Ford Motor Company

Good day, ladies and gentlemen. My name is Sidarius, and I'll be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company second quarter 2020 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, you will need to press star 1 on your telephone keypad. At this time, I would like to turn the call over to Lynn Antipas Tyson, Executive Director of Investor Relations.

Thank you, Sedarius. Welcome, everyone, to Ford Motor Company's second quarter 2020 earnings call. Presenting today are Jim Hackett, our President and CEO, and Tim Stone, our Chief Financial Officer. Also joining us today for Q&A are Jim Farley, Chief Operating Officer, and Marion Harris, CEO of Ford Credit. Jim Hackett will begin with some color on the quarter, and then Tim will talk about our results in more depth, and then we'll turn to Q&A. Our results discussed today include some non-GAAP references. These are reconciled to the most comparable U.S. GAAP measure in the appendix of our earnings deck, which can be found along with the rest of our earnings materials at shareholder.ford.com. Today's discussion includes forward-looking statements about our expectations. Actual results may differ from those stated, and the most significant factors that could cause actual results to differ are included on slide 23. In addition, unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS, and free cash flow are on an adjusted basis, and product mix is on a volume-weighted basis. A quick update on two upcoming IR events. First, on Monday, August 3rd, RBC will host a fireside chat with us. Tim Stone, Habitai Tang, our Chief Product Development and Procurement Officer, and Gary Johnson, our Chief Manufacturing and Labor Affairs Officer, will participate. And then on Wednesday, August 15th, Kumar Gaholtra, President, Americas and International Markets Group, will participate in the Jefferies Industrial Conference. Now let me turn the call over to Jim Hackett.

Thanks, Lynn, and hello to everyone. In a moment, I will share with you how absolutely proud I am of the way our team has performed during the COVID pandemic, which of course has challenged every aspect of our business. But before I do, I don't want this moment to pass without giving some important perspective on where Ford Motor Company stands relative to racial justice. I've been heartened, frankly, to see our industry, like other industries, step up in the aftermath of the killing of George Floyd, and of course, hand in hand with others, there's a deep outpouring of collective grief and frustration that moved us all very deeply. It was much more than a moment in time that will fade, but rather we must make it a turning point for our society. Ford is committed to leading from the front with action to enable social mobility and economic success in the African American community, including programs in which the company has invested for more than a century. The Ford Motor Company Fund in particular invests in a broad range of initiatives addressing social justice, racism, equality, and economic opportunity, and we're looking forward to more opportunities to affect positive change. Now, in the past week since Mr. Floyd's death, I have met nightly with a small team of people to think as deeply as possible about what has not worked in the past that we need to address in the future. We've begun to map the experience of black lives at Ford and see areas where improvements and enhancement would go a long way to address many of the concerns that have been voiced. Ford is committed to leading from the front and taking action, and the results will prove themselves over time. This is deeply a part of our culture and history, and the Ford Motor Company Fund in particular has invested over many decades at the ground level to address issues of social justice, racism, equality, and economic opportunity. And we look forward to sharing much more of this in the future. Okay, so let me turn to the quarter, which I would summarize in two ways. First, strong execution in this challenging environment. And second, meaningful progress in our plan to create a vibrant Ford Motor Company with exciting products that people want. And well positioned to capitalize on the new technology and trends that are transforming our industry. I couldn't be prouder, as I said, of the optimism and the effectiveness our team demonstrated managing through and beyond the COVID crisis. From the start, I think Ford has distinguished itself on three principles. Protecting our team and doing our part to limit the spread of the virus, safeguarding the health of our business, and stepping up to build and supply much needed personal protective and healthcare equipment. On all three counts, the team performed exceptionally well under difficult circumstances. The strong execution enabled us to deliver much better financial results than we expected just three months ago. For example, our team did a fantastic job safely restarting production and wholesale exceeded targets. Frankly, our focus on safety enabled our efficient restart as we followed our return to work playbook very, very closely. Our focus on safety also extended to our supply chain as we worked directly with our suppliers and logistics providers to minimize disruption. In addition, our team also worked hard on costs, including CapEx, which helped reduce losses and cash burn in the quarter. And these factors are what led to our outperformance. Another highlight of the quarter is our profitable commercial vehicle business. It continues to gain share globally. And for credit, it remains a pillar of strength for our customers, and it's a competitive advantage. Overall, I'm proud to tell you that the balance sheet remains extremely solid and positions us to weather further disruptions and headwinds. Tim will provide further details in a moment on the balance sheet. Importantly, this intense focus on managing through the crisis has not knocked us off our mission to offer our own destiny and shape the future of Ford. Since our last earning call, we have revealed the all-new 2021 F-150 and our new Bronco family of vehicles. These vehicles, along with upcoming Mustang Mach-E, represent Ford's modern product vision. Highly desirable, iconic vehicles packed with innovation and human-centered design features. And they're fully connected in ways that will enhance quality and constantly improving ownership experience through fast, over-the-air updates. Let me give you some color on the F-150. The all-new version we showed in June was born from decades of deep focus on what customers want, and new human-centered design capabilities that helped us invent the unobvious features and capability customers will love and value. The new F-150 is packed with dozens of new innovative features and upgrades that we believe will make this the market-leading truck for 43 years, and that's an even stronger proposition for our customers. We're in great shape to launch the new F-150 on time and with high quality. which, of course, requires now changeover in our plants in Dearborn and Kansas City. Now, the important sell-down of the current model is also going well, as demonstrated by great news in our market share. For example, in the U.S., while sales decline, we perform better than the industry do in part to the strength from our trucks, that being the F-150 Ranger and our SUVs, Explorer and Lincoln Aviator and Corsair. Our total share was up 20 basis points in the quarter to 14.5%. And within that number, our retail share was up 120 basis points to 13.3%, as F-Series gained 250 basis points of segment share to 33.3%. Turning to the all-new Bronco. The outpouring of enthusiasm from the public and media after the reveal earlier this month, candidly, speaks for itself. Reservations for Bronco, well, they've surpassed even our most optimistic initial projections. Our entire team... like the over 150,000 customers who reserve one, are super excited about the Bronco. This family of vehicles has big upside potential in the growing off-road category, and this is a category with a leading OEM that has not been seriously challenged until now. And we have proven credibility in this off-road space with Raptor in particular, and we are the number one cross-shop brand for Jeep today. Initial customer demand for Bronco is so high that we are actively working to increase our annual production right now. I also want to give you a quick personal story on the status of the Mach-E, which will go on sale later this year. I had an opportunity to drive an advanced prototype recently in Ann Arbor. The experience was just stunning from start to finish. When you sit in the driver's seat, everything is personalized. My profile automatically loaded into the Mach-E before I pressed the start button. Seat position, screen colors, preferences, Apple CarPlay and Waze were seamlessly integrated into the SYNC 4 system. I then set off on the drive in whisper mode. Now, the drive was astonishingly smooth and powerful. And I used the one-pedal driving system. Braking and battery regeneration were perfectly integrated. Then I did switch to unbridled mode. You can see me smiling, and I can tell you the performance was pure Mustang. Sure-footed and incredibly quick. as I took curves. The experience was incredibly intuitive, and the cluster tells you exactly what you need to know with nothing extraneous. Yes, I left with a big smile on my face because I know our customers will soon enjoy this same experience. When I see these products come to life, I feel better and better about our decision to reallocate capital spending from sedans to trucks and commercial vehicles and SUVs. It was controversial at the time, but it's paying off. And we have even more new products in the pipeline in areas where forward is strong today and in white spaces where we can earn stronger returns and grow share. And these new products are critical to our target to reduce the age of our showroom in the U.S. by over 40% to a more competitive 3.1 years by 2023. OEMs really with the highest replacement rate and youngest showroom age have generally gained market share profitably. It's a good place to be in. By several third-party measurements, Ford brand reputation is improving as well, and we believe we have much more potential for improvement as we launch these new exciting products. I just want to take a moment and touch on our plan for electric vehicles. We're about midway through our plan to invest more than $11.5 billion through 2022, and there'll be more after that with an increasing mix of spend on all electric vehicles. We're bringing the power of choice to our customers with hybrids, plug-in hybrids, and pure electric. By the fourth quarter, we'll have 15 electrified nameplates available to customers around the world, and nearly 10% of our wholesales will have come from some form of electrification. We're deploying this technology across our lineup and price points to bring improved capability, fuel economy, and emissions to as many people as possible, just as we did with our EcoBoost technology a decade ago. Main plates that will follow our all-electric are the Territory and China, our Xscape and Kuga plug-in hybrids, which offer an estimated 100 mPGE, and the F-150 power boost hybrid. I just ordered one of these, as well as our Mustang Mach-E BEV. These will be followed by an all-electric versions of our market-leading F-150 and transit vans. Electric vehicles are also a big part of Lincoln's future, and you'll see this unfold in the months and years ahead. As you know, in June, we finalized our strategic alliance with VW, which will accelerate execution of our commercial vehicle and electric vehicle strategy. This alliance also significantly strengthens Argo AI, which now combines unmatched expertise with the global reach of Ford and VW together. This positions Ford well as self-driving vehicles become a significant new source of revenue and profit in the years to come. The AV journey will be a long one, but Ford is now well positioned to run this race and compete like few others can. Finally, in a moment, Tim will provide an update on the progress of our global redesign. Progressively reshaping our business and restructuring underperforming operations around the world, rationalizing our product portfolio, to play to our strengths and attacking costs. Obviously, Ford isn't immune to the effect of the pandemic, including a new vehicle market that has been waylaid by the pandemic. But we continue to manage through this crisis, even as we continue to create a vibrant, profitably growing company, one that we're confident will win in an era of smart vehicles for a smart world. With that, I'll turn it over to Tim for more color on the quarter and our expectations for the remainder of the year. Tim?