Ford Motor Company

Good day, everyone. My name is Layla, and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company fourth quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, and if you have joined via the webinar, please use the raise hand icon, which can be found at the bottom of your webinar application. If you have joined by phone, please dial star nine on your keypad to raise your hand. At this time, I would like to turn the call over to Lynn Antipas Tyson, Executive Director of Investor Relations.

Thank you. Welcome to Ford Motor Company's fourth quarter 24 earnings call. With me today are Jim Farley, President and Chief Executive Officer, and Sherry House, our new CFO, effective tomorrow, February 6th. Joining us for Q&A will be John Lawler, Vice Chair and current CFO, and Kathy O'Callaghan, CEO of Ford Credit. Today's discussions include some non-GAAP references. These are reconciled to the most comparable U.S. GAAP measures in the appendix of our earnings deck. You can find the deck along with the rest of our earnings materials and other important contacts content at shareholder.ford.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 23. Unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS, and free cash flow are on an adjusted basis. Lastly, I'd like to call out a near-term IR engagement. On February 11th, Jim Farley and Jerry House will participate in a fireside chat in New York with Emanuel Rosner at the Wolf Global Auto Tech and Mobility Conference. Now I'll turn the call over to Jim.

Thank you, Lynn. And hello, everyone. We appreciate that you're joining us. I want to start by welcoming Sherry House to her first earnings call as our incoming CFO. And I want to thank John Lawler. as he transitions to our vice chair. Last year was a year of progress in key areas, building on our fundamentals at Ford. Our global revenue reached an all time record at the company of 185 billion. This was our fourth consecutive year of top line growth driven by some of the strongest and most durable franchises in our industry. Ford is the undisputed leader of pickup trucks in our industry. The F-Series is once again America's best-selling pickup and the best-selling vehicle of any kind. The Ranger has grown into a strong global franchise for us. It's key to our profitability in many markets around the world at Ford. And by the way, Ranger won North America Truck of the Year. That's the fifth time in a row Ford has won that award. Hybrid trucks are a key growth area for us. It's not what you think about. when you think of hybrids, but this non-traditional channel is allowing us to capture the lion's share of revenue and command pricing power within the pickup truck market with unique features like Pro Power on board. Vans are another stronghold globally for us with our best-selling Transit family. And the story is no different for Pro as a whole. Our commercial business is focused on unit sales and series mix to maximize revenue. And last year, we really saw that. A sizable growth and mix of profitable high-series super duties and transit wagon. But at the same time, Pro is building something new, reoccurring revenue streams through our software and physical services business. Pro software subscriptions rose 27% to nearly 650,000 subscriptions last year. Telematics software grew 100%. Mobile service units increased 57%. And the stickiness of that ecosystem of services is increasing. The second half of last year, 25% all of our brand new telematics customers in North America purchased additional software, including dash cams and fleet management software. And with Blue Cruise, equip units have now in operations and now more than doubled in the last year. to just under 700,000 vehicles. And since launch, our customers are now driven over 300 miles, 300 million miles hands-free. So you can see our relationship with our customers no longer ends at the point of sale or financing. We're starting to build lasting relationships and creating new avenues for reoccurring growth at Ford. Last year, Ford had the highest share of revenue among all brands in our home market, the US. But the key for us is matching this revenue growth with improved execution and discipline on cost and quality. We're working differently and it's starting to show. We've upgraded talent throughout our industrial system. We brought in industry's best third party experts to inspect and validate our findings. We're identifying best practices to attack our operational issues. We're quantifying the upside, and most importantly, we're bringing home the savings. We're changing our culture to be more focused on quality and with countable measures for all of our engineering teams and leadership. These changes produce green shoots delivering about a $500 million of net cost reductions in last year's second half. But this is frankly a small down payment on the work to be done at Ford. We're focused on closing our competitive cost gap over the next few years. And lastly, we continue to monitor and adapt to the changing market conditions, which last year unfolded about what we thought. The EV market, we continue to see new models launch, increased competition with increased pricing pressure. On hybrids, we continue to see the market grow aggressively. But now in diverse markets like truck customers who are learning that a hybrid can also mean uncompromised towing and torque and payload and other performance advantages, including fuel economy. In the ice market, the industry's inventories and pricing have normalized. We also see the Chinese OEMs continue to expand and be a major force in our industry. Their operational fitness is incredible. Their supply chains are now expanding globally, and they're increasing their exports around the world. So let's talk about this year. We expect the company's adjusted EBIT of $7 billion to $8.5 billion range. Sherry's going to get into the details. We want to be clear, though, that our guidance has not factored in impacts from changes in policy by the current administration. That said, from an operational standpoint, we believe a few weeks of tariffs are manageable given the rate and flow of our products. As everyone is aware, we're already seeing changes in trade policy, and we expect changes in tax policy like the IRA and emissions policy, CO2, that could be very consequential for our industry. At this early point, I want to emphasize a few things. There's no question that tariffs at 25% level from Canada and Mexico, if they're protracted, would have a huge impact on our industry, with billions of dollars of industry profits wiped out, an adverse effect on the U.S. jobs, as well as the entire value system in our industry. Tariffs would also mean higher prices for customers. We said that we believe based on our conversations in D.C. with the Trump administration and congressional leaders that they are committed to strengthening, not weakening, our nation's auto industry. That is certainly our expectation. And we look forward to working with our leaders to make sure that that becomes a reality. Because they understand and appreciate how vital our industry is to jobs, the economy, our national security, and the communities across our country. As America's leading auto producer and the leading exporter of automobiles, we applaud the administration for the agreement they announced with Mexico and Canada on Monday, and we're closely monitoring the situation in China. There is a fundamental transformation happening in the backdrop of these policy changes in our industry globally. Of course, the overall tariff and trade situation, the growing importance of digital vehicles, the Chinese OEMs growing to become a global reality, these dynamics will all play out for some time to come. But Ford controls its future. While we are certainly operating interesting times, at the end of the day, we control our destiny. Our products and services are compelling. and get even stronger this year with great new launches like the Expedition, the Navigator, the all-new electric Puma, as well as Ford Pro service offerings. We will match that potent revenue power with real progress on cost. To realize this multi-billion dollar upside opportunity on cost, we will stay focused on the following areas. Faster identification of defects and issues in the field. deploying dedicated teams into our supply base to help them improve key manufacturing disciplines to improve their part quality to us, holding suppliers accountable when they send us defects, reducing complexity to eliminate waste, dramatic increase in our OTA capability, We performed 9 million over-the-air updates in fourth quarter alone. 80% of those were focused on addressing customers' concerns and warranty. We're enhancing our software development process. For example, more upfront experts reviewing coding, not just ours, but our suppliers, to catch potential issues early. And we're continuing to integrate AI, data analytics, and other tools and process to further improve our manufacturing efficiency. Early input metrics provide us confidence in our 2025 cost reduction target. We already have over a billion dollars of product design cost reduction ideas to be implemented this year. We have fewer lost units during our launches. The improvement in the number of days from warranty defect and field fix is an encouraging sign for us in warranty. We're seeing an 18% improvement in the quality of our vehicles leaving our facilities for the 25 model year launches. And we're increasing the number of supplier technical assistance site visits for critical suppliers. I want to touch on our EV strategy since it's so critical for any car company. We're on course. We're deep in the development of our next generation of vehicles that we believe will be affordable, high volume, and great for our business. On the US retail side, the sweet spot that has emerged is small and medium-sized trucks and utilities. These vehicles' use case fits perfectly for EVs, daily commuters, well-suited as the second vehicle in the household. They require smaller, much lower-cost batteries. These vehicles can be offered at lower prices to help adoption of EVs for the customers who really appreciate their lower operating costs. But for larger retail electric utilities, the economics are unresolvable. These customers have very demanding use cases for an electric vehicle. They tow, they go off-road, they take long road trips. These vehicles have worse aerodynamics, and they're very heavy, which means very large and expensive batteries. Retail customers have shown that they will not pay any premium for these large EVs, making them a really tough business case given the expense and the batteries. For Ford, the... Our commercial customers do show potential for large EVs. They're willing to pay a premium over ICE because they can really measure the TCO advantages of EV, and they can live with depot charging. They don't have the same range anxiety that retail customers have. Profitability for these larger family haulers that take long trips will be more frequently occurred through partial electric options. Yes, P-HEV, but especially hybrid and E-REVs that on one tank of gas can get over 700 miles of range, but still drive most miles all electric. Ford will be developing flexible body-on-frame and unit body platforms that will be designed for these multi-energy powertrains that are needed given the realities of customer affordability and range requirements. We are in the heart of our transformation of Ford. My optimism comes from our improved execution and our commitment to delivering on Ford Plus, creating a more dynamic, more capital efficient, higher margin company. Now I'd like to hand it over to Sherry to walk you through last year's operating performance and an outlook for this year.