. Your line is open. Please go ahead. Hey, good evening. Thanks for taking the questions. And Shari, welcome. Welcome again.

Speaker Change: Your next question will come from the line of Daniel Raska with Alliance Bernstein. Your line is open. Please go ahead.

Daniel Raska: Good evening, thanks for taking the questions Im sorry, welcome welcome again.

Jim Farley: Jim, let me start kind of with a with a quite strategic question. It seems like the business is facing a level of uncertainty not seen before. Maybe that's I hope that's fair, both from the strategic challenges you mentioned, but also kind of from the policy and the rapid change in domestic policy. As you guide Ford kind of through this choppy water, what are some of the convictions or guiding principles kind of that still hold true in this environment? And what are some of the principles or convictions where you and the board had to go back and kind of say, well, we'll have to take a look at that or that's become a little bit more uncertain.

Speaker Change: Jeremy Let me start kind of with a with a quite strategic question. It seems like the business is facing a level of uncertainty not seen before maybe about just you know I hope that.

Speaker Change: Both from a strategic challenge as you mentioned, but also coming from the policy of the rapid change in domestic policy.

Speaker Change: You guide forward kind of through this choppy water.

Speaker Change: What are some of the convictions or guiding principles kind of that.

Speaker Change: Will hold true in this environment and what are some of the principles of our convictions, where you and the board had to go back and kind of say well, we'll have to take a look at that or that's become a little bit more uncertain. So we've kind of just.

Jim Farley: So we kind of just. Trying to understand how your thinking is making decisions in this environment, what can you rely on and where do you need to kind of exercise extra caution? Thank you.

Speaker Change: Trying to understand are your thinking is making decisions in this environment.

Speaker Change: What can you rely on and where do you need to kind of exercise extra caution.

Speaker Change: Thank you well first of all.

Jim Farley: Well, first of all, the cost journey that Ford is on is non-negotiable. It is absolutely mission critical and controlled by the company. No one else controls that. It's us. So we want everyone to understand how serious... And how prepared we are to take out cost of business without, and improving quality at the same time, which often can become at odds with each other. So that is a guiding principle for Ford Motor Company, I hope forever. Within that, it's very clear that customers and and regulators and leaders around the world are expecting our industry to bring down prices and make affordability more a priority for car companies.

Speaker Change: The cost journey that afford us on is non negotiable is absolutely mission critical and controlled by the company.

Speaker Change: No one else controls that it's us so.

Speaker Change: We want everyone to understand how serious and.

Speaker Change: How prepared we are to take out cost of the business without.

Speaker Change: And and improving quality at the same time, which often can become at.

Speaker Change: At odds with each other so that that is a guiding principle for Ford Motor Company I Hope forever.

Speaker Change: Within that its very clear that customers and.

Speaker Change: And regulators and leaders around the world are expecting our industry to bring down prices and make affordability more a priority for car companies. So one of the second big principles is we are going to invest in affordable vehicles, but we have to do it profitably, which means a transformation at <unk>.

Jim Farley: So one of the second big principles is we are going to invest in affordable vehicles, but we have to do it profitably, which means a transformation at Ford. You can see the transformation we've had to take on the EV platform with Skunk Works. We will have to take the same type of approach on body on frame and you to body multi-energy platforms. That's why I mentioned it. That's the second thing. We want to make sure that we have diverse powertrains. That's another really important principle for us. Because we've learned, actually, when it wasn't popular to invest in hybrids, that it turns out to be a good move.

Speaker Change: <unk>.

Speaker Change: You can see the transformation we've had to take on the EV platform was Skunk works, we will have to take the same type of approach on body on frame and you to body multi energy platforms. That's why I mentioned that that's the second thing.

Speaker Change: We want to make sure that we have diverse powertrains, that's another really important principle for us.

Speaker Change: Because we've learned actually when it wasn't popular to invest in hybrids that it turns out to be a good move and therefore, we want to lean into <unk> and other new powertrains to make sure that we.

Jim Farley: And therefore, we want to lean into EREVs and other new powertrains to make sure that we, you know, go with the flow, so to speak, of the customers. I think.

Speaker Change: Go with the flow sort of speak of the customers I think.

Jim Farley: The last one is... I have never in my 40 years had a chance to have reoccurring revenue where the company is not as susceptible to economic cycles and gas prices. And we can do that with Ford Pro. I think Ford Pro is leading this industry in showing large scale services, both software, almost a million subscriptions now, and it's getting sicky so we can start to see the five wheel turn on Pro. And we're just getting serious about repair of the vehicles. Those two attaches to our traditional vehicle is frankly what I've been waiting for 40 years to do as a leader for the company and for the industry.

Speaker Change: And the last one is.

Speaker Change: I have never in my 40 years had a chance to have reoccurring revenue, where the company is not as susceptible to economic cycles and gas prices and we can do that with <unk> I think <unk> is leading this industry is showing large scale services both software almost a million subscriptions now.

Speaker Change: And it's getting sick east. So we can start to see the pie will turn on pro and we're just getting serious about repair the vehicles those two attaches to our traditional vehicle.

Speaker Change: Is frankly, what I've been waiting for 40 years to do as a leader for the company and for the industry and how ironic. It is it's happening not in the retail world what's happening in the pro <unk> space.

Jim Farley: And how ironic it is, it's happening not in the retail world, it's happening in the Pro B2B space.

Jim Farley: Those are the principles that we hold dear at the company. And probably the most important for me is the best talent and the best culture, because none of that is going to happen unless you get the best people in the company, which we continue to upgrade our industrial team and our technology team. and to have a sustainable culture where quality and cost never go out of fashion. Now, we have a lot to execute to do all those things.

Speaker Change: Those are the principles that we hold dear at the company and probably the most important for me is the best talent and the best culture, because none of that is going to happen unless you get the best people in the company, which we continue to upgrade our industrial team and our technology team.

Speaker Change: And to have a sustainable culture, where quality and cost never go out of fashion that we have a lot to execute to do all those things, but those are kind of four or five key principles.

Jim Farley: But those are our kind of four or five key principles. Thanks.

Sherry House: And then maybe more tactical for Sherry, on the guide for Model E in 25. Volumes in Europe are higher, PTCs coming in at H2, lithium prices are coming down, you're doubling down on cost efforts, yet the guide is flat. Could you kind of help us close that bridge? Kind of where do you see the weakness in Model E this year to kind of, you know, offset those gains and improvements you're making? Yes, so we're making improvements to the gen one products are still not profitable. What's really interesting about this, though, is that we're able to hold flat.

Speaker Change: Okay. Thanks, and then maybe more tactical for Sherry on the on the guide for model.

25.

Volumes in Europe are higher PTC is coming in an H two lithium prices are coming down you're doubling down on cost efforts you have the guidance flat could you kind of help us close that bridge kind of where do you see the weakness in model E.

Speaker Change: This year to kind of.

Speaker Change: Offset those gains and improvements you are making.

Speaker Change: Yes, so we're making improvements to the gen. One products are still not profitable.

Speaker Change: It's really interesting about this though is that we're able to hold flat, while you're increasing the volumes significantly. The other thing that's going in there is the $1 billion.

Sherry House: While you're increasing the volume significantly. The other thing that's going in there is the $1 billion of additional costs that are related to our boss battery factory, as well as related to our gen two products. So that $1 billion Half engineering and about half in the Bosque area as well, and that's about a half a billion more than in the past. So one of the questions that you asked about was just what's kind of going counter to that. That would be some of the downward pressure that you continue to see that's on the pricing potentially in Europe, potentially in North America.

Speaker Change: Of additional costs that are related to our boss battery factory as well as related to our gen. Two products, so that $1 billion out.

Speaker Change: It's about.

Speaker Change: Hum.

Speaker Change: Chaos engineering and about half in.

Speaker Change: Yes.

Speaker Change: Boss Bosque area as well and that's about a half a billion more than in the past. So one of the questions that you asked about buzz.

Speaker Change: What's kind of going counter to that that would be some of the downward pressure that you continue to see that's on the pricing potentially in Europe potentially in North America.

Sherry House: What's been great though is Model E, as it landed Q4 last year, the Mach E, we had a fantastic selling over 30% increase quarter over quarter, and we stayed above the average transaction prices. So while we're seeing the pressure, we have been continuing to do well, even with our Gen 1 products and in our sales case.

Speaker Change: What's been great, though is martyrly as it landed Q4 last year.

Speaker Change: The Mach E. We had a fantastic selling over 30% increase quarter over quarter, and we stayed above the average transaction prices. So while we're seeing the pressure we have been continuing to do well even with our gen one products and in our sales pace.

Speaker Change: Yeah.

Sherry House: Great, thanks.

Speaker Change: Alright. Thanks.

Speaker Change: Yeah.

Adam Jonas: Our next question comes from the line of Adam Jonas with Morgan Stanley. Your line is open. Please go ahead. Thanks, everybody. So, hey, Jim, we've heard that you really, really like the Xiaomi SU7. Yes. Which, as you know, is their first car.

Speaker Change: Our next question comes from the line of Adam Jonas with Morgan Stanley. Your line is open. Please go ahead.

Speaker Change: Thanks, everybody. So Jim we've heard that you really really like the Xiaomi <unk> seven yes.

Speaker Change: Which as you know.

Speaker Change: Their first car.

Jim Farley: So, and I'm just thinking when a country like the United States puts 100% import tariff on another country that isn't even selling vehicles here yet, that's kind of talent. Do you think that U.S. tariff policies will be successful in keeping Chinese EVs out of the U.S. market long term? Curious what you think, especially given your experience working at Asian Automaker before. We've seen this movie in the 70s and 80s. You really think the Chinese come here or that we keep them out? Is that good? Thanks, Adam.

Speaker Change: So and I'm.

Speaker Change: I'm, just saying I want our country.

Speaker Change: In the United States with the 100% import tariff on another country that hasnt, even selling vehicle here, yet thats kind of talent.

Speaker Change: Do you think that U S tariff policies will be successful in keeping Chinese evs out of the U S market long term.

Speaker Change: I was curious what you think I mean, especially given your experience working at Asian automaker before like we've seen this movie in the 70 to Naveed you really bank.

Speaker Change: Do you think the Chinese come era, we keep them out as that goes.

Speaker Change: Thanks, Adam.

Jim Farley: You know, Tom Freeman wrote a really interesting piece on this topic that I think is really pertinent for us. You know, in the end, The level of subsidies that these companies have in China is not, is very material, as well as these are digital vehicles with digital footprints and really deep into people's life, digital life. So we have to have the right policies around privacy, the right privacy policies around national security, because these are not the cars of old. They're data collection machines. On the on the kind of unfair part or the subsidy part, I think we will have to sort that out as a country because they're part of the competitive environment that, you know, when you list the kind of advantages the companies have, it's like a page long, right?

Speaker Change: Tom Friedman wrote a really interesting piece on this topic.

Speaker Change: I think its really prudent for us.

Speaker Change: In the end.

Speaker Change:

Speaker Change: The level of subsidies that these companies have in China is not is very material as.

Speaker Change: As well as these are digital vehicles with digital footprints and really deep.

Speaker Change: Into People's lot digital life. So we have to have the right policies around privacy the right privacy policies around national security because these are not the cars of old their data collection machines.

Speaker Change: On the on the kind of unfair part or the subsidy part I think we will have to sort that out as a country.

Speaker Change: Because they are part of the competitive environment that you know when you list the kind of advantages the companies have it's like a page long right. So we have to resolve that but in the unit. They Adam what I learned after 40 years in this industry is.

Jim Farley: So we have to resolve that. But in the end of the day, Adam, what I learned after 40 years in this industry is the company has to stand on its own, you know, toe to toe with the cost of those companies and the product appeal of those companies. So I guess what I'm saying is we need to work with our government partners to make it a level playing field as much as possible. But in the end of the day, it's management's responsibility to beat the SU-7 straight up in a street fight. Got you, Jim. Thanks.

Speaker Change: As the company has to stand on its own.

Speaker Change: Total toe with the cost of those companies and the product appeal those companies. So I guess, what I'm, saying is we need to work with our government partners to make it a level playing field as much as possible, but in the end of the day, it's management's responsibility to beat the Su seven straight up.

Speaker Change: And a street fight.

Speaker Change: Got you Jeff Thanks, just as a follow up.

Adam Jonas: This is a follow up. Autonomy hasn't come up really much in your prepared remarks. And I find that interesting.

Speaker Change: Autonomy hasn't come up really much in your prepared remarks, and I find that interesting given all the attention around AI. Gen. AI is put autonomy I'll pause there opening them on a totally different shock block you were clearly very wise, the pause and restructure the Argo initiative in hindsight.

Adam Jonas: Given all the attention around AI, Gen AI has put the autonomous vehicle theme on a totally different shot clock. You were clearly very wise to pause and restructure the Argo initiative, in hindsight. But I mean, Ford has like, I think you guys in the US alone, you got 40 million vehicles on the road, driving a billion miles a day, probably more than that a billion miles a day, Jim. And the data from that swarm is just insane. So I hear you on service bays and Ford Pro, and that's all great. And we understand that on the physical services.

Speaker Change: But I mean Ford has like I think you guys in the U S alone you've got 40 million vehicles on the road driving a billion miles a day and probably more in that 1 billion, while the day, Jeff and the data from that swarm is just insane. So I hear you on service bays and Forthdraw, if that's all right and we understand that on the physical services, but what's.

Jim Farley: But what's what's the strategy around AI and autonomy really, because I think many argue that if you're an industrial company, auto company, like Ford, you either have an AI strategy, or you don't have a future. I don't know if you agree with that. But how confident are you in Ford's leadership position in autonomy? And what changes that? Is Sherry going to have to pay for that in house with an in house effort? Or is now the time to partner? Thanks, everybody. You got it.

Speaker Change: What's the strategy around.

Speaker Change: AI and autonomy really because I think many argue that if you're an industrial company Auto company like Florida, you either have an AI strategy or you don't.

Speaker Change: Have a future Arnaud if you agree with that but how confident are you and board leadership.

Speaker Change: And Ah autonomy and what changes that is sure you're going to have to pay for that.

Speaker Change: House with an in house ever or is <unk> a partner. Thanks, everybody you got.

Jim Farley: I think I think we're at that point where we have to decide. Look, You know, level three is around the corner. We're now Blue Cruise is now over 300 million miles. Customers are still paying for it. We did drop the price, by the way, so it is getting commoditized to some extent. But but it is still a great opportunity. But the capability in the company is growing. All those Argo people that came with Ford, they are developing a really nice level two, level three system that we think will be among the best in its execution.

Speaker Change: Got it.

Speaker Change: I think I think we're at that point, where we have to decide.

Speaker Change: Look.

Speaker Change: Level three is around the corner, we're now blue cruises now over 300 million miles.

Speaker Change: Customers are still paying for it we did drop the price by the way. So it is getting commoditized to some extent, but but it is still a great opportunity, but the capability of the company is growing all of those Argo people that came with Ford. They are developing a really nice level two level III system that we think will be among the best in its execution.

Jim Farley: We may not be the first. We may not grab all the the headlines. But look at Blue Cruise. Blue Cruise is continuing to win all the consumer awards for the best operating system on level two. Level two plus is around the corner. Level three, we think, is a huge unlock on highway miles. Eyes off. I think we're in good shape with our internal capabilities. But look, we're not so.

Speaker Change: We may not be the first we may not grab all the the headlines will look at Bruce whose blue cruise is continuing to win all the consumer awards for the best operating system on level two level two plus is around the corner level. Three we think it's a huge unlock on highway miles is off.

Speaker Change: I think we're in good shape with our internal capabilities, but look we're not so.

Jim Farley: Collie Andish about our own capability, that we're not going to look at other people's system or not believe that level four personal autonomy is going to be interesting at some point. They're making a lot of progress over there in level four, and it is time for us, not just in the US, but globally, they're looking at, and that's why we made some of the announcements we did today, because we need a strong strategy team to decide do we partner, do we continue to ride our own team into this level four personal autonomy. And I think you're going to find just like our move on Argo will be thoughtful.

Speaker Change: Pollyannish about our own capability that we're not going to look at other people's system or not believed that level for personal autonomy is going to be interesting at some point theyre, making a lot of progress over there on level four and it is time for us not just in the U S but globally.

Speaker Change: Looking at and that's why we made some of the announcements we did today because we need a strong strategy team to decide do we partner do we continue to ride our own team into this level for personal autonomy.

Speaker Change: And I think youre going to find just like I'll move on our goal will be thoughtful.

Jim Farley: and practical. We won't get in love with the size of the market. We'll make a practical decision. And I think we'll be well positioned. I'm very confident in Sammy and Doug and their technical prowess. They know the FSD system. They know what's out there. They know the Waymo system as they get democratized for level four, individual level four. And so I think we'll make a good decision.

Speaker Change: And practical.

Speaker Change: We won't get in love with the size of the market will make a practical decision.

Speaker Change: I think we'll be well positioned I'm very confident in the Sammy and Doug and their technical problem.

Speaker Change: They know the FSD system, they know whats out there they know the way most system as it get democratize for level four individual.

Speaker Change: Individual level four and so I think we will make a good decision, but I think Adam we're we're a lot closer to that partnering.

Jim Farley: But I think, Adam, we're a lot closer to that partnering decision at Ford. Thanks.

Speaker Change: Decision at Ford.

Adam Jonas: Thanks, Joe.

Emmanuel Rosner: Your next question comes from the line of Emmanuel Rosner with Wolf Research.

Speaker Change: Your next question comes from the line of Emmanuel Rosner with Wolfe Research. Please on mute and ask your question.

Sherry House: Please unmute and ask your question. Great, thank you. My first question is around your plans for cost savings this year. So net $1 billion improvement. Can you give us a little bit more color on what the drivers are for that, the buckets? And, you know, how do we acquire confidence that this will be the year where we see visibly a net cost improvement at Ford? Because if I'm looking at your guidance, seems like in the second half of this year, you're probably now, you know, guiding for earnings growth, despite fairly large cyclical headwinds that are assumed.

Emmanuel Rosner: Great. Thank you.

Speaker Change: My first question is around.

Speaker Change: Your plans for cost savings this year. So that's 1 billion dollar improvement.

Speaker Change: Improvements.

Can you give us a little bit more color around what the drivers are for that are the buckets and how do we acquire confidence that this will be the year, where we see.

Speaker Change: Visibly net cost improvements at Ford because if im looking at your guidance seems like in the second half of this year Youll, probably now guiding for earnings growth. Despite fairly large cyclical headwinds up bar assume so that set up that sets a high bar for cost execution. So how should we think.

Sherry House: So that sets a high bar for cost execution. So how should we think about the visibility into delivering this execution?

Speaker Change: About the visibility and to delivering this execution.

Sherry House: Yeah, thanks for the question. So why we've got confidence going into this year is the approach that we took to building the business plan was very granular. We went through all areas of our business, and we're targeting efficiencies across all areas for business. But there's two in particular that we're extra focused on. And in Jim's prepared remarks, he also talked about the fact that we're really zoning in on material costs and warranty. And in fact, we're even getting outside third-party support to be able to look at benchmarks, what is best in class, and what are all the different ways that we can make that even stronger.

Speaker Change: Yeah. Thanks for the question. So why we've got confidence going into this year is the approach that we took to building the business plan with very granular. We went through all areas of our business and where we're targeting efficiencies across all areas of our business, but there's two in particular that were extra focus time and in Tim's prepared.

Speaker Change: <unk> remarks, you also talked about the fact that we're really known in on material costs and warranty and in fact, we're even getting outside third party support to be able to look at benchmark. What is best in class and what are all the different ways that we can make.

Speaker Change: That even stronger so it's because of those detailed plans.

Sherry House: So it's because of those detailed plans that sit behind those items that we have more confidence.

Speaker Change: Sit behind those items that we have more confidence the other thing I would say is that on the design of course, we are entering this year with about 90% of our pipelines built and let me just double click on what I mean by that so as we think about the cost savings that we want to make from a product design perspective.

Sherry House: The other thing I would say is that on the design... We are entering this year with about 90% of our pipelines filled. And let me just double click on what I mean by that. So as we think about the cost savings that we want to make from a product design perspective, we have already identified those, and we've characterized when in which quarter those are going to be introduced into new products. So that gives us a lot of visibility as to when we would expect to see those cost savings be realized.

Speaker Change: We have already identified those and we characterized when in which quarter those are going to be introduced into the product. So that gives us a lot of visibility as to when we would expect to see those cost savings to be realized.

Sherry House: Is this why this is back end loaded? That's why it's back and loaded. Exactly.

Speaker Change: Is this why this is backend loaded.

Speaker Change: That's why it's back end loaded exactly takes time.

Sherry House: It takes time to execute. Oh boy, do we have a strong offer.

Speaker Change: <unk>.

Speaker Change: But boy do we have a strong riper.

Sherry House: Thank you.

Speaker Change: Thank you and my second question is around pricing.

Sherry House: My second question is around pricing. So you're assuming 2% price moderation for the industry for doing a little bit better. You both have in terms of outlook, you're you're highlighting pricing as the moderation as as a headwind. Now, when we look at pickup inventories, there's almost 100 days supply on dealer lots across not just Ford, but GM and Ram as well. And there are signs of pricing pressure and and mix erosion. How should we, you know, how should we think about the risk of something that is more than just, you know, price moderation here? The risk is something more than price moderation.

Speaker Change: So youre assuming.

Speaker Change: 2% price moderation for the industry for doing a little bit better you.

Speaker Change: Both halves in terms of OXXO cure, you're highlighting pricing as you know moderation is.

Speaker Change: As a headwind now when we look at pick up inventories. There is almost a 100 day supply on dealer lots across not just Ford GM and Ram as well.

Speaker Change: And there are signs of pricing pressure and mix erosion.

Speaker Change: How should we you know how should we think about the risk of something that is more than just you know price moderation here.

Speaker Change: The risk is something more than price moderation.

Sherry House: Yeah, I mean, just a little bit, a little bit of moderation. Yeah, something that a larger price war in pickups when you have so many trucks sitting on the lots, you know, across essentially all offerings. Well, one of the things that we're thinking about is the fact that as we entered or as we left Q4, we only had 13 percent of model year 25 in there. And so when we move through Q1, we're expecting that our our transactions are then going to be about 50 percent model year 25. So your natural uptick that you get with the transaction pricing, increasing some relative to the model year is one effect that we would see that's counteracting it.

It's been just a little bit a little bit of a moderation, yes, something that a larger price war and pickups. When you have so many trucks sitting on the lots across essentially all offerings well one of the things that we're thinking about is the fact that as me and me.

Speaker Change: We left Q4, we only had 13% of model year 'twenty five in there and so when we move through Q1, we're expecting to get our our transactions are you, saying that it would be about 50% model year 'twenty five so your natural uptick that you get with the transaction price.

Speaker Change: Increasing some relative to the model year is one effect that we would see that's counteracting it.

Sherry House: We also have the new product launches of Navigator, of Expedition, F-150. So those are those are some of the effects. I mean, where we see the pricing pressure, maybe in particular, if you were to double click into pro, we see some pricing pressure there as specifically around the environment for fleets, including daily rental. So that's one of the areas where we're seeing more of the pricing pressure versus the rest of our portfolio.

Speaker Change: Also have the new product launches of navigator expedition.

Speaker Change: 50. So those are those are some of the effects and where we see the pricing pressure maybe in particular, if you were to double click into pro we see some pricing pressure there specifically around the environment the fleet, including daily rental so that's one of the areas.

Speaker Change: Seen more of the pricing pressure versus the rest of our portfolio.

Sherry House: More granularly, um... I noticed that one of our competitors is running a dealer cash program for the pickup trucks. That's a very significant change. So we'll watch this very carefully.

Speaker Change: More granularly.

Speaker Change: I noticed that one of our competitors running a deal with cash program for the pickup trucks, that's a very significant change.

Speaker Change: So we'll watch this very carefully.

Speaker Change: I mean, we.

Jim Farley: We know as a management team, the most important thing is going to be inventory discipline for us as we go into this period of time, as Sherry said. And I just want to reassure you that we will always protect our brands in those key segments and always protect our pricing capability. The cost journey we're on as a company will take years and it'll be great, but we will lose everything if we do not keep our pricing discipline. And that really is tied to image. So I really like our plan going in for the first half to...

Speaker Change: We know as a management team. The most important thing is gonna be inventory discipline for us as we go into this period of time is as Sherry said and I just want to reassure you that.

No.

Speaker Change: We will.

Speaker Change: We will always protect our brands.

Speaker Change: In those key segments and always protect our pricing capability.

Speaker Change: The cost journey, we're on as a company will take years and it will be great, but we will lose everything if we do not.

Speaker Change: Key pro causing our pricing discipline.

Speaker Change: And that really is tied to inventory so.

Speaker Change: I really like our plan going in for the first half to two.

Jim Farley: to get our dealer supply inventories back down below 60 days. That's a really big effort by the company and will give us some room. But as you said, we don't know how our competitors are gonna act. And that's why we thought it would be prudent for us to go into this year with a very realistic guide. in the range we did.

Speaker Change: To get our dealer.

Speaker Change: Supply.

Speaker Change: Inventories back down below 60 days, that's a really big effort by the company and will give us some room.

Speaker Change: But as you said, we don't know how our competitors are going to act and that's why we thought it would be prudent for us to go into this year with a very realistic guide.

Speaker Change: And the range we did.

Speaker Change: Okay.

Jim Farley: Great, thanks for the call.

Speaker Change: Great. Thanks for the color.

Mark Delaney: Your next question comes from the line of Mark Delaney with Goldman Sachs. Please unmute and ask your question. Yes, good afternoon. Thanks very much for taking the questions. First on pro, the company's had a view that pro profits will be resilient in part as you increase your mix of software and services.

Speaker Change: Your next question comes from the line of Mark Delaney with Goldman Sachs. Please on mute or ask your question.

I guess good afternoon, thanks, very much for taking the questions first on pro the companies had a view that pro profits will be resilient and part as you increase your mix of software and services you just spoke a bit around some of the headwinds youre seeing especially tied to the daily rental piece of pro but can you speak a bit more on the puts and takes to that business segment for 2025.

Mark Delaney: You just spoke a bit around some of the headwinds you're seeing, especially tied to the daily rental piece of pro, but can you speak a bit more on the puts and takes to that business segment for 2025? And then maybe what's your confidence that you can perhaps sustain or even grow pro EBIT beyond this year as you think about adding some of the super duty capacity in 2026? And further increasing software and services mixed toward that 20% of pro EBIT target. Sure. Yeah, so as you said, I talked a little bit about some of the softening and pricing around the environment for fleets, including daily rentals.

Speaker Change: And then maybe what's your confidence that you can perhaps sustain or even grow pro EBIT beyond this year as you think about adding some of the super duty capacity in 2026, and further increasing software and services mix toward that 20% of that pro EBIT target.

Speaker Change: Sure, Yes, so as you said I talked a little bit about some of the softening in pricing around the environment for fleets, including daily rentals, we'd say volume and mix right. Now we think are about neutral.

Mark Delaney: We'd say volume and mix right now we think are about neutral, maybe a little higher in North America, being more upset by some market weakness in Europe. The other thing that's coming into play there is you know, we're starting to introduce more EVs into the pro business. So that does tamper profitability slightly. I wouldn't say that it's a large percentage of the mix yet, but that is growing. And so our ability to continue to bring costs down, commensurate with the introduction of the EVs coming in is one of the areas where we're really focused for this year.

Speaker Change: Maybe a little higher in North America.

Speaker Change: Being more offset by some market weakness in in Europe.

Speaker Change: The other thing that's coming into play there is do you have and you're starting to introduce more ease into the pro business. So that does tamper profitability slightly I wouldn't say that it's a large percentage of the mix yet, but that is growing and so our ability to continue to bring cost down commensurate with the.

Speaker Change: The introduction of the Evs coming and is one of the areas, where we're really focused for this year, because we think it's going to be largely neutral maybe slightly better we're expecting material cost efficiencies and some lower product costs and.

Mark Delaney: The cost we think is going to be largely neutral, maybe slightly better. We're expecting material cost deficiencies and some lower product costs and potentially lower warranty costs as well due to some of the initiatives that I mentioned earlier. To give you some context about the changing revenue mix for pro, in the fourth quarter, we got actually up to about 13% of our pro business profitability was from services. We want to grow that to 20. And as you implied in your question, you know, the vehicle side is always going to be super important and the pricing within that is going to be a super important driver for our profitability.

Speaker Change: Potentially lower warranty cost as well due to some of the initiatives that I mentioned earlier.

Speaker Change: To give you some context about the.

Speaker Change: About the changing revenue mix for pro.

Speaker Change: In the fourth quarter, we got actually up to about 13% of our pro <unk>.

Speaker Change: Business profitability was from services, we want to grow that to 20.

Speaker Change: And as you as you implied in your question you know the vehicle side is always going to be super important in the pricing within that is going to be super important driver for our profitability what gives us optimism about the pro business on the vehicle side is the freshness of our products. We have a brand new F series of brand New Super duty a brand new one.

Mark Delaney: What gives us optimism about the pro business on the vehicle side is the freshness of our product. We have a brand new F-Series, a brand new Super Duty, a brand new one-ton transit in Europe. We have the freshest lineup on our vehicles that we have ever had. The competitors may react to that. And we'll see how that plays out in the market. But what we're also really focused on is getting that 13 percent higher. Because those margins on the vehicle repair side are 35 percent. On the software side, they're up to like 50, 60 percent.

Speaker Change: Transit in Europe, we have the freshest lineup on our vehicles that we have ever had the competitors may react to that.

Speaker Change: And we will see how that plays out in the market.

Speaker Change: But what we're also really focused on is getting that 13% higher because those margins on the vehicle repair side of 35% on the software side, they're up to like 50%, 60%. So that's really our opportunity to derisk the company's profile.

Mark Delaney: So that's really our opportunity to de-risk the company's profile. Thanks for that.

Speaker Change: Thanks for that my other question was on tariffs and you spoke a bit about this in your prepared remarks, and I know, it's a really challenging thing to try and forecast but to.

Mark Delaney: My other question was on terrorists. And you spoke a bit about this in your prepared remarks. And I know it's a really challenging thing to try and forecast, but To the extent there are 25% tariffs put into place, they could actually come into effect next month. And I spoke about a few weeks of the ability to absorb it.

Speaker Change: To the extent there are 25% tariffs put into.

Speaker Change: Put into place next to actually come into effect next month.

Speaker Change: But a few weeks of.

Speaker Change: Our ability to absorb it but but if tariffs are sustained maybe just talk a little bit more around what kind of cost impact that may have to forward to you that you can.

Jim Farley: But if tariffs are sustained, maybe just talk a little bit more around what kind of cost impact that may have to Ford to the extent you can size it and how much of that you could potentially offset via actions such as pricing. I think Sherry and I both said it first, in the kind of week scenario, we're in good shape, you know, if it was a number of weeks, I think, with changing our stock level of our components, both ourselves and our suppliers, and changing our manufacturing patterns in both Mexico, especially, and the US, you know, we can make sure nothing crosses the border for a couple weeks.

Speaker Change: Is it and how much of that.

Speaker Change: Potentially offset via actions such as pricing. Thanks.

Speaker Change: I think in Sheri and I, both said it first in the kind of weak scenario, we're in good shape.

Speaker Change: There's a number of weeks I think with with changing our stock level of our components, both for ourselves and our suppliers and changing our manufacturing Pat.

Speaker Change: Patterns in both.

Speaker Change: Mexico, especially in the U S.

Speaker Change: We can make sure nothing crosses the border.

Speaker Change: For a couple of weeks.

Jim Farley: We have good stock situation in our dealers right now. So, and the longer term, you know, 80 plus percent of our vehicles are made in the U.S. 100 percent of our transmissions, more than half of our engines. You know, you look at our competitors and they're they're like a country mile away. So, and our U.S. plants are busy. Like, we do not have, upside, we have some plans for Tennessee and Kentucky, and some expansion plans for our new EVs, but our teams in the U.S. are flat out already.

Speaker Change: We have good stock situation and our dealers right now so and.

Speaker Change: But longer term you know.

Speaker Change: 80, plus percent of our vehicles are made in the U S, 100% of our transmissions more than half of our engines.

Speaker Change: You look at our competitors in there, they're like a country mile away from that so and in our U S plants are busy like we do not have.

Speaker Change: Upside we have some plans for.

Speaker Change: Tennessee, Kentucky, and some expansion plans for our new Evs, but are are our teams in the U S. A flat out already.

Jim Farley: So there's not, I mean, we would have to make some major strategy shifts in the U.S., build new plants, et cetera, if this persists. Obviously, it's a devastating impact. What doesn't make sense to me is why are we having this conversation while, you know, Hyundai Kia's importing 600,000 units in the U.S. with no incremental tariff, and why is Toyota able to import a half a million vehicles in the U.S. with no incremental tariffs? I mean, there are millions of vehicles coming into our country that are not being applied to these. So if we're gonna have a tariff policy that lasts for a month or whatever it's gonna be, years, it better be comprehensive for our industry.

Speaker Change: So there's not I mean, we would have to make some major strategy shifts.

Speaker Change: In the U S build new plants et cetera.

Speaker Change: This persists, obviously its a devastating impact.

Speaker Change: What doesn't make sense to me.

Speaker Change: Is why why are we having this conversation while Glenn.

Speaker Change: Who did Ikea is importing 600000 units in the U S with no incremental tariff tariffs and why as Toyota able to import a half a million vehicles in the U S. No incremental tariffs I mean, there are millions of vehicles coming into our country that are not being applied to these so if we're gonna have a tariff policy the last for a month or whatever.

Speaker Change: It's going to be years, it better be comprehensive for our industry. We can't just cherry pick one place to the other because this is a bonanza.

Joseph Spak: We can't just cherry-pick one place or the other because this is a bonanza for our import competitors. Thank you.

Speaker Change: For our import competitors.

Speaker Change: Thank you.

Joseph Spak: Our next question comes from the line of Joseph Spak with UBS.

Speaker Change: Our next question comes from the line of Joseph Spak with UBS. Please on mute and ask your question.

Sherry House: Please unmute and ask your question. Thanks, good evening. Sherry, just maybe to start on the free cash flow guidance, on a dollar basis, looks to be down, I'd say roughly in line with the lower eBay, European, but, you know, given that you're talking about some de-stocking, I'd imagine there'd be some working capital and timing headwinds. So can you just help us understand some of the drivers that maybe get that higher, and also maybe what type of distribution for credit assistance and the guidance?

Joseph Spak: Thanks, Good evening.

Speaker Change: Sheri just maybe to start on the free cash flow guidance on a dollar basis looks to be down I'd say roughly in line with these lower EBIT year over year, but given that you're talking about some destocking I'd imagine there'll be some working capital and timing headwinds. So can you just help us on it.

Joseph Spak: And some of those drivers.

Joseph Spak: When you get that higher and also maybe what type of.

Joseph Spak: Distributions from Ford credit positions in the guidance.

Sherry House: Yeah, so let me just talk about that a little bit. So you will see that the free cash flow that we are guiding for this year is gonna be right in line with the 50 to 60%, which is our target. We have been running higher than that, as I mentioned in our prepared remarks. Part of that's due to timing differences. Most notably, that's related to warranty and it's related to some of our marketing incentive items, which is causing timing differences. So as we go into next year, we do expect that the reduction you're seeing is going to be due to the reduction, even as you pointed out, there is going to be increasing in working capital and we do expect some timing differences to continue into this next period as well.

Speaker Change: Yeah. So let me just talk about that a little bit. So you will see that the free cash flow that we are guiding for this year is going to be right in line with with the 50% to 60%, which is our target we have.

Speaker Change: Have been running higher than that as I mentioned in our prepared remarks part of that's due to timing differences, most notably related to warranty and it's related to some of our marketing incentives.

Items, which is causing timing differences. So as we go into next year, we do expect that the reduction you're seeing is going to be due to the reduction in EBIT. As you pointed out there is going to be increasing in working capital and we do expect some timing differences.

Speaker Change: We continue.

Speaker Change: Into this next period as well so that would be some of the major items, we're not guiding on credits distribution at this time, but I think it's fair to say that we're expecting equal or greater than what we've had in the past.

Sherry House: So that would be some of the major items. You know, we're not guiding on credit distribution at this time, but I think it's fair to say that we're expecting equal or greater than what we've had. In the past year I should say. Yeah, thanks for that.

Speaker Change: Okay.

Speaker Change: Thank you independent they are the second day.

Speaker Change: Yes. Thanks.

Jim Farley: Jim, I want to go back to a little bit of the conversation you're having earlier and on the multi-platform, multi-power train strategy, multi-energy strategy, sorry. And you alluded to EREVs on the call, I think in various other forums, you've talked about that.

Speaker Change: Jim I want to go back.

Speaker Change: A little bit of a conversation.

Speaker Change: Earlier on.

Speaker Change: On the multi platform multi powertrain strategy.

Speaker Change: Multi energy strategy sorry.

Speaker Change: You alluded to Iraq.

Speaker Change: Paul I think in various other farms, you've talked about that and I guess.

Jim Farley: And I guess, I just was wondering if you could spend another minute or so talking about how you There is a world where it may not be as necessary from a regulatory perspective if policy evolves. So that would mean that it does rely more on consumer pull. So how do you really convince the buyer and what were maybe some lessons learned from the bad experience? The bad experience, because I think there's probably a little bit of over exuberance for about consumer reaction to that. Yep. Thank you. You know, when you, when you have a chance to spend time with Lee Auto, some of the best E-Rev companies out there and their customers, you know, what's interesting for me when I started, when we started to absorb this leadership team, is we were really impressed that the customers thought of these vehicles as EVs.

Speaker Change: Was wondering if you spend another minute or so talking about how you.

Speaker Change: So really positioned in a market that has a value proposition because.

Speaker Change: There is a world where it may.

Speaker Change: May not be as necessary from a regulatory perspective and policy evolves so wood.

Speaker Change: Meaning that it does rely more on consumer call. So how do you really convinced the buyer and what were maybe some lessons learned from from the bad experience because I think there.

Speaker Change: There is probably a little bit of over exuberant.

Speaker Change: Consumer reaction to that site.

Speaker Change: Thank you.

Speaker Change: You know when you when you have a chance to spend time with Lee auto some of the best companies out there and their customers.

Speaker Change: What's interesting for me when I started when we started to absorb this leadership team is we were really impressed that the customers thought of these vehicles as evs. They do not think of them as hybrids or plug ins ease or electric vehicles. They use 95% of the miles is electric and they plug them in overnight.

Jim Farley: They do not think of them as hybrids or plug-ins. These are electric vehicles. They use 95% of the miles as electric and they plug them in every night. And, and the satisfaction is even higher because they're more affordable for people. The batteries is so much smaller with, you know, 150 mile range versus these huge batteries and three row crossovers for 300 and 350 mile range. You're talking about tens and tens and tens of thousands of dollars. So for the customer, you're able to buy an electric vehicle that's fully, you know, comparable to an ICE vehicle in terms of cost.

Speaker Change: And and the SaaS faction is even higher.

Speaker Change: Because they are more affordable for people the batteries is so much smaller.

Speaker Change: You know 150 mile range versus the huge batteries and three row crossovers for 300 350 mile range, Youre talking about tens and tens and tens of thousands of dollars. So for the customer you were able to buy an electric vehicle that is fully comparable to an ice vehicle in terms of cost.

Jim Farley: And because there's no transmission, there are no gears, no driveline, there's no axles, duplicate axles, there's no duplicate powertrain. The incremental investment of fitting that combustion engine in there is very minimal for the customer. So I think at the consumer level, Americans love their big cars. They love their big trucks. That's what we do. We drive these big vehicles, but some people would love to feel that instant acceleration. They'd love to be able to drive by a gas station all the time. They love the feeling of electric, but they just can't get it. You know, it's 30, $40,000 too expensive for these big vehicles.

Speaker Change: And because there is no transmission or no gears no driveline theres no actuals duplicate axles theres no duplicate powertrain.

Speaker Change: The.

Speaker Change: The incremental investment of fitting that combustion engine and there is very minimal to the customer so.

Speaker Change: I think at the consumer level.

Speaker Change: Americans love their big cars, they love their big trucks, that's what we do we drive these big vehicles and what some people would love to feel that interesting acceleration they love to be able to drive by gas station all the time they loved the feeling of electric but they just can't get it.

Speaker Change: It's $30 $40000 too expensive for these big vehicles. So this technology gives them the electric experience without the ranging saidi.

Jim Farley: So this technology gives them the electric experience without the range anxiety. No, it's not perfect. If you tow, it's not a good technology. The batteries have to be too big. So it's not a panacea, but I think how we look at it is given we're number three in hybrids.

Speaker Change: It's not perfect. If you toe, it's not a good technology the batteries have to be too big so it's not a panacea.

Speaker Change: Think of how we look at it is given we're number three in hybrids.

Jim Farley: The pro-powerboard thing really surprised us. People love hybrids for more than just fuel economy. And I think we see this in more degrees of. you know, hybrid and P-HEVs as a solution for customers, E-REV for certain kinds of vehicles, heavy vehicles that don't tow, and a pure EV for commercial or very affordable. I don't know if that makes sense to you, but that's what I hear from the customers, why they love these vehicles.

Speaker Change: The pro Power Awards.

Speaker Change: They really surprised us people love hybrids for more than just fuel economy.

Speaker Change: And I think we see this in more degrees of.

Speaker Change: You know hybrid and <unk> as a solution for customers. He read for certain kinds of vehicles heavy vehicles that don't toe in a pure evs for commercial or very affordable I don't know.

Speaker Change: If that makes sense to you, but that's what I hear from the customers why they love these vehicles.

Speaker Change: Yeah.

Operator: This concludes the Ford Motor Company fourth quarter 2024 earnings conference call. Thank you for your participation. You may now disconnect.

Speaker Change: This concludes the Ford Motor Company fourth quarter 2024 earnings Conference call. Thank you for your participation you may now disconnect.