Ford Motor Company

Thanks, everybody, for joining us today. I'm John Murphy from Bank of America. We are very happy to host a few members of Ford's management team today. John Lawler, CFO, Kumar Gohatra, President of Americas and the International Markets Group, and Lynn Antipas Tyson, Executive Director of Investor Relations. Ford, from our vantage point, is a company that is in transition in a very positive way a lot of momentum towards the future around evs while leveraging the core of the business and we do think kind of like the companies spoken about recently there's tremendous opportunity in the core business around ice and huge opportunity in the momentum that they're building around evs so i think it's a really exciting time to be listening to uh the management team of ford and their vision for the future. However, you know, in the near term, we all need to focus on earnings. So, we are going to do a decent amount of review on the earnings today and the near-term outlook, and then get into the long-term potential. So, John, Kumar, and Lynn, we really thank you for joining us today, and I really appreciate the time. So, maybe to kick off the John, maybe to kick off, there's a lot of controversy around the stock post-earnings. You know, I would argue that the pressure on the stock is a huge opportunity for people to want to invest in the short and long term and forward. But obviously, there's a lot of questions. So to start off, can we just review the walk for the year-over-year walk for the $11.5 to $12.5 billion EBIT guidance for 2022 and kind of juxtapose that with the commentary around first quarter where volumes will be down year over year. And I think, you know, one of the big questions and concerns we're hearing from folks is, you know, Ford is traditionally a 60%, you know, first half earner, 40% second half earner. So if the first half is going to be, I mean, the first quarter, I should say, is going to be that light, you know, how do you actually hit these numbers for 2022, which are pretty good numbers, $11.5 to $12.5 billion?

Yeah, thanks, John. Right, 11.5% to 12.5% adjusted EBIT up 15% to 25% year over year. Now, one of the main drivers of that is a continued strength in our top line. So we have volumes up 10% to 15%. So you're seeing the leverage there, volumes being up 10% to 15% and EBIT being up 15% to 25%. Now, the top line is going to continue to be strong, one driven by those higher volumes. But we're also seeing on a year-over-year basis continued favorable mix and then some positive pricing, net of production costs. So what we have there on the year-over-year, about $5.5 to $6.5 billion of that top line improvement. So when you look at that and you start to unpack that, you might say, well, pricing was up quite a bit in 2021. Why do you feel pricing can be up again in 2022? Well, I think it comes to the strength of a product portfolio. As you know better than anybody in this industry, those with the strongest product lineup gain share and have pricing power. And I would say that we have the in years probably in the 30 years since i've been with the company so that's going to be a nice tailwind for us the other thing is when you look at the pricing that was taken in 2021 it was a combination of top line pricing and lower incentives now that top line pricing pricing was taking more taken more in the second half than the first half so we get the benefit of a full year of that pricing on a year-over-year basis so that's going to be a positive so in essence we could not raise our price is we could go in this year, prices not being raised at $1 or incentives being lowered by $1, and we'd still have year-over-year pricing based on what we took last year. So there are some positives there on the top side. Now, we do know that we're going to continue to see the headwinds on commodities. So that's a headwind, and we said that's about $1.5 billion to $2 billion. Ford Credit is going to have another strong year, but it's going to be down year over year, and we said by about $1.5 billion. So those are the two largest headwinds. Now, we're going to continue to invest in our modernization, in connectivity, in our IT systems, in our customer systems, but that increase of about $1.5 billion of investment is largely offset by efficiencies. So that's pretty much the walk. We've got the top line improving. We've got some commodity headwinds. We have a lower forward credit. We're going to invest in our modernization, but we're broadly looking at offsetting those investments, and that's the walk from 2021 to 2022 that allows us to drive our EBIT up that 15% to 25%. And I will note that at the higher end of that guidance, we would hit an 8% EBIT margin for the company and the 10% adjusted EBIT margin for North America. So that would be a year earlier than what we had talked about at Capital Markets Day last May.

And, John, when you think about the first quarter comments of volume being down year over year, do you – I mean, do you think that that is the – you know, that's a comment around volume, right, not necessarily EBIT, right? So, I mean, you know, we could see, you know, better EBIT performance than that, you know, down volume may indicate for the reasons you mentioned on pricing, or maybe not. We'll see. But, I mean, how do you fit that into sort of the traditional earnings pattern, and do you think that it could be somewhat different – in 2022 than it typically is.