Q1 2025 Ford Motor Co Earnings Call
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Leyla: Good day, everyone. My name is Leyla and that will be your conference operator today at this time I would like to welcome you to the Ford Motor Company first quarter 'twenty 25 earnings conference call. All lines have been placed on mute to prevent any background noise.
Leyla: The speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time that please click on the raise hand icon, which can be found in the black bar at the bottom of the webinar window at.
Speaker Change: At this time I would like to turn the call over to Linda and cheapest Tyson Chief Investor Relations Officer.
Leyla: Okay.
Speaker Change: Thank you Laila welcome to Ford Motor Company's first quarter 2025 earnings call with me today are Jim Farley, President and CEO Cheri House, CFO and Kumar go Horn, Chief operating officer, joining us for Q&A will be John Lawlor, Vice Chair, Andrew Frick, President Ford Blue and Molly.
Speaker Change: An interim head of Ford CRO, Kathy O'callahan, CEO of Ford credit and Steve Carley, Chief Policy Officer, and General Counsel. Today's discussion includes 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.
Speaker Change: Its shareholder Dot for Dot Com. Our discussion also includes forward looking statements about our expectations actual results may differ from those stated the most significant factors that could cause actual results to differ are included on page 21.
Speaker Change: Unless otherwise noted all comparisons are year over year company EBIT EPS and free cash flow are on an adjusted basis Lastly, I want to call out two near term IR engagements may 28th John Lawlor will participate in a fireside chat in New York, Virginia Rosko at the Bernstein annual strategic decisions Conference Sherri House will also.
Jim Farley: To attend June 4th Sherry household participate in a fireside chat and New York with Joe Spak at the UBS Auto and Auto Tech Conference now I'll turn the call over to Jim Thanks, Lynn and thanks to all of you for joining.
Jim Farley: Let me give you an update on the state of the business and on tariffs Kumar who is going to take you through our cost and quality progress as well as some of our mitigation where tariffs and then she or he is going to take you through the financial performance and guidance and hopefully we'll have plenty of time for Q&A.
Jim Farley: Our underlying business continues to gain traction and perform well.
Jim Farley: Beat our original expectation for the quarter and before tariff related impacts we are on track and within our original full year guidance range of seven to $8 5 billion in EBIT.
Jim Farley: We had our best first quarter U S pick up sales and over 20 years and.
Jim Farley: And we delivered sequential share growth in our home market.
Jim Farley: Additionally, we saw smooth execution.
Jim Farley: Of several major product launches in the quarter around the globe.
Jim Farley: And we continue to deliver progress against our cost and quality targets.
Jim Farley: On tariffs.
Jim Farley: <unk> supports the administration's goal to strengthen the U S economy by growing American manufacturing and.
Jim Farley: And we also support a level playing field globally for domestic and foreign Oems.
We also appreciate the ongoing cooperation we've had with the administration.
Jim Farley: As America's largest auto manufacturer or engagement with Washington is helping U S policymakers better understand how their proposed policy changes would impact our industry and of course our communities.
Jim Farley: Last year, we assembled over 300000 more vehicles in the U S than our closest competitor.
Jim Farley: That includes 100% of all our full size trucks.
Jim Farley: Some Oems have open capacity in the U S.
Jim Farley: That will partially match our footprint advantage they have to absorb higher costs.
Jim Farley: Invest capital and that will take time.
Jim Farley: It's not as simple as just assembly more vehicles in the U S. Oems must also balance.
Jim Farley: Customer affordability, which means the ability to import part parts tier free.
Jim Farley: Based on what we know now our expectations of how certain details will resolve around tariffs.
Jim Farley: We've estimated the gross impact of tariffs for full year total company EBIT of $2 5 billion.
Jim Farley: And the net impact of $1 5 billion.
Jim Farley: It's still too early to fully understand our competitors' responses to these tariffs.
Jim Farley: It's also early to gauge the related market dynamics, including the potential industry wide supply chain disruptions and the impact of Ford's domestic manufacturing advantages and as a result, we have decided to suspend our guidance.
Jim Farley: It is clear however that in this new environment in which automakers with the largest U S footprint, we will have a big advantage and boy is that true for Ford It puts us in the pole position plus we have the largest value unlock.
Jim Farley: Even beyond that because of our improving cost and quality opportunities Kumar.
Kumar: Thank you Jim.
Kumar: Before I walk everyone through how we are managing the business. During this evolving policy landscape I want to quickly highlight the progress, we're making on cost and quality.
Kumar: Our industrial platform continues to deliver progress against our targets and we remain on track to deliver $1 billion in net cost reductions this year, excluding the impact of changes in tariff policy.
Kumar: We're also closing our competitive cost gap and efficiently leveraging our U S footprint as a competitive advantage.
Kumar: We're improving our production stability and we're working to strengthen our supply base.
Kumar: We are achieving all this by shifting our focus to the key process inputs.
Kumar: Which in turn deliver the desired outputs and those desired outputs of course are lower cost and better quality.
Kumar: Let me give you a few examples of what I mean by inputs and these processes for example.
Kumar: We are doing thorough readiness assessments of every workstation and our assembly plants ahead of every launch.
Kumar: We are building a continuous pipeline of cost and quality improvement ideas. So not only are we executing this quarter, we have a very clear pipeline for the next quarter and the quarter after that.
Kumar: We're doing rigorous implant audits to prevent defect from reaching our customers.
Kumar: We have created a comprehensive system of leading metrics that provide us early warnings if any of these outputs are at risk.
Kumar: So here are the results.
Kumar: We're on track to deliver a year over year warranty savings the <unk>.
Kumar: Warranty spikes during launch are now at industry leading levels we.
Kumar: We are on track to deliver greater than 10% improvement in <unk> per thousand both for zero months in service and three months in service for 25 vehicles.
Speaker Change: Gordon Lincoln, where the most improved brands in J D. Power's 2025 U S vehicle Dependability study.
Speaker Change: During our launches in the first quarter.
Speaker Change: We lost zero vehicles versus our launch acceleration curves.
Speaker Change: And we deployed $9 5 million otas in the first quarter to address customer concerns.
Speaker Change: We're not just improving cost and quality of the team is also in the trenches taking actions to minimize the impact of tariffs on our business.
Speaker Change: In fact their actions lowered the potential first quarter financial impact, but nearly 35%.
Speaker Change: There are some of the key actions we took.
Speaker Change: Vehicles shipped to Canada from Mexico, why are the U S are now transported on bonded carriers. So they arent subject to U S tariffs.
Speaker Change: We've done the same for parts that merely pass through the United States.
Speaker Change: We are assessing where there are near term resourcing actions to increase U S content in our vehicles.
Speaker Change: We have stopped exporting vehicles to China.
Speaker Change: But we do continue to leverage China as a vehicle export hub to regions like ASEAN, Australia, South America, and others, where trade relations remain favorable.
Speaker Change: Looking ahead.
Speaker Change: Even though nearly 80% of our parts that we use in the U S. Our U S MCA compliant.
Speaker Change: We're looking for opportunities, where it makes sense to develop local supply chains.
Speaker Change: Relative to adding manufacturing capacity in the U S.
Speaker Change: Forward.
Speaker Change: This is a continuation not a course correction.
Speaker Change: Since 2020, we have invested $50 billion in manufacturing capacity and.
Speaker Change: And we have a lot of investments in flight.
Speaker Change: Including manufacturing and battery capacity in Tennessee.
Speaker Change: Rotary capacity in Kentucky, and Michigan and manufacturing capacity in Ohio.
Sherri house: Thanks Sherri.
Sherri house: Thank you Kumar and thank you to the team members supporting our first quarter product launches and smallest is helping us mitigate the financial impact of tariffs.
We are transforming <unk> into a higher growth higher margin more capital efficient and more terrible business. This was evident in our first quarter results, we delivered $1 billion in EBIT exceeding our expectation of roughly breakeven for the quarter driven by the team's continued progress on costs.
Sherri house: In strong net pricing in North America.
Sherri house: When excluding the nearly $200 million impact of tariffs. This was our third consecutive quarter of year over year cost improvement.
Sherri house: Youll recall that during the first quarter, we had planned downtime at several plants most.
Sherri house: It's notably, Kentucky truck plant to support product launches and the rebalancing of U S dealer inventory.
Sherri house: As expected this resulted in lower wholesale which were down 7% in revenue of 41 billion, which was down 5%.
Sherri house: The product launches were successful and in March we launched new versions of the expedition.
Sherri house: Andy Navigator in North America, and an all electric version of Puma in Europe.
Sherri house: We also began production of the new Ranger plug in hybrid EV, which goes on sale in Europe, and Australia during the second quarter.
Sherri house: Now on to a few highlights from the segment.
Sherri house: Ford crowd continues to be a real competitive advantage in four pro showed its resilience by delivering a solid quarter. Despite the planned downtime at Kentucky truck plant and a normalization in industry pricing in more commoditized areas like delivery vans in daily rental.
Sherri house: Demand for tea products like Super duty chassis cabs in transit wagons remained strong.
Sherri house: In Europe Pro grew its commercial brand leadership on the strength of transit custom and Ranger and.
Sherri house: And in North America Pro is far and away the segment leader with over 40% share of the U S class one to seven truck and van market.
Sherri house: Pro continues to service customers in a way that they want to be served.
Sherri house: In addition to adding new service elite base mobile bands are driving growth and customer paid mobile repair orders, which are now 7% of all customer paid repair orders.
Sherri house: On the software side.
Sherri house: Paid subscriptions, which deliver better than 50% gross margin rose to 675000 up 20% from a year ago.
Sherri house: Without sides growth in higher value services like fleet telematics, driving 40% growth in average revenue per unit.
Sherri house: Yeah.
Sherri house: Ford Natalie remains focused on improving gross margin and exercising capital discipline.
Sherri house: Battery investment scale, and we deliver next generation products that will generate profitable future growth.
Sherri house: <unk> continues to scale and it more than doubled its first quarter wholesale volume.
Sherri house: Given by the recent launches of explorer.
Sherri house: Capri in Puma journey in Europe.
Sherri house: <unk> U S retail sales grew 15% in the quarter.
Sherri house: Enabled in part by the success of the U S. Ford power promise campaign, which provides customers a home charger in standard installation.
Sherri house: Campaign is currently seen in attach rate of 34%.
Sherri house: Given the campaign success. It has now been operating Canada and in Europe.
Sherri house: Ford Blue earned a modest profit, reflecting the expected volume decline in adverse exchange due to the strengthening of the U S. Dollar impacted key markets like Canada, and Australia, offset partially by higher net pricing in North America.
Sherri house: Blue continues to benefit from disciplined revenue management across the portfolio along with cost reduction work that Kumar highlighted.
Sherri house: <unk> International operations were once again collectively profitable.
Sherri house: Iconic nameplates, such as F series, and Bronco continue to lead their respective segments and Bronco sales grew 35%.
Sherri house: Blue continues to see growing customer demand for its hybrid in fact, our hybrid mix of global sales increased 250 basis points.
Sherri house: Additionally, based on early sales data the newly launched expedition and navigator kept average transaction prices that are 18, and 23% higher than the outgoing model respectively.
Sherri house: And they are turning on dealer lots in less than nine days.
Sherri house: Ford credit.
Sherri house: <unk> delivered another solid quarter with EBT up significantly, reflecting its high quality book of business.
Sherri house: Higher financing margin in higher net receivables.
Sherri house: Also in the quarter Ford credit paid a $200 million distribution.
Sherri house: To the automotive company.
Sherri house: First quarter auction values increased 3% year over year, and 4% sequentially, reflecting low used car availability.
Sherri house: Ford Credit also continues to grow with active commercial lines of credit, making it a strategic asset for our Ford pro customers.
Sherri house: Now on to cash flow and balance sheet.
Sherri house: Okay.
Sherri house: Free cash flow was a use of $1 5 billion more than explained by unfavorable timing differences net spending in changes in working capital.
Sherri house: Our balance sheet is strong with over 27 billion in cash and over 45 billion in liquidity as of March 31.
Sherri house: And in April we renewed our $18 billion corporate credit facility for another year.
Sherri house: As we have said repeatedly.
Sherri house: Strong liquidity provides us with the flexibility to manage in this very dynamic environment.
Cassidy: Cassidy to make consistent shareholder distributions.
Cassidy: Any optionality to invest in higher return growth opportunities that truly unlock value.
Cassidy: To that end consistent with our commitment to returned 40% to 50%.
Cassidy: Trailing free cash flow to shareholders last week, we declared a regular second quarter dividend of <unk> 15 per share paid.
Cassidy: Payable on June 2nd to shareholders of record on May 12.
Cassidy: So, let's turn to our 2025 outlook.
Cassidy: I am pleased with the progress the team has made on cost and quality.
Cassidy: You saw green shoots of this in the first quarter and we are on track to deliver $1 billion in net cost improvement excluding tariffs this year.
Cassidy: Excluding the impact of tariffs, we are within our previous EBIT guidance range of $7 billion to $8 5 billion.
Cassidy: Based on what the company notes now.
Cassidy: And our expectation of how certain details and changes will be resolved related to tariffs, we estimate a gross adverse EBIT impact of $2 5 billion.
Cassidy: And a net adverse EBIT impact of about $1 5 billion.
Cassidy: For full year 2025.
Cassidy: Given the material tariff related near term risks and the potential range of outcomes. We are suspending guidance for full year 2025.
Cassidy: These near term risks include among other things.
Cassidy: Industry wide supply chain disruption impacting production.
Cassidy: Future or increased tariffs in the U S.
Cassidy: Changes in the implementation of tariffs, including tariff offsets.
Cassidy: Retaliatory tariffs and other restrictions by other governments and the potential related market ex.
Cassidy: And finally policy uncertainty associated with tax and emission policy.
Cassidy: We will provide an update on guidance during the Q2 earnings call.
Cassidy: Before we go to Q&A.
Cassidy: Let me wrap with this.
Cassidy: Our underlying performance excluding tariffs is in line with our original targets.
Cassidy: Our U S footprint is a competitive advantage as the industry navigates the impact of tariffs and our strong balance sheet.
Cassidy: Provides flexibility to continue to invest in profitable growth, while managing industry dynamics.
Cassidy: Thank you.
Speaker Change: Back to you operator.
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, when you are called on and please Amit Your line and ask your question, we will now pause a moment to assemble the queue.
Speaker Change: Your first question comes from the line of Emmanuel Rosner with Wolfe Research. Please on mute and ask your question.
Speaker Change: Great.
Speaker Change: Thank you so much.
Speaker Change: I appreciate the color on tariff was hoping you can give us maybe a little bit more and in particular on the.
Speaker Change: Gross tariff headwinds.
Speaker Change: What goes into these two and a half billion dollars could you give us maybe bucket.
Speaker Change: Buckets in terms of what it how much is from continued vehicle from parts anything else that's in there and whether the 375%.
Speaker Change: Offset that was announced by the White House last week is that the.
Speaker Change: The gross headwinds is that considered as well on a gross headwind and then similar question on the net what are the offsets.
Speaker Change: Yes sure.
Speaker Change: So.
Speaker Change: The two and a half billion in gross costs is based on what we know now and our expectations of how certain details in changes will be resolved relative to tariffs.
Speaker Change: For us, we're estimating that it's roughly half parts and have imported vehicles.
Speaker Change: We have assumed that we would get.
Speaker Change: Credits for the U S content in our vehicles that are going to be going over the border. So that is already assumed in this $2 5 billion.
Speaker Change: On the parts side. This is also inclusive of steel and aluminum.
Speaker Change: Now for steel and aluminum.
Speaker Change: It isn't just tariffs because in fact, 85% of our steel is already purchased domestically in the U S. In all of our sheet aluminum is purchased in the US However, we do believe that there are pricing impacts that we will encounter we have over 50% locked in hedge.
Speaker Change: But there are impacts and that is included in our parts number.
Speaker Change: Additionally, there are tariffs on some parts that we import to China. So we have certain powertrains that go into China today.
Speaker Change: So this is what is comprising the two and a half billion yeah.
And I think you had a question regarding the offsets.
Speaker Change: And the offsets the three and three quarter percent.
Speaker Change: <unk> is included and what we have come to with our $2 5 billion gross number.
Speaker Change: Sure.
Speaker Change: And our net debt that is great color.
Speaker Change: Go ahead.
Speaker Change: And our net adverse EBIT impact is estimated at about one 5 billion for the full year 2025, and net clues about $1 billion of offsetting recovery actions.
Speaker Change: I was hoping you could give us a little more color on some of these.
Speaker Change: <unk> offset actions is it.
Speaker Change: Price is it costs.
Speaker Change: What what's essentially assumed in this offset.
Speaker Change: So the largest element of the offsets is market equation optimization and I'll, let you know what I mean by that but we do have some cost mitigation examples in there as well.
Speaker Change: Such as as we said in our prepared remarks.
Speaker Change: Vehicles shipped to Canada from Mexico via the U S are now transported on bonded carriers. So they arent subject to U S tariffs and we're doing similar actions on parts as well.
Speaker Change: Now in the market equation optimization.
Speaker Change: To come up with the $1 billion, we ran a range of market factor scenarios segment by segment channel by channel vehicle by vehicle inclusive of the competitive landscape. We buried inputs such as pricing such as volumes such as Saar and we've considered that theres certain segments for instance.
Speaker Change: Where we have 100% of production in the U S. Like our full size pickup trucks, where competitors are much less than that so we've taken all of these competitive dynamics as well as these inputs into consideration and if ran a number of permutations when we triangulate on that it comes up with this $1 billion inclusive.
Speaker Change: Some of the cost items that I mentioned.
Speaker Change: Yeah.
Speaker Change: Great.
Speaker Change: And then if I can have a follow up on the on.
Speaker Change: On guidance.
Speaker Change: So you indicated that tough for us.
Speaker Change: <unk> would have been on track excluding tower for the initial EBIT guidance, obviously Q1 was a stronger than expected performance.
Speaker Change: To the tune of about $1 billion versus your previous expectations.
Speaker Change: Are there any negative offsets elsewhere. They would have left you where your initial guidance is or are you just saying that you would have landed within the range.
Speaker Change: Yes, it's a very solid start manuals.
Speaker Change: Especially our warranty are negotiated parts.
Speaker Change: Purchase prices as well as the bill material simplification.
Speaker Change: And frankly very strong pricing for our new vehicles.
Speaker Change: But we have so much more in front of us with the year going on it's.
Speaker Change: We're not going to give you any specifics within the range but.
Speaker Change: The team is off to a really great start obviously, our focus is on that execution for fourth quarter in a row of year over year cost improvements.
Speaker Change: And the results will speak for themselves.
Speaker Change: Okay.
Speaker Change: Alright, thank you.
Speaker Change: Your next question will come from the line of Dan Levy with Barclays. Please on mute and ask your question.
Dan Levy: Hi, good evening, Thank you for taking.
Speaker Change: Taking the questions.
Speaker Change: I wanted to start first with a question on volume and inventory if you could maybe give us a sense of how you expect volume to play out in.
Speaker Change: In the coming months and the volumes your own volumes given the different dynamics and previously you gave us some guidance on inventory that.
Speaker Change: We're going to get through your Destocking by the middle of the year are you looking at your inventory any differently now that it's considerably more valuable than what it was before given the tariff dynamics.
Speaker Change: Yes, Thank you Dan.
Speaker Change: We've seen obviously, a very strong industry performance through April and the first half is running over our 17 5 million Saar right. Now. So we are running a lot of scenarios on price and volume impacts in our assumptions, we do expect industry pricing related to tariffs.
Speaker Change: At about one to one 5% in the second half with full year pricing flat.
Speaker Change: With that we now expect the industry Saar to run about half a million units lower than our original plan during the second half of the year around 15, and a half million units.
Speaker Change: The important thing around that is timing.
Speaker Change: If net pricing changes changes come from reduced incentive spun it could happen more immediately in other scenarios that come it comes from top line pricing, which would be a little later this summer when inventory hits dealerships.
Speaker Change: And we're likely to see that probably happen around the June time period.
Speaker Change: We're measured in our approach to pricing for tariffs and really inherent in your question.
Speaker Change: We believe our footprint advantage offers us added flexibility to the changing market dynamic our current inventory levels are.
Speaker Change: Allow us to be more opportunistic in the market.
Speaker Change: And if we.
Speaker Change: Find an opportunity to go for sure we will if it's profitable we left April with a 56 days' supply in dealer stock and a 66 gross supply.
Speaker Change: We're looking at as Jerry mentioned earlier, we are looking at this vehicle line by vehicle line segment by segment, taking into account not only tariffs, but also stock levels macroeconomic environment and competitive pricing.
Speaker Change: Okay, great. Thank you.
Speaker Change: As a follow up Jim I'd like to ask about your efforts in software defined vehicles and specifically there was a media report out there that F. N V for your network architecture is.
Speaker Change: Getting scrap so if you could just address what the if that confirm if thats correct. If the floor plans are to develop your own or to partner with someone and how should we think about our resource allocation towards this what the savings could be given I believe a lot of this with hitting in Mali.
Speaker Change: Well. Thank you for your question our strategy hasn't changed it's a very significant save.
Speaker Change: For capital efficiency.
Speaker Change: We simply merged our two forward zonal electric architectures into one this is very important for the company because our software is growing faster than we expected and the advanced electric architectures allow us to deliver software to the vehicles and customers in a more efficient way.
Speaker Change: And we were very ambitious with our advanced electric architectures applying to ice vehicles, not just advanced electric architectures for E. V. So we brought that all together and F&B three it's.
Speaker Change: It's a great move for the company are zoned electric architecture is now going to be delivered on our <unk> product and I think there's a major learning for the for the company that we could do it at a lower price point than F&B for as well. This save also has a big impact on the cost of our.
Speaker Change: Future products. So all of our products will be more affordable now in fact, we're targeting our next generation products to be cheaper than our current outgoing products and a big factor of that is F&B three versus F&B before.
Speaker Change: And this will actually enhance our integrated services software revenue on profitability. This move.
Speaker Change: Great. Thank you.
Speaker Change: Your next question will come from the line of Adam Jonas with Morgan Stanley. Please on mute and ask your question.
Adam Jonas: Hi, everybody.
Adam Jonas: So Jim or Sheri whoever wants to take this in your estimation.
Speaker Change: Of the $1 5 billion net tariff headwind you referred to potential supply chain disruption and quantify it but you referred to potential as a part of the reason why you also withdrew the guidance.
Speaker Change: Just asking very bluntly are are you seeing any signs of distress Orient interruption in the supply chain following the volatility of the implementation of the of the import.
Speaker Change: To date.
Speaker Change: Just curious like as EBIT, even after the end of the quarter or is it still all clear are you seeing some some disruption.
Speaker Change: Bob.
Speaker Change: Yeah. Adam This is Kumar, let me take that from a supply chain perspective.
Speaker Change: There's been so much volatility in the tariff policy.
Speaker Change: So that could cause disruption.
Speaker Change: I'll just give you a quick example, the rare earth materials from China for example.
Speaker Change: How they are imported not just for us but for the entire industry.
Speaker Change: Excuse me has become rather complicated over last few weeks.
Speaker Change: And it could potentially it would take only a few parts.
Speaker Change: To potentially caused some disruption to our production.
Speaker Change: There are other.
Speaker Change: Other supply.
Speaker Change: Other uncertainty and associated tax and emission policy that could cause some disruption.
Speaker Change: And of course, the competitive response, so let's say, we get disrupted in one of our competitors doesn't get disrupted and disrupted or vice versa that could obviously have an impact on volume and pricing.
Kumar: Thanks Kumar.
Speaker Change: A follow up.
Speaker Change: In previous calls when Ford has talked about its AI strategy is.
Speaker Change: Included in emphasis on automation robotics, I'm curious, how you're thinking on automation has evolved given the pressures to onshore more manufacturing and specifically <unk>.
Speaker Change: Has your team explored humanoid robotics with your Tech partners as many of your <unk>.
Speaker Change: Tech forward.
Speaker Change: Automotive competition, both in the U S and in China are doing thanks.
Adam Kumar: So Adam Kumar again.
Speaker Change: Humanised, let me answer that part of the question first not directly obviously, we're not working on on that directly but in our manufacturing system. We are working with several partners too.
Adam Kumar: Some very specific projects.
Adam Kumar: Projects.
Adam Kumar: That can do AI and save a substantial amount of cost. So we're deploying AI in our PD system.
Adam Kumar: For example, a lot of the time, we take surrogate parts and then design.
Adam Kumar: Manually design a lot of those parts with AI, where we are.
Adam Kumar: We're automating the design process.
Adam Kumar: A bunch of weeks out of the PD system.
Adam Kumar: I'll share. An example, with you we have a Boston dynamics dog in our supply and our Spain Valencia plant, that's where the.
Adam Kumar: The experiments started.
Adam Kumar: It has it literally has sensors on it that can see here feel the vibration smell any leaks of oil et cetera, just literally walks around the plant all day long and has changed how we do our preventive maintenance because it can see and hear and look for aerospace as well.
Adam Kumar: Before the human being could so do we have processes like that going through quality through manufacturing and through P. D. Using AI that overall, improving our efficiency in all those areas.
Speaker Change: Thanks Kumar, maybe Lin I'll, let you use the dog and see if it gets along with her dogs.
Lin: Can you talk about that offline.
Speaker Change: Your next question will come from the line of Joseph Spak with UBS. Please on mute and ask your question.
Speaker Change: Thanks, Good afternoon.
Lin: Yes.
Speaker Change: You did mention that it looks like you'll be able to give guidance again with second quarter earnings, but you also started off by saying there's a lot of.
Speaker Change: Near term uncertainty as it relates to tariffs the economy, you saw pricing et cetera. So what really are you looking for here over the coming months to give you confidence.
Speaker Change: To be able to.
Speaker Change: You know put the guidance and outlook back in like <unk>.
Speaker Change: What do you expect to know that you don't know today.
Speaker Change: Yeah.
Speaker Change: Well first of all I just want to clarify my comments relative to Q2, we will provide an update at that point with the best information that we have at that time I just wanted to set the expectation that we would be back talking at that point in time. There is there is a number of things that we are working through really it's the policy issue.
Speaker Change: And yet we had alluded to the clarification of how some of these are landing.
Speaker Change: Well as some uncertainty associated with tax and emission policy, how the customer is going to react. This is going to be very key for us as we move into the second half of the year, we see how do they react to this potential increase in pricing that may result from these tariff costs.
Speaker Change: The fifth of competitors and a third are in countering and then just you know really just that whole competitive dynamic and how are the competition reacts as well. These are the key items.
Speaker Change: Okay. Thank you sorry for misinterpreting that.
Speaker Change: And then Jim I know as we sort of have already gone over in this call. There's some outstanding issues on.
Speaker Change: Tariff and trade, but we are it does seem like we're beyond the <unk>.
Speaker Change: Or if you will on uncertainty.
Speaker Change: But there are other regulations and policies that it seems they're gonna be tackled by commissions.
So I'm wondering how you're viewing that as as it.
Speaker Change: As it relates to some of your powertrain investment like what does it mean for the.
Speaker Change: The nexgen.
Speaker Change: Project I'm modeling more broadly like you've you've clearly taken a lot of costs out of E and done a lot of work on the Nextgen, but ultimately you need volume. So how are you viewing this part of our strategy.
Speaker Change: We see the next iteration and as you said tariff tariffs haven't played out we have to see the retaliatory part of tariffs. Good a good examples Canada I think we got two good output right now with Canada, we'll see how that how that works out.
Speaker Change: But.
Speaker Change: Your point about.
Speaker Change: PTC is very important to us the production tax credit and I are a very critical decision for their.
Speaker Change: A reconciliation of upcoming tax legislation in the United States I think we're very close to it I think we've been incredibly we put a lot of effort into raising awareness of how critical this is for the states in the Midwest, where all this manufacturing investment that Sherri mentioned as going in.
Speaker Change: Obviously, the IRA consumer credits tax for EV purchases will be very substantial upcoming policy effort, but that will also be balanced with the 27 and beyond <unk> requirements for the EPA as well as the California waiver.
Speaker Change: And I think those will be offsetting we don't know how it's going to look right now, but that would be a second area I would say it would be very meaningful in addition to tariffs.
Speaker Change: And I think.
Speaker Change: I think there's quite.
Speaker Change: Quite a bit policy around the globe on emissions that will play out for a company like Ford that is global but I would say.
Speaker Change: We're encouraged by the level of engagement with Ford with all lawmakers and the administration. They want for a company like Ford that bet on America.
Speaker Change: To win in this next era of the automotive industry that increasingly looks like a regional business and I think we feel that as long as we do our jobs to engage the key decision makers and in all of the policy areas around the world.
Speaker Change: <unk> will emerge.
Speaker Change: Emerge as one of the companies that is in.
Speaker Change: In really great shape relative to its competition and for the customers.
Speaker Change: Our.
The PTC, though I would just say as an outsized impact for us and for the industry.
Speaker Change: Yeah.
Speaker Change: Our next question will come from the line of John Murphy with Bank of America. Please go ahead.
John Murphy: Good evening everybody.
Speaker Change: Okay.
Speaker Change: My question here.
Speaker Change: There's a lot of focus on the cost and indirect impact of tariffs, but not necessarily enough or at least in my opinion enough focus on indirect.
Speaker Change: Impact and the potential for you to take market share.
Speaker Change: Petrol for demand construction goes up dramatically in the U S. You seem to be sure.
Speaker Change: For a lot of particularly <unk> super duties.
Speaker Change: As well as the rise in used vehicle pricing, which is very helpful. The FMC. So maybe you can just take that.
Speaker Change: A few minutes and kind of talk about that.
Speaker Change: Those potentials, because they're not they don't sound like Theyre calcium.
The net impact because you guys are doing sort of just a scientific math not necessarily into second and third grade of potential impacts.
Speaker Change: Could be pretty huge for you.
Speaker Change: Yeah, the governor on that whether it goes you know slower fast as always give me the competitors sure. We said and as she said we've looked literally in every segment who are cross shop competitor is the nameplate, where they built what kind of tariff exposure. They have what kind of pricing they've had in the pack.
Speaker Change: That's what our differences on pricing and we also looked at the timing of when they would make pricing decisions and when that inventory would be in the dealerships.
Speaker Change: Given their supply chain, because all all the importers have different supply chains, and we feel very comfortable that we've made a very reasonable call embedded in that $1 5 billion net but there is no doubt.
Speaker Change: That forward given our manufacturing.
Speaker Change: Foot print has the opportunity that few companies have we.
Speaker Change: But we don't want to get ahead of ourselves, but we have the freshest lineup we've ever had in North America. The iPhone <unk> New Super duty is brand new we have all new full size Suvs many of our competitors important to those segments. We have a new explore I mean, a lot of our utilities are new as well and theyre very well.
Speaker Change: <unk> competitively.
Speaker Change: <unk>.
Speaker Change: And also our inventories in good shape and that's why we didn't wait John as soon as this happened we went to our new promotion campaign for employee pricing. It is it has really shrunk our stock in our dealerships as Andrew said and we are gaining share the share gain in April was even higher than March.
Speaker Change: So we continue to see a wind at our back.
Speaker Change: People really like the employee message employee pricing message and you can expect for it to be very aggressive in the market. It gives us optionality on those upside scenarios, but at this point for financial planning, we thought we'd just.
Speaker Change: Go do our homework be very reasons in our approach and no doubt about it we're investing in marketing.
Speaker Change: <unk>.
With that mentality of an opportunity.
Speaker Change: And then just a quick second question on pricing I think you guys were seeing net price where the industry up one to one 5% in the second half of the year and that might demand down to 15 five.
Speaker Change: That seems like a pretty high.
Speaker Change: Price elasticity of demand, particularly given all the pent up demand that's out there. So I'm just curious if I heard that correctly and how you guys are coming up with that number because that sounds pretty punitive as well.
Speaker Change: Thanks, John its Andrew just a follow up to the previous statement that I made on it we really are looking at the run rates not only with the assumption of the one to one and a half and full year pricing flat.
Speaker Change: We also see some element of.
Speaker Change: Payback scenario from what we've seen in the first half of the year as well as we've run up so that was also factored into what we think the run rate will be against the 15, 5%.
Speaker Change: And is that we that.
Speaker Change: That's just based on our modeling that we've done as Jim said kind of segment by segment, but also in terms of how each site. Each one of those segments performs against the elasticity of the pricing that we assumed.
Speaker Change: And that pure light not with medium and heavy is that correct.
Speaker Change: I'm, sorry can you repeat that.
Speaker Change: Is that that's a pure light vehicles, our estimate not not including medium and heavies that correct, yes, that's correct.
Speaker Change: Okay.
John: We are John we see customers you know Julian that can do afford a new vehicle I mean, Cathy seen 84 month financing increases the share of our offer on the financing side Natura.
John: A natural level were well within the bounds of of the industry, but some customers are doing what they need to adjust for their payments.
John: That's helpful. Thank you guys.
Speaker Change: Your next question will come from Mark Delaney with Goldman Sachs. Please go ahead.
Mark Delaney: Yes, good afternoon, and thanks very much for taking my questions I'm, hoping to better understand the linearity of the one 5 billion net tariff headwind over the balance of this year and what percent mitigation. You think you might be exiting the year because I assume that you have more time to implement some of these offsets the level of headwind may moderate as the year goes on and I guess.
Mark Delaney: As you think longer term, it's our policy changes do you think forward can fully mitigate the tariff cost that I've seen with supply chain cost and our price changes.
Mark Delaney: Yeah. Thank you for your question I would say there isn't really any linearity to speak to with respect to the tariff costs and our offsets the offsets were going to continue to manage as we go we're going to be looking at the market factors scenarios that I mentioned.
Mark Delaney: Looking at SAR pricing volume it will be adjusting on a real time basis or for that as we go.
Speaker Change: Understood. Thanks, Terry I just wanted to ask on pro you called out there could you saw our growth youre, having in subscribers, maybe you could double effect, where you're seeing the most strength in subscribers is it more coming from big fleets are in small and medium size businesses or Boston.
Speaker Change: Oh can you also give us an update on where you stand with your haul to have 20% of EBIT coming from software and services next year. Thanks.
Andrew Frick: Yeah. Thanks, It's Andrew we continue to see our software and services business grow we are tracking towards an increase in the software and services as a percent of EBIT by end of the year.
Speaker Change: We're adding a lot of physical services that will help drive that.
Speaker Change: We've seen we have the largest commercial network and continue to invest in that growth. So we've been adding capacity both in our dealer network, but also in our mobile service network. We now have 66 operating Ford Pro elite centers around the country, we have the largest mobile service.
Speaker Change: Units the fleet at 4600 units and that business continues to grow and we're seeing higher service and parts attach rate with customers that are procuring our Ford Pro intelligence solutions in.
Speaker Change: In addition on the software services to the <unk>.
Speaker Change: First part of your question the paid subscriptions grew by 20% year over year to 625000.
Speaker Change: <unk> thousand.
Speaker Change: Total users telematics was up 80% and a key driver that was a key driver to the 40% <unk> growth that Sherry talked about and we're really seeing it across the customer base.
Speaker Change: Small medium businesses are now utilizing at a higher rate and some of the larger fleets that are that have.
Speaker Change: That are more sophisticated and this have increased their utilization as well so really it's across our entire board pro ecosystem and customer on the vehicle side. Your question was the margin pressure, we're seeing it from a few of our important competitors on the heavy duty side for vans and pickup.
Speaker Change: But theyre made overseas. So we'll see how that all shakes out in the second half of the year, whether they can really continue to be that aggressive in the market with a with such substantial tariff bills and of course rental there their replacement cycles changing a little bit in rental we're not very big in rental while we do sell in rental is pretty profitable.
Speaker Change: And it's like F 150, so that's.
Speaker Change: That's a smaller effect for us than others, but those are the two sub segments.
Speaker Change: That we're seeing a little pricing pressure personally I have my doubts about how persistent the van and pickup will be given that most of the competition is coming from imported from Mexico products, which obviously the reality just changed.
Speaker Change: Thank you.
Our next question will come from Ryan Brinkman with Jpmorgan. Please go ahead hi.
Speaker Change: Thanks for taking my question there was a reference to a Ford credit earlier in relation to tariffs, but I'd be interested to hear more about how kathy and the team might be thinking about how the various potential impacts of tariffs.
Speaker Change: On that side of the business, including an origination volume of Saar declines on higher prices like you've been seeing you waited but also on the positive side with regard to lease residual or collateral values, maybe even default rate if consumers have more equity in their vehicles. How do you think these are other factors might play out and are you looking at any scenarios, where the net of them could.
Speaker Change: Prove positive for the credit side of the business, providing some offset to the headwind on the automotive side.
Speaker Change: Yeah. Thanks for the question.
Speaker Change: <unk> elevated auction prices already.
Speaker Change: And that's reflected obviously used across the industry relatively low used vehicle and stock.
Speaker Change: We're thinking that with the higher new vehicle prices as a result of the tariffs we think that the auction values I could lend support to auction values in the near term but.
Speaker Change: That might be some muted somewhat by a slowdown in the economy in the second half. So we do see a plus and we see align us potentially on overall auction values in terms of consumer health I mean to date as Jim mentioned, we've seen an increase in applications saw longer tern financing.
Speaker Change: And obviously they Noah.
Speaker Change: That could put some contraction in terms of overall contracts, let me say it right now a relatively balanced picture and they have to wait to see what happens in the second half vis vis the economic strength of the economy.
Speaker Change: Very helpful. Thanks, and then just lastly is there an update you can provide on your business in Europe, including what traction some of the model launches there might be having relative to maybe rising competition from Chinese automakers are falling competition from Tesla.
Speaker Change: And what progress you might be seen on the restructuring program that you announced last fall I realize no longer report profit by geography other than in China, but now where would you say you are in terms of the path to getting to where you need to be or where you would like to be in terms of profitability in that part of the world.
Speaker Change: We will start with the reaction to the vehicle of lines that you had talked about we launched.
Speaker Change: Some of our electric vehicles. This past year, we just recently launched the Puma electric vehicle, which is off to a really good start.
Speaker Change: Our run rate of our commercial business as a whole and Europe is really strong in fact through the first quarter, we've increased our share by over two and a half points. So as the leading commercial brand we continue to perform.
Speaker Change: <unk> performed very well there we have a lot of flexibility in the market with ice.
Speaker Change: Hybrid plug in hybrid and electric across our lineup, which allows us to really.
Speaker Change: React to the market that's going on over there in terms of the overall business itself is running at a better rate.
Speaker Change: We've seen an increase we have some headwinds in some of the industry, although we've offset with share.
Speaker Change: And we've had some just general exchange issues in the market over there.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question will come from James Picariello with BNP Paribas.
Speaker Change: <unk> 20th James.
Speaker Change: Okay.
Speaker Change: James Your line is open you'll just need you on mute star six on your keypad will allow you to do so.
Speaker Change: Can you hear me now.
Speaker Change: If we can please go ahead.
Speaker Change: Okay, sorry about that.
Speaker Change: Hi, everybody so relative to your internal planning what were the key factors that surprised me the most in the first quarter relative to the company's expectation for breakeven EBIT.
Speaker Change: Sure I would say that.
Speaker Change: It was cost.
Speaker Change: Had planned that the cost is going to be significantly different than it was we got a good surprise and warranty that ended up being positive versus our plan and in fact warranty was positive on a quarter over quarter basis as well so that was a big part of it we obviously at the offset of the queue.
Speaker Change: $200 million in tariffs and then our material costs also did better including commodities.
Speaker Change: Got it was warranty was warranty a positive guy year over year or quarter over quarter.
Speaker Change: Sure.
Speaker Change: Quarter over quarter, it was better and it also with better versus our plan for the quarter. So when we guided break even we had anticipated it to be worse than it was.
Speaker Change: Got it and then just on modeling performance in particular.
Speaker Change: The loss per vehicle basis, I think this is model these best quarter on record and we can see last year's strange a million and dealer stock adjustments in the paper.
A lot of this relative momentum attributed to the Evs are selling in Europe can you just speak to that and just how you're thinking about the near term since the full year guide is pulled.
Speaker Change: Has modestly turned the corner here.
Speaker Change: How has ford handle the marquee production in Mexico with respect to tariffs. Thanks.
Speaker Change: So not only did have a a great quarter. It was about 40% better on a quarter over quarter basis, and also a year over year basis, now that was driven by some positive pricing.
Speaker Change: Part of that he had to do with our Q1 of 2024, when we had taken.
Speaker Change: Some significant pricing actions across our entire dealer inventory. So in some ways. There was a positive eight based on that but we also saw some improvements in material costs with some pull ahead in material cost improvements that we were anticipating a bit later in the year. So as I said.
Speaker Change: My prepared remarks, we do think that this is going to be the best quarter of the year for for.
Speaker Change: Model E.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Thank you and just thoughts on on the marquee just puts the planning for a marquee production in Mexico is there.
Speaker Change: Any change at all to the plan or is it business as usual.
Speaker Change: It's business as usual, we do not plan on making any adjustments to lowering the production of vehicles and doing very well right now.
Speaker Change: We actually have a very low day supply of the vehicle itself, it's essential to our overall.
Compliance delivering compliance here, so it's doing well and it's actually we've actually moved some of the products to Europe at a higher because of the higher run rate, they're seeing as well so it's doing very well.
Speaker Change: No change plant.
Speaker Change: It's interesting for me.
Speaker Change: That were in the fourth year of marquee and the sales continue to be so strong that has not happened in the ice business. We usually by now have aging now the prices come down way way down, but I mean relative to others marquee has held up very well as product.
Speaker Change: We've invested both on the cost and the product appeal side.
Speaker Change: Thank you.
Speaker Change: Our next question will come from Colin Langan with Wells Fargo. Please go ahead.
Colin Langan: Oh, great. Thanks for taking my questions.
Colin Langan: To clarify that the $2 5 billion that the tariff impact.
Colin Langan: The MSRP.
Colin Langan: Rebate that helps the parts is that netted in the $2 5 billion or is that on the $1 billion offset because the billion off that sort of sounded like more market factors that you were thinking about.
Colin Langan: Yeah.
Colin Langan: Okay.
Colin Langan: Okay.
Colin Langan: It's in the $2 5 billion.
Colin Langan: Okay, and how should we think about that as well.
Colin Langan: Two years is that enough time to get whatever sort of risk isn't there.
Colin Langan: A dresser earn two years theres going to be a little bit ahead that we should be thinking about as a rescue assuming tariffs stay where they are today.
Colin Langan: Okay.
Colin Langan: Yeah.
Colin Langan: It's a pretty dynamic situation I think this is all really new for for all of us.
Colin Langan: And.
Colin Langan: I think we.
Colin Langan: We've been very clear with the government about the flexibility we need.
Colin Langan: And we've been very encouraged by by them. Because these are huge numbers, two and a half of one and a half is still big number even though maybe lower than others.
Colin Langan: I think their approach is going to be they're going to they're going to watch this very carefully and adjust accordingly, I don't think any of us would say we know exactly.
Colin Langan: Enough now that we can transition to a 10% or whatever the number is going to be but I think they obviously the government wants us to to shift more parts of the U S. So that's one thing from.
Colin Langan: From my perspective. We also has you have we have USA U S. M C. A coming up so we have to go through that whole process and I think we should just all expect to be a little bit patient. During this time to see how these policies kind of work out together.
Colin Langan: U S MCA could be a substantial negotiation in a very important tool for the government and industry to work to transition.
Colin Langan: Two more U S sourced parts.
Colin Langan: And that could change and habit iterative effect with the tariffs. So at this point I would say too early to tell to answer your question about whether it's enough time or not.
Colin Langan: And just lastly.
Colin Langan: And just any any thoughts on the cash impact of tariffs I mean should we think of the one five is all cash are there any other factors, we should be thinking about like working capital or capex needs.
Colin Langan: That might result, in maybe cash being better or worse.
Colin Langan: The EBIT impact.
Colin Langan: Yeah at this point, we're estimating that they will be.
Colin Langan: Approximately equal for cash, we're assuming that they would happen in settle within the quarter. So in a case, where there is a cash that's paid out and there is an offset where we're assuming it would happen in the quarter.
Colin Langan: There is a capex impact we do have some product.
Colin Langan: On some equipment that we've already ordered that's going to be coming in from overseas and we do think that we will have an impact on our capex as a result.
Colin Langan: Got it alright, thanks for taking my questions.
Speaker Change: Your final question will come from the line of Eli Mccalley with TD Cowen. Please go ahead.
Great. Thank you. Good afternoon, everybody just two quick ones for me and thank you for all the detail today.
Speaker Change: If you wouldn't see the industry pricing move higher but beyond what you've embedded in the one 5 billion net tariff I'm just curious whether you would generally prioritize.
Speaker Change: Meaning some market share due to a strong U S position, but whether you would look to participate in some of that price increases into the second quick question maybe for Jim.
Speaker Change: How should we be thinking about <unk> plans to for level three autonomy and any changes we should think about it given the changes in the electrical architecture rollout. Thank you.
Speaker Change: Okay.
Andrew Frick: Okay, maybe it's Andrew I'll take the first part were really looking at this.
Andrew Frick: Through the lens that you just described whether it would be an opportunity to take additional pricing if that happens or being opportunistic opportunistic too.
Andrew Frick: Increase our market share.
Andrew Frick: That's where as we look at the vehicles segments of the vehicle lines, we're gonna look vehicle by vehicle across our channels across our customer segments to make sure that if we're opportunistic it actually makes sense for us from a profit perspective.
Andrew Frick: And also and if it doesn't then we would look to potentially take additional pricing in the market. So we have to react to what we see in the market and those are part of the scenario planning that that we've described.
Andrew Frick: At the end of the quarter, we use already launched a blue Coos 1415.
It's doing better than we thought to be Frank.
Andrew Frick: Hands free is up 15% in terms of miles driven so customers are really getting used to.
Andrew Frick: It used to using blue crews I think we're above 370 million miles now I think that's far above what was it almost all of our major competitors. We are on track and level three and we're evaluating level for other companies level four I won't go into any more detail than that but.
Andrew Frick: But I think we're we're on track on our <unk> I would describe our blue goose product is very competitive very compelling not a lot of it a disengagement now.
Andrew Frick: Do lane change regularly.
Andrew Frick: The use of it is really escalating and we're now embedding it in our vehicle specifications for different series, So it's becoming more popular and for the renewals we've come up with a really effective way to reward our dealers for selling renewals as well.
Andrew Frick: So that's good shape I would just say just the business operations behind selling Adas is getting healthier and the use of the system is on track.
Andrew Frick: And I would say level. Three is also on track obviously, it's gonna be a cost and timing I don't think we're going to be the first for high speed highway, but I think will be a best the best.
Andrew Frick: And that will be a totally different internally sourced.
Andrew Frick: Product versus the Blue cruise effort, which was very dependent on suppliers. The level three team is quite different than the blue crews and we want to use that as a moment to really differentiate the brand.
Speaker Change: Terrific I appreciate all the detail thanks, so much.
Thank you.
Speaker Change: Okay.
Speaker Change: This concludes the Ford Motor Company first quarter 2025 earnings Conference call. Thank you for your participation you may now disconnect.