Ford's Q4 2023 Earnings Call

[00:00:00] Good afternoon and welcome to the Ford Motor Company 2023 fourth quarter financial results

[00:00:06] conference call. All participants will be in listen only mode. I would now like to turn

[00:00:12] the conference over to Lynn Antipas Tyson head of investor relations. Please go ahead.

[00:00:17] Thank you Gary and welcome to Ford Motor Company's fourth quarter 2023 earnings call. With me

[00:00:22] today are Jim Farley president and CEO and John Lawler,

[00:00:25] Chief Financial Officer. Our discussion also includes forward-looking statements about our

[00:00:30] expectations. Actual results may differ from those stated. The most significant factors that could

[00:00:34] cause actual results to differ are included on page 25. Hello everyone and welcome to Kilawata Podcasts about electric vehicles, renewable energy,

[00:00:59] autonomous driving and much, much more.

[00:01:02] My name is Bodhi and I am your host. And as you can probably imagine, on today's episode,

[00:01:06] we are going to talk about Ford's Q4 2023 earnings call.

[00:01:12] Now, I will say this earnings call was EV heavy

[00:01:16] in terms of content.

[00:01:18] However, those topics were mostly

[00:01:21] about financial implications of Model E and, you know, how it lost $5

[00:01:28] billion and what is Ford going to do about it?

[00:01:32] So I left some of those conversations in because I wanted you to get the overall feel of the

[00:01:39] conference call, but I also didn't want you to shut the podcast off and unsubscribe for

[00:01:43] me.

[00:01:44] So hopefully I struck the right balance.

[00:01:46] The other thing that they talk a lot about is hybrids.

[00:01:50] And while you're listening to them talk about hybrids, in your mind,

[00:01:54] compare and contrast how GM was talking about hybrids and electric vehicles,

[00:02:00] compared to how Ford is talking about hybrids and electric vehicles.

[00:02:05] Okie doke. In just one moment we are going to jump into Ford CEOs opening remarks and

[00:02:11] Ford CEO is Jim Farley who is cousin to Chris Farley. If you don't know who Chris Farley

[00:02:17] is, shame on you. Anyway, Jim is going to give us his opening remarks. As with everything that we do when we talk about earnings calls,

[00:02:26] this is all heavily edited to be focused towards the goal of this show,

[00:02:32] which is to talk about EVs.

[00:02:34] So if you want the unabridged version,

[00:02:36] I will put a link to the earnings call in the show notes.

[00:02:39] All right, let's go ahead and jump into Jim's opening remarks.

[00:02:43] I want to highlight how important last year was not only financially, but a foundational

[00:02:48] year for our team.

[00:02:50] Our power of choice and our power trains really came through.

[00:02:53] You can really see that on the F series, which we'll talk about in a second.

[00:02:57] Our global hybrid sales were up 20% last year, and we expect them to be up 40% this year.

[00:03:04] We're now the number one and number two best-selling

[00:03:06] hybrid trucks in the US. Maverick is number one and we're the number three hybrid brand in the US

[00:03:13] behind Toyota and Honda. But unlike them, our hybrids really sell best on trucks for our side.

[00:03:20] We launched some awesome tech. Bluecoos just passed 150 million miles of hand free use.

[00:03:27] But more importantly, the growth is up 25% quarter over quarter.

[00:03:31] And the gross margins for Bluecoos are at 70 plus percent.

[00:03:35] The same for Ford Pro Intelligence.

[00:03:38] Now some have portrayed the change in the EV market as Darwinian.

[00:03:43] That could be a slow evolutionary change,

[00:03:45] but we think this has been a seismic change

[00:03:49] in the last six months is a combination of EV manufacturers

[00:03:53] cutting their price by 20% across all major geographies

[00:03:59] in a tremendous amount of capital flowing

[00:04:02] on a new capacity into one single segment. And that's going to deliver

[00:04:07] profits above Model E's cost of capital. And here are big bets and adjustments. We're going to

[00:04:13] spend less capital on larger EVs. And as we've always said, we'll have very small number of those.

[00:04:22] We're going to focus those large EVs on geographies and product segments

[00:04:27] where we have a dominant advantage, like trucks and vans. And those products will have breakthrough

[00:04:34] efficiency compared to our Gen1 products, and they're going to be packed with innovations that

[00:04:39] customers are going to be excited to pay for. When says excited to pay for I am assuming that he's talking about subscriptions or some other type of

[00:04:48] Features that you have to pay for whether that's a subscription or you pay out right and if I'm being honest

[00:04:53] I don't know one person who's excited to pay more for a feature or who's excited to pay a subscription for a feature

[00:05:02] That doesn't mean that they won't pay for it. It just means

[00:05:05] they're not going to be excited to pay for it. We're also adjusting our capital switching

[00:05:11] more focus on to smaller EV products. Now this is important because we made a bet in silence two

[00:05:18] years ago. We developed a super talented skunkworks team to create a low-cost EV platform.

[00:05:27] It was a small group, small team, some of the best EV engineers in the world and it

[00:05:33] was separate from the Ford mothership.

[00:05:36] It was a startup and they developed a flexible platform that will not only deploy to several

[00:05:43] types of vehicles,

[00:05:45] but will be a large install base for software and services

[00:05:49] that we're now seeing at PRO.

[00:05:52] All of our EV teams are ruthlessly focused on cost

[00:05:56] and efficiency in our EV products

[00:05:59] because the ultimate competition is gonna be

[00:06:03] the affordable Tesla and the Chinese OEMs.

[00:06:07] That bet, in all of the right sizing of capital, and even delays to some of our products,

[00:06:14] given the market realities, better balanced growth, profits, and returns for us.

[00:06:20] We talked about this last episode, and the person who's running that Skunk works program is allen clerk who is a former Tesla employee.

[00:06:29] One of the things we're taking advantage of taking some time time delays.

[00:06:35] Is rationalizing the level and timing of our battery capacity to match demand.

[00:06:45] to match demand and actually reassessing the vertical integration that we're relying on and betting on new chemistries and capacities. Our overall EV

[00:06:52] business will grow this year because we have the Explorer launching in Europe

[00:06:57] and really exciting many of our commercial vehicles launched with

[00:07:01] elect this year as we refresh the lineup.

[00:07:12] We will also align production and inventory for customer demands. EV customers are also helping us in a very critical area of software quality. They really, really are teaching us a lot. And this is

[00:07:18] a critical place where I think we're ahead as a company. Why are we making these changes in our EV business and cap by location?

[00:07:27] Well, because we learned as an early leader, as we scaled EVs and hybrids simultaneously,

[00:07:34] the demand curve turns out to be for EVs very different ice.

[00:07:39] We've seen an explosive growth in EVs in 2021 and 2022. We realized very quickly that our first three Gen1 products,

[00:07:48] we didn't have enough capacity with EV growth,

[00:07:53] but as well, importantly, the COVID supply shocks

[00:07:57] and the chip crisis itself,

[00:07:59] and Tesla's ability to make vehicles

[00:08:03] despite the chip crisis in 21 and 22 and the zero cost of capital gave us too optimistic of a demand signal at that time and it drove a temporary spike in supply.

[00:08:17] As the covid shock retreated.

[00:08:28] We learned that as you scale EVs to 5,000 to 7,000 units a month and you move into the early majority customer, they are not willing to pay a significant premium for EVs.

[00:08:35] This is a huge moment for us.

[00:08:39] What we've seen because we offer everything is pricing quickly converged to hybrids after any benefit from subsidies.

[00:08:48] Now Tesla found out this first,

[00:08:50] but we were right behind that.

[00:08:53] They were very exposed to our early majority,

[00:08:57] but we learned very quickly.

[00:08:59] And I wanna say that no one will be immune to this reality.

[00:09:03] The most obvious indicator of this reality

[00:09:06] is looking at total revenue, not units for EVs.

[00:09:11] Look at the US market.

[00:09:13] EV total revenue was down

[00:09:15] in the second half of last year versus Q2.

[00:09:20] If you look at unit volumes, they were up.

[00:09:23] That is a really important insight we learned in being a first mover the same thing happen in China same thing happen in Europe.

[00:09:31] Our data shows the ebies are a clear destination for many customers based on their unique duty cycle.

[00:09:39] It's going to take time more than we expected 18 months ago.

[00:09:46] time more than we expected 18 months ago. But we are seeing big adoption variances by geography. And that's why the power choice at Ford is so important

[00:09:51] and a big advantage for us. We're betting that choice and flexible

[00:09:56] manufacturing is good and get us successfully through this transit

[00:10:00] transition. Look at the best selling vehicle in the United States, the F-150.

[00:10:04] We have a lightning, we have a hybrid and and a high volume, and an ice choice. In Q4,

[00:10:09] in California, our mix was 50%, hybrid in EV F-150 and 50% ice. A thousand miles

[00:10:17] away in Dallas, it was only 15% hybrid in EV, 85% ice. You go around the world, you'll see same variations.

[00:10:28] Hybrids will play an increasingly important role

[00:10:31] in our industry's transition,

[00:10:34] and we'll be here for the long run.

[00:10:36] Fibre just fits specific customer use cases.

[00:10:40] On a Maverick pickup truck,

[00:10:41] our hybrid is focused on mileage and efficiency, and they do the math very clearly, and they don't have to change the behaviors.

[00:10:49] On F-150 hybrid, they get the same benefits, even when they're towing on fuel efficiency, but we throw in pro power on board on top of that to displace a very expensive generator cost.

[00:11:09] expensive generator cost and margins on hybrids are closer to ice much higher than EV margins. The journey on EVs is inevitable in our eyes and we have a bright future of EVs.

[00:11:15] We're adjusting our capital and we're giving customers choice.

[00:11:18] Okay, so I'm not going to share my opinion on the difference between GM and Ford's approach to messaging about hybrids.

[00:11:27] But honestly, if you've been listening to this show, you probably have a pretty good idea what I think.

[00:11:31] But I want you to have your own opinions in this regard. But I do think it's interesting

[00:11:36] that two different takes. I think they're saying the same thing the way that they did the messaging,

[00:11:41] I think was vastly, in my opinion.

[00:11:47] They talked a little bit about blue crews

[00:11:50] having 150 million miles of hands-free use.

[00:11:53] That's great.

[00:11:54] 70% gross margins on blue crews.

[00:11:56] I wonder what the uptake on that is.

[00:12:01] I wonder how many people are paying for that

[00:12:02] versus how many people could be paying for that.

[00:12:04] They didn't really go into that in this earnings call.

[00:12:08] Back to the hybrids real quick.

[00:12:12] In terms of people going into the dealership

[00:12:14] and saying, hey, I don't want a EV,

[00:12:18] but I want a hybrid.

[00:12:20] I wonder if how much of this decision-making

[00:12:24] on the consumer's side is, well, I came in

[00:12:28] here for an EV and you don't have one and it'll be three weeks before I can get one,

[00:12:33] so I guess I'll just get a high-bred.

[00:12:36] And then how much of it is, at least here in the United States, is, hey, excuse me, but

[00:12:42] I can't help but notice that you've marked this electric vehicle up

[00:12:47] $7,500, which happens to be the same amount as the tax credit. Are you willing to negotiate on this? No?

[00:12:55] Okay, well, I guess I'm not buying an EV. I'll just go ahead and get the hybrid.

[00:12:59] Which if the hybrid margins are closer to what the

[00:13:08] which if the hybrid margins are closer to what the ice vehicles are, I would make the assumption that dealers are making more off of selling the hybrids versus selling the EVs anyway.

[00:13:14] I mean if they weren't trying to gouge the customer by charging them an extra $7,500

[00:13:19] for the product, but we don't live in that world.

[00:13:22] Before we move on to our next clip, I do need to

[00:13:25] let you know there was a ton of audio issues. The people on Ford's side kept

[00:13:30] dropping out. So some of these clips sound poorly edited and some of that

[00:13:36] might be me. I'm not I'm not above making mistakes and poorly editing a clip. But

[00:13:43] a lot of it is I don't think they realized that

[00:13:45] it dropped out. So they'll they just talked through it and maybe they went back to try and fix it. But

[00:13:51] you know, that's just kind of what happens on these earnings calls. So let's go ahead and move on

[00:13:56] to our analyst questions. And our first question is fantastic. And I'll let Adam Jonas of wherever

[00:14:04] Adam Jonas works. I'll let him ask this question,

[00:14:08] because if I try to sum it up, it's not going to be anywhere as good as what he actually asks.

[00:14:14] I want to talk to you about Ford versus Ferrari, which is by a great movie, by the way, and the

[00:14:20] good guys won. I remember a time when Fiat owned Ferrari, and I had a valuation of about $4 billion

[00:14:28] on it.

[00:14:29] Now, Ferrari is worth $80 billion today.

[00:14:32] And the business was totally ignored by investors when it was part of fiat.

[00:14:36] Now, Ford is a Ferrari.

[00:14:38] It's called Ford Pro.

[00:14:40] And I think we agree, people are ignoring the cash cow, but I disagree with you, Jim.

[00:14:45] You said it's because of opaque kind of transparency or opaque kind of metrics.

[00:14:51] I don't agree.

[00:14:52] I think it's because almost all the profits are funding this EV science project.

[00:14:57] Am I being unfair, Jim, with that kind of assessment or, you know, what can your team

[00:15:01] do about this?

[00:15:02] Well, relative to EVs, there's a lot we can do.

[00:15:04] And there's a lot we're doing.

[00:15:06] I think you're going to see a lot of seismic changes in the industry

[00:15:10] because of this pricing power reality that we've all faced.

[00:15:14] More OEM relationships, different shifting to a buy versus a build,

[00:15:22] a vertical integration, shifting in capital, and generally more focus on smaller

[00:15:27] vehicles.

[00:15:28] You know, the EV customers are very robust.

[00:15:32] They really like the vehicles.

[00:15:34] They do not repurchase ICE or hybrid vehicles.

[00:15:38] They're very loyal and they love the vehicles.

[00:15:42] So it's on us to get the cost right.

[00:15:44] That is the issue with the vehicles. So it's on us to get the cost right. That is the issue with the transition.

[00:15:47] The good news is before it has a high volume hybrid business

[00:15:51] and the timing of our second cycle product

[00:15:55] give us a chance to make a lot of adjustments

[00:15:58] in capital, bring it down including

[00:16:02] and it allows us to execute them with a cost approach that's

[00:16:07] very different than our first generation.

[00:16:10] And I think, you know, all of our commitments to make money in the first 12 months of all

[00:16:15] of our launches, to have that kind of profitability and model E, to return as cost to capital,

[00:16:22] I wouldn't be saying it if I didn't believe it.

[00:16:25] And it's also got a lot of other benefits which I want the team to explain and that are really

[00:16:33] important to understand.

[00:16:35] Maran, maybe you want to go over those or John?

[00:16:39] Sure, thanks, Jim. If we just think about what those Gen 1 vehicles can do for us, we're building the ED business

[00:16:49] and at the same time we need the compliance value.

[00:16:52] We mentioned before the value of the credits that generated allow us to sell these high

[00:16:56] margin high vehicles.

[00:16:57] Each ED soul allows us to sell multiple high margin vehicles.

[00:17:01] A lightning can offset roughly.

[00:17:02] Including those roles, including pro.

[00:17:05] We're also building new customer facing capabilities.

[00:17:07] We're satisfying demand that is out there

[00:17:09] where there's high levels of adoption.

[00:17:11] We've got new dealer standards,

[00:17:13] changing experience for the customer for shop and buy,

[00:17:15] ownership and service, so that we're learning

[00:17:17] what's required to serve these customers,

[00:17:19] both us and our dealers.

[00:17:21] We're developing a charging network through our dealers

[00:17:23] and together with Tesla.

[00:17:26] Now the adoption varies tremendously by geography. As Jim mentioned across the West

[00:17:29] Coast, we're seeing 30% of the market in F-150 being in EVs. That volume is giving us a feedback

[00:17:36] loop for engineering. We're developing these electric power trains. We've got better handle

[00:17:41] on thermal propagation and the software and services that these customers demand

[00:17:46] much more intensely than a typical ICE customer.

[00:17:48] We're learning how to deliver those much better,

[00:17:50] much more efficiently and with higher quality.

[00:17:53] I would you remiss if we ignore the lifetime value

[00:17:56] of both the customer and the vehicle.

[00:17:58] We've got a 60% conquest rate on Gen 1

[00:18:01] and the integrated services like Blue Cruise

[00:18:04] that we can sell

[00:18:05] in these vehicles goes through the whole life of the vehicle.

[00:18:08] Anything else?

[00:18:09] Thank you.

[00:18:10] Yeah, the only thing I would say is, Adam, one of the important things just on top of

[00:18:14] that is that, you know, the segmentation is really important here.

[00:18:18] And we know that the EV business needs to stand on its own, right?

[00:18:22] We're very clear about that.

[00:18:23] And it needs to generate a profit

[00:18:26] and a return on the capital we're investing.

[00:18:28] Now, we're not there yet,

[00:18:29] but that's what we're working towards.

[00:18:31] You know, the compliance benefit that we get,

[00:18:33] that's important.

[00:18:34] You know, we can sell up to a dozen ISF-150s

[00:18:38] or other ICE profitable vehicles

[00:18:40] for every lightning we sell.

[00:18:42] But that, we don't do anything with wooden nickels, we don't do any credits into EV

[00:18:47] into Model E or anything like that because eventually this business has to stand on its

[00:18:52] own sooner rather than later.

[00:18:53] And that's a really important point.

[00:18:55] It's clean.

[00:18:56] By the way, actual includes electric and although electric is going slower for pro

[00:19:02] customers, it's actually, they do the math quicker than retail customers and so actually our

[00:19:10] January EV sales and pro are higher than December which would never make sense, but we're seeing more and more

[00:19:18] Pro customers go electric if their duty cycle makes sense

[00:19:21] So even for pro is it's important for our success.

[00:19:25] I think this was a good answer.

[00:19:27] My basic feelings when it comes to compliance vehicles

[00:19:31] is eventually we're going to have to move away

[00:19:34] from that type of business.

[00:19:36] I did think it was interesting that Jim said

[00:19:39] that they're not seeing customers going out

[00:19:42] and repurchasing ICE vehicles once they buy an EV.

[00:19:47] We've heard some different stories in the media about people dumping EVs for a variety of different

[00:19:55] reasons. They talked a little bit about the pro side of the business is also going EV.

[00:20:01] And I think we'll hear a little bit more about that later. I can't remember if I

[00:20:05] pulled the clip or not. But they they mentioned integrated services again which is basically

[00:20:12] whenever they say that they're talking about their subscription services. And finally I don't

[00:20:18] know what a wood nickel is in terms of business speak. So if somebody let's, if you know, email me, BodieBODIE at

[00:20:27] 918digital.com. And our next clip, a bunch of different questions are asked, but one

[00:20:33] of them is asked about the Chinese market and the Chinese OEMs. So let's go ahead and

[00:20:39] listen to that.

[00:20:40] You guys come across as very sophisticated in terms of having sophisticated insight into China.

[00:20:47] You got Ambassador Huntsman on the board, been there for years.

[00:20:50] You have a JV partner with Cheyenne that's really kicking ass lately with EVs.

[00:20:54] So how can Ford potentially work with China, Chinese partners to help Ford achieve its EV objectives

[00:21:02] in a more capital efficient way.

[00:21:05] Thanks.

[00:21:06] Thank you.

[00:21:08] Well, person right next to me, John was the head of Florida, China, and knows the chong

[00:21:13] on leadership really well.

[00:21:15] John and I went to a gimbal trip last spring and it was really eye opening for us.

[00:21:21] I mean, as two leaders who looked at each other said, holy cow. I think,

[00:21:27] first of all, China as an export for our very profitable overseas markets is really important

[00:21:35] now. And actually, we shouldn't overlook the importance of JNC now. We have really profitable export business from China, ICE and the EV.

[00:21:49] We're going to actually have very different strategies, I think our competitors in China,

[00:21:52] with a very low capital approach to EVs. We see the kind of bloodbath reality now in China and

[00:22:01] EVs, and we're watching that really carefully. We don't think it's a good time

[00:22:05] to jump in with both feet in China with EVs, but we're allowing our partners' platforms to

[00:22:12] lead our electrification. And in doing that, we are learning a lot about the capability

[00:22:18] and the local IP there in China. And it's pretty breathtaking to see what we're learning. I think our approach

[00:22:28] of very low capital profitable business is appropriate this moment in time for this kind

[00:22:36] of EV explosion but also bloodbath and profitability. And I think we're also building a global capability team for digital experience,

[00:22:49] battery and sensing tech, and product concepting in China that we'll use globally. I think

[00:22:56] even though that's not a profit or loss thing, we see it as a real capability globally.

[00:23:01] So our strategy is quite different, but I think it works for our company.

[00:23:05] I have a few things to say. First, I think it was a fair answer. Second, the Chinese EV market

[00:23:11] right now, margins are very, very low because the prices, it's like a race to the bottom.

[00:23:17] At one point in time, I don't know if you remember in 2023, I don't think it was that long ago, but my memory is fuzzy on this stuff the

[00:23:26] Evie

[00:23:28] Manufacturers in China all got together or many of them got together and they're like hey

[00:23:34] No more price wars. Let's all

[00:23:37] raise our prices up to a fair price and you know who knows what fair is

[00:23:42] To those folks, but let's all raise our prices up to a fair

[00:23:45] price and we'll stop undercutting each other and that way we can all make money. Well,

[00:23:55] at the time I said that sounds a lot like collusion and the Chinese government thought

[00:24:01] that also sounded a lot like collusion. And the Chinese government said, Nah, you guys can't do that.

[00:24:07] And then the prices just dropped again.

[00:24:10] Like the prices came up a little bit and then just sank back down to the bottom.

[00:24:14] So when Jim Farley mentions a bloodbath reality in China,

[00:24:20] this is what I think he's talking about.

[00:24:22] And when he says that Ford is going to take a low capital approach, meaning to me, this

[00:24:29] is what it means to me, Ford is not going to spend a lot of money in China, but they

[00:24:33] are going to let their partners, their partner's platform lead the way is what he said.

[00:24:40] So Ford's not going to spend a lot of money in China, but they'll let their partners spend money.

[00:24:46] And maybe they'll support them a little bit financially also in China. But in general,

[00:24:50] Ford's not taking big risks in China. Maybe at some point in time they will.

[00:24:56] They he mentioned that they're doing some R&D in China that will end up propagating around the

[00:25:01] world in their in their products. But it sounds like, and again, this is just to me,

[00:25:06] this is what I'm getting out of this, it sounds like Ford isn't interested in

[00:25:13] very low margin cars in China. They're not interested in that bloodbath price war.

[00:25:21] All right, our next question is an interesting one because remember back when Jim Farley

[00:25:27] said that they're not seeing EV customers going back to ICE cars?

[00:25:31] Well, this question directly challenges that point.

[00:25:35] So let's play the clip and we'll hear and talk about it on the other side.

[00:25:39] First question here, Jim, on EVs, obviously, that's a hot topic here.

[00:25:45] As we look at the slowdown here, we're hearing from dealers, particularly I spent some time

[00:25:49] in NATO last week, that they're seeing EVs traded in and folks buying ICE and EVs.

[00:25:56] They're actually swapping out of EVs and buying ICE and hybrids.

[00:25:59] I said ICE and hybrids.

[00:26:00] And then you're seeing Hertz dumping 20,000 EVs and canceling and postponing orders.

[00:26:08] So both on the retail side and the commercial side, you're getting these stories that's

[00:26:14] following up with data that folks are really not happy with the product, sort of near-term.

[00:26:21] What do you think is happening because the customers are not happy?

[00:26:26] I mean, it sounds like on the pro side, some folks might be with the product that they

[00:26:29] have right now.

[00:26:30] And if you think about your planning assumptions, maybe near-term, I don't just, just for argument

[00:26:36] say, say you have 100,000 less EVs, do you think if you sell 100,000 less EVs at Ford

[00:26:43] that you have the ice and hybrids to backfill for that.

[00:26:46] You actually don't lose sales and you actually made you a little bit more profitable in the

[00:26:51] short term.

[00:26:52] It's a lot in that question, but you're trying to understand what you're seeing in the market,

[00:26:55] why things are failing here, both on the retail side and on the commercial side to some degree.

[00:27:01] You have the product to backfill, you know, those wines are lower.

[00:27:05] You can imagine, John, you can imagine, thank you for your question, you can imagine with

[00:27:10] our choice portfolio being on scaled hybrids, ice, of course, and E.V., this is a very fundamental

[00:27:20] question for us because we have to plan our capacity years out. You know, here's what we found.

[00:27:26] Customers are doing the quick showroom math on hybrids.

[00:27:31] They can quickly evaluate the break even between an ice and a hybrid on the showroom

[00:27:40] floor for an F-150.

[00:27:43] They know how much a Honda generator costs versus Pro Power on board,

[00:27:47] and they don't have to change the behavior.

[00:27:51] A lot of the operating cost efficiencies of EV for a mainstream customer require change

[00:27:57] like installing a charger at home, or they're uncertain, how much will I save on repair

[00:28:04] costs? How much will I save on electrons versus gasoline?

[00:28:09] It's harder to compare.

[00:28:11] And so we're just seeing the cost of ownership,

[00:28:14] which is interesting because the success of EVs and Pro

[00:28:18] is a customer that does that math more brutal.

[00:28:21] And they use the vehicle in a higher utilization utilization so they're looking at cost of ownership in a much

[00:28:28] Clear lens and and and therefore some of them are doing the math and going to EV

[00:28:34] I

[00:28:35] Think that math has always been there for HEV

[00:28:38] But now more customers are used in doing that and we believe that customers are smart and some people with duty cycles

[00:28:45] for EVs are going to do that math over time. And it's worth investing because it's a really

[00:28:51] good business. But it's on us to get the cost right. So I just think we're seeing the math

[00:28:58] for an EV customer, mainstream EV customer is a little bit more opaque than what we see on hybrid.

[00:29:06] We're hearing, Marne, you want to say anything quickly about dealers?

[00:29:09] Yeah, I think what we're seeing with our dealers is they've been making margins comparable

[00:29:15] to their ice vehicles in the last year.

[00:29:17] And in 21 and 22, we're actually doing better than on their ice vehicles when pricing was

[00:29:21] really strong.

[00:29:22] So we feel really good about making sure our dealers are making money on this and they're

[00:29:27] making investments for the long term.

[00:29:29] But I think that's something that we monitor closely.

[00:29:32] I think just building on Jim's point quickly, I would just say the big difference for consumers

[00:29:37] is they make that one choice every few years, whereas the pro customer is changing their

[00:29:42] fleet consistently, buying lots of vehicles, and they test, and

[00:29:45] they learn what the TCO difference is, that total cost of operation.

[00:29:49] As far as the manufacturing capacity, we plan that 40% growth in HEVs years ago.

[00:29:58] So that is our capacity.

[00:30:01] We may have some pricing room above that, and we've seen actually AGV pricing become

[00:30:06] more robust as we hit these capacity limits.

[00:30:11] But 40% growth is a big increase for us.

[00:30:15] We think we got about right.

[00:30:16] That means like on F-150, America's best-selling vehicle, we think 25% of the sales or America's

[00:30:23] best-selling vehicles can be hybrid.

[00:30:25] And I think we're getting close to some of the all hybrid nameplates out there that people

[00:30:30] think of when they think of hybrids with that 150.

[00:30:33] So we have a lot of flexibility.

[00:30:34] I think we're in good shape.

[00:30:36] I thought this was an interesting answer.

[00:30:38] I think we've covered a lot of this already on this particular show and in the past.

[00:30:43] So I'm not going to bog you down with

[00:30:47] a bunch of stuff that you already know. So let's go ahead and move on to the next question,

[00:30:50] which is a little bit more financial in nature, but I did think it was interesting.

[00:30:55] Jim, you said that you're discovering that the adoption curve for EVs is a bit shallower,

[00:31:00] but we're still seeing five to five and a half billion of losses in Model E,

[00:31:05] which implies that structural costs are probably higher in 2024 than 2023. So it sounds like you're

[00:31:12] committed because you see the ultimate benefit and maybe also a little bit because there isn't

[00:31:19] much choice. So ultimately, the question is, can you control and commit to when that business reaches break

[00:31:27] even, either through stronger demand or lower spending?

[00:31:30] Because from here, 5 billion improvement is pretty meaningful.

[00:31:34] Or do you have to do that because of the trajectory of SEV and EPA and all the other things possibly

[00:31:41] exceeding where consumers are.

[00:31:48] Well we're not going to go to market with a vehicle unless we completely convinced ourselves

[00:31:55] that it's going to be profitable.

[00:31:57] And that takes some adjustments on timing actually.

[00:32:00] And we see opportunity in the short term to make some adjustments. But yeah, I know it's a huge turnaround and it's a big number.

[00:32:10] John, maybe you want to go into the actual losses in Model E just to pick them apart

[00:32:15] a little bit and then I think you'll see a little bit more about the opportunity we have

[00:32:20] with Gen 2.

[00:32:21] Yeah.

[00:32:22] So, you know, the biggest issue we have in our gen 1 vehicles, of course,

[00:32:25] is that the revenue collapsed and they're not optimized from a cost standpoint. We put

[00:32:30] them through very quickly to get to market and you know, you're seeing that flow through.

[00:32:36] But I think, Rod, part of what you were getting at is, you know, that we have no choice. And

[00:32:43] we will continue to work on improving the cost structure of the Gen 1

[00:32:47] vehicles. And as Jim said, our Gen 2 vehicles we won't launch unless we can get to a profit

[00:32:54] in a return on that capital that we're investing there at the pricing environment that we now

[00:32:59] understand as reality. So yes, it is very much the mother of all optimization, modeling and work around

[00:33:08] the balance between how many EVs we sell because we talked about the compliance benefit for

[00:33:12] that. For every lightning, we can sell 12 ICE vehicles. We can sell a number of ICE

[00:33:18] vehicles with every Mach EV cell. And so there's that balance. And then there's the balance of what we need to sell from

[00:33:27] the ice standpoint and how we can improve with HEVs there. And that's a benefit too. But there's

[00:33:32] also, and you'll see that in our case tomorrow, we are buying credits as they're available. So we

[00:33:38] have to optimize across all three of those frontiers. And that's what we're working on right now.

[00:33:42] But we know that we have to have this

[00:33:45] electric vehicle business stand on its own and be profitable because we know that there are

[00:33:51] competitors out there. We talked about that the Chinese as well as Tesla that are profitable

[00:33:57] and we have to cross that fulcrum and get there and that's what our goal is. So it needs to be a

[00:34:02] benefit of profitable business, return on the

[00:34:05] capital plus the compliance benefit that we get from those. And Rod, we have a lot of stakeholders

[00:34:10] afford with so we're not going to go a lot of details, but we have optionality even this year

[00:34:15] in capital spending. I mean, a lot of that guide is EVs. John, I don't know if you want to be specific, but 40 percent. It's about 40 percent last year and 40 percent of our CAPEX this year and it is EV and we're driving as a team to be on

[00:34:30] the low end of that got a low end of that range. Absolutely. Because we are working hard on our

[00:34:36] EV spend and I just want to make sure we don't want to leave this call with the fact that this is

[00:34:41] totally baked. We are working really hard to be on the low end of that range

[00:34:45] because we think it's appropriate to run the business.

[00:34:49] Oddly, that made me feel better.

[00:34:51] I don't have anything to add to it

[00:34:53] that I think would be useful,

[00:34:55] but it did make me feel better.

[00:34:57] Let's go ahead and get to our final question

[00:35:00] of this episode and chockers, it's about EVs,

[00:35:04] more specifically EV volumes.

[00:35:06] Just wondering if you could help to mention EV volumes for this year,

[00:35:12] associated with the 5 billion plus in model e-losses. And then with respect to Ford Pro's

[00:35:18] mid-teens margins this year, this curious on the impact tied to the fleek demand for EVs beyond companies.

[00:35:25] Of course, do you foresee a step up in pro EV volumes for the year?

[00:35:32] No model e-laws is getting more difficult.

[00:35:34] So just how are you thinking about the EV dynamic for pro profitability as well?

[00:35:39] Thanks.

[00:35:40] On the retail side, I'll ask Mar to answer that on pro absolutely our EV sales will grow

[00:35:47] not only because we're seeing more interest because the cost of ownership is advantageous

[00:35:54] for some fleet but we're also expanding in Europe quite a bit our electric offering with

[00:36:01] our two transit vans coming online. And so that will definitely,

[00:36:06] and there are a lot of city closures and other kind of regulations in Europe that's driving

[00:36:13] adoption for electric vehicles, especially vans specifically. So yes, we'll have very robust

[00:36:20] growth in our EVs for pro?

[00:36:25] Yeah, we expect growth in sales on the retail side as well. Remember, we had times where

[00:36:30] we were out of production last year on Mustang Mach-E and F1st D-Lighting, so we'll be overlapping

[00:36:37] those with the growth. And then more importantly, we're launching Explorer in Europe in the

[00:36:41] second half of this year, so that's going to be a new offering that will help us grow. So we expect to see substantial uniballying growth.

[00:36:47] Okie doke, that is it for this episode. I hope you all enjoyed it. On Friday, we're going

[00:36:54] to have our standard EV news. And I'm not quite sure what we're going to do on Tuesday

[00:36:59] quite yet. I know it's probably going to be an earnings call. I just don't know which one.

[00:37:05] So if you have a favorite, send me an email, bo-d-o-d-i-e at 918digital.com. Hope you all

[00:37:13] have a wonderful weekend. I hope you all have a wonderful week. Until the next time that

[00:37:17] I talk to you, thank you so much for listening and I will talk to you soon.

[00:37:21] This concludes our question and answer session and the conference is also now concluded.

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