The paragraph is a transcript from the Ford Motor Company's Third Quarter 2024 Earnings Conference Call. Laila, the conference operator, introduces the call, mentioning that all lines are muted to prevent background noise and that there will be a Q&A session after the speakers' remarks. Lynn Antipas Tyson, Executive Director of Investor Relations, welcomes participants and introduces key executives present, including CEO Jim Farley, CFO John Lawler, and Ford Credit CEO Cathy O'Callaghan. She informs listeners about non-GAAP references, forward-looking statements, and where to find related materials. Lynn also highlights an upcoming event featuring John Lawler and Sherry House at the Barclays Global Automotive and Mobility Tech Conference. Jim Farley then expresses gratitude to the global team for their dedication to Ford+ and shareholder value.

The paragraph discusses Ford's strategic positioning and successes after restructuring its international operations in regions like Europe, South America, India, and China. These areas, which were unprofitable in 2018, are now profitable, and Ford is leveraging an asset-light strategy, particularly in China, with strong JV partnerships and a growing export business leading to a $600 million EBIT contribution. The company emphasizes its competitiveness in the EV sector, having reduced EV costs by $1 billion and realigned its battery footprint. Despite a challenging global market with overcapacity and a price war, Ford's focus remains on cost efficiency, distinguishing its approach from competitors that risk brand damage through aggressive leasing tactics.

The paragraph discusses Ford's strategic adjustments, including a 35% reduction in capacity to align with market expectations. The company is focusing on manufacturing LFP batteries in the US and benefiting from the IRA production tax credit. Ford is prioritizing profitability in its EV portfolio within the first year and is enthusiastic about upcoming next-generation vehicles, particularly a mid-sized electric pickup designed in California. The vehicle offers competitive features and cost structures, with 60% of its Bill of Materials already quoted. Ford Pro is highlighted for its unique combination of product strength, software, and repair services, contributing to recurring high-margin revenues. The extensive US commercial vehicle network and paid software subscriptions, which grew by 50% in revenue, are seen as competitive advantages. Additionally, Ford's diverse powertrain lineup is noted as a strength.

In the US, Ford's hybrid pickup sales have more than doubled in the past two years, capturing nearly 80% of the market share. Despite being the #1 ICE brand, #2 EV brand, and #3 hybrid brand, Ford's earnings are held back by costs and warranty issues. Ford is addressing these challenges by tying 70% of managers' bonuses to cost and quality, and over half of long-term incentives to TSR. The company has reduced the Mustang Mach-E's cost by $5,000 per unit and is working to break barriers to EV adoption by joining Tesla's Supercharger network and providing complimentary home charging installation. Ford's dealers, like Tim Hovik's team in Arizona, are contributing to their competitive advantage by generating incremental sales of electric vehicles, even in non-ZEV states, thus driving profitability.

The paragraph outlines the advancements and strategies of a company related to its electric vehicle (EV) business and commercial operations. With a network of 3,000 dealers and 7,000 trained EV specialists, the company has installed 800 fast chargers in the US and Canada. They aim to enhance their Model e's business through scaling and cost improvements without relying on emissions credits. The company is segmenting its customers between retail and commercial, with a focus on providing a broad product lineup. Currently, 9% of their transit sales are EVs, and 13% of Ford Pro's EBIT is from repair services or software, expected to grow to 20% by 2026. They have a significant service network expansion planned and report increases in mobile service and Ford Pro Intelligence subscriptions. Despite pricing pressures, demand aligns with expectations.

The paragraph highlights Ford's strong demand and strategic developments, notably for their Super Duty cabin chassis, transit wagons, Maverick, Bronco, Expedition, and Navigator models. In Q3, Ford's market share in the US rose to 12.6%, with transaction prices higher than the average for non-premium brands. Ford is managing higher inventory levels strategically to support upcoming launches, with plans to align these levels with their target in 2025. The company is focusing on reducing costs and warranty issues, with significant improvements in three-month service quality and reduced launch production losses. Additionally, Ford's ability to update vehicles via over-the-air improvements is a key advancement.

Ford has updated 4 million vehicles this year and 20 million overall through over-the-air updates, impacting 30 vehicle modules beyond just the infotainment system. These updates save customers time and reduce warranty costs, though full warranty expense reductions may take up to 18 months. Ford is in a strong market position with a lean international business, a refreshed vehicle lineup, and a strong powertrain strategy. They're launching their second generation of electric vehicles soon and aim to reduce Gen-1 losses, positioning well for long-term global competition. Their software and repair business, especially for commercial customers, is a strategic advantage. Financially, Ford's third quarter showed flat wholesales but a 5% revenue increase to over $46 billion, marking ten consecutive quarters of growth. This was driven by strong truck sales and new vehicle launches. They delivered $2.6 billion in adjusted EBIT with a 5.5% margin, up from the previous year.

The paragraph reports on Ford's improved financial performance, driven by higher volumes, a favorable product mix, and cost reductions, despite challenges like EV pricing pressures and exchange rates. The company highlights the success of restructuring its product lineup to focus on key customer segments, resulting in consistent revenue growth. Improvements in the industrial system and stronger free cash flow, which reached $3.2 billion for the quarter and $5.9 billion year-to-date with a cash conversion rate of 74%, are cited as evidence of the effectiveness of the Ford+ plan. Ford maintains a robust balance sheet with substantial cash reserves and declared a fourth-quarter dividend, aiming to return 40% to 50% of adjusted free cash flow to shareholders annually. The Ford Pro segment reported $16 billion in revenue for the quarter, a 13% increase, with a 9% rise in wholesales due to new product launches and strong demand. The segment also posted an EBIT of $1.8 billion with a margin of 11.6%.

The paragraph outlines Ford's financial and operational performance, highlighting Ford Pro's strong and resilient revenue growth with a year-to-date EBIT margin of 14.6%. Ford Model e posted a loss of $1.2 billion despite a $500 million cost improvement, attributed to industry pricing pressures and lower global wholesales. Efforts are ongoing to reduce costs and optimize operations as they aim for improved profitability by 2025. Ford Blue's revenue increased by 3% despite a 2% decline in wholesales due to discontinued low-margin vehicles. North American volume rose by 8%, bolstered by key models. Hybrid sales grew by 30%, targeting a global hybrid mix of 9% by year-end. Ford Credit saw a rise in earnings due to improved financing margins and higher receivables, with lease return rates normalizing and maintaining high-quality credit scores.

The paragraph discusses Ford's financial outlook and performance expectations for the year. Despite low exposure to electric vehicle residual risk and a strong product portfolio exceeding expectations, Ford anticipates company-adjusted EBIT of about $10 billion due to higher warranty costs and inflation at their Turkish JV, impacting material costs. The company's cost efficiency measures offset some increased costs. Ford expects adjusted free cash flow of $7.5 to $8.5 billion and maintains a balanced supply and demand view. For 2024, a flat to slightly higher SAAR is anticipated in the US and Europe, with new product launches expected to bolster top-line growth despite lower industry pricing. Continued strength in their commercial business, Ford Pro, is also expected.

The paragraph discusses Ford's financial expectations and performance. Ford anticipates an EBITDA of around $9 billion due to strong market conditions, with a projected $5 billion loss for Model e, which is favorable within their guidance range, helped by cost improvements but hindered by pricing pressure. Ford Blue's EBIT is expected to be $5 billion, with higher costs offset by efficiencies, while Ford Credit's EBT is projected at $1.6 billion, showing double-digit growth. The company highlights progress on its Ford+ plan, emphasizing capital discipline, product portfolio, and cash generation. During a Q&A, Mark Delaney from Goldman Sachs asks about the drop in Pro EBIT in Q3, to which John Lawler attributes the change to seasonal variations affecting the commercial business.

The paragraph discusses Ford's recent financial performance and outlook, focusing on the challenges faced in the rental business and plant shutdowns affecting production. Despite these issues, Ford remains optimistic due to strong demand and stable pricing for its Super Duty and Transit vehicles. The company is successfully integrating vehicle sales with value-added services to enhance customer productivity and profits, strengthening the Ford Pro business. Mark Delaney then asks about the Model e segment, inquiring about the anticipated improvement in EBIT trajectory next year and the impact of cost and capacity actions, while also considering the risks from rising CO2 requirements in Europe and the EV pricing environment. Jim Farley appreciates the question but does not provide a detailed response in this excerpt.

The article discusses the company's progress in scaling its electric vehicle (EV) business in Europe, where these vehicles are now contributing positively to the profit margins. There have been successful cost-reduction efforts, especially focused on the Mustang Mach-E, although more improvements are planned. The company acknowledges pricing pressures in the market, with competitors having high lease mixes. Despite pressures, their new products in Europe are expected to perform well. There is a continued emphasis on cost improvements for current and future EV generations, with a focus on leveraging production tax credits and restructuring battery sourcing to reduce costs. Significant cost reductions are anticipated to be realized starting mid-next year through 2027. Following this discussion, a question is fielded from John Murphy of Bank of America.

The paragraph involves a discussion about warranty issues and the current state of quality improvements. John Lawler acknowledges positive indicators, such as improvements in the three-month service metrics and launch spikes for models like Explorer and Cougar, which suggest an overall enhancement in quality. However, he notes uncertainty about future warranty costs, especially concerning Field Service Actions (FSAs) and older models. The company is proactively analyzing data and implementing fixes through Over-The-Air updates to address potential issues. While efforts to improve quality and transparency continue, Lawler cannot predict when these improvements will fully translate into cost reductions. John Murphy then briefly mentions a positive trend in pricing in the third quarter.

The paragraph discusses inventory and pricing concerns in the automotive industry, particularly focusing on John Lawler's insights. Despite an industry decline of 2%, Lawler notes that pricing and volume have been beneficial for their company. They have gained market share despite higher inventories and have a plan to manage this, aiming to return to a 50-60 day inventory run rate by next year. Lawler also notes potential consumer spending pullbacks in Europe and acknowledges uncertainty about future pricing trends, mentioning concerns about possible cyclical pricing headwinds emerging by 2025.

In the paragraph, Jim Farley and John Lawler discuss the company's outlook on pricing and market dynamics for the next year. Farley emphasizes the importance of analyzing not just top-line sales and discounting, but also the mix and segmentation, highlighting that truck and Pro segments are performing well. Adam Jonas from Morgan Stanley asks about the competitive impact of Chinese companies in Europe and other regions. Lawler responds by stating that the company remains profitable in China, with $600 million in total profits, and that their asset-light strategy supports profitability in China and facilitates exports to other Asian countries and South America.

The paragraph discusses Ford's export strategy, highlighting the significant role of the Ranger vehicle in driving profits in various markets, especially in Asia and South America. Jim Farley notes that Ranger, once ranked 13th, is now second only to Toyota Hilux in popularity and performs particularly well in markets like Australia. The paragraph mentions challenges from competitors like Great Wall in Thailand. In Europe, Ford focuses on the commercial Pro business, especially with their Transit vehicles, offering various energy options including electric. Adam Jonas then inquires about a $1 billion reduction in Ford's full-year outlook, seeking details on factors like warranty costs, currency exchange, supplier disruptions, and missed unit targets.

John Lawler discusses the financial challenges Ford is facing in achieving record profits for the year. He explains that despite strong top-line performance, inflationary costs in Turkey and significant warranty-related headwinds have affected the overall results. Additionally, supply chain constraints have led to volume and mix headwinds, particularly impacting Ford's most profitable vehicles in the Ford Blue segment. These issues, compounded by production losses due to a hurricane and supplier productivity problems, have contributed to the company operating at the lower end of its projected financial range. This context is provided as a preamble to the next question from Daniel Röska, who asks Jim Farley about Ford's future performance targets amidst the transition to electric vehicles (EVs).

The paragraph discusses Ford's focus on cost management, particularly regarding warranty and FSAs, and its efforts to make systematic improvements in its industrial system. Despite challenges in the pricing environment, Ford sees opportunities for growth. The company has quickly adapted to changes in the EV market and is preparing second-generation products that emphasize industrial fitness and design efficiency. Ford has also capitalized on the unexpected popularity of hybrid vehicles, particularly trucks, which has been a significant revenue opportunity. The company plans to expand its hybrid offerings and explore other partial electric solutions. Lastly, the skunkworks team has been successful in designing platforms, but there is a need to scale up production.

The paragraph discusses Ford's competitive stance in the electric vehicle (EV) industry, highlighting how its work demonstrates the company's ability to compete with firms like BYD. Ford's strategy focuses on integrating advanced electric architectures, enhancing aftersales and repair services, and implementing vehicle-specific software. Despite challenges like the slow uptake of EVs and executing electric architectures, Ford has made significant progress with over-the-air updates. Daniel Röska inquires about Ford's strategy on shareholder distributions, considering that some competitors have been more aggressive with dividends and buybacks. John Lawler responds, indicating that Ford reviews its strategy quarterly and is committed to distributing 40% to 50% of its free cash flow to shareholders.

The paragraph discusses the company's strategy of holding onto excess cash due to current economic uncertainties, despite having $8 billion more than their stated cash minimum of $20 billion. The speaker emphasizes that, although they are not predicting a global economic disruption, having additional cash on hand would be beneficial if such events occur. They plan to assess the situation quarterly and decide whether to invest the cash for growth or return it to shareholders if risks diminish. Joseph Spak from UBS raises concerns about potential market uncertainties and factors like warranty issues, pricing pressures, and inflation that could impact cash flow and working capital, emphasizing the need to maintain cash for flexibility.

The paragraph discusses the company's strategy in setting a payout ratio at 40% to 50%, considering both retrospective and prospective views. John Lawler explains that while they regularly evaluate the environment and discuss potential changes, they currently have no announcements. Jim Farley adds that the company is excited about its Pro services business, aiming for services to constitute a significant portion of revenue, acknowledging that growth may require strategic investments.

The paragraph discusses the strategic considerations of a company regarding regulatory compliance and market strategy in Europe and North America. It highlights the focus on being compliant with CO2 regulations, considering different vehicle categories like heavy-duty and passenger cars. The company is exploring strategic options such as asset-light operations in China, business restructuring, and handling investments like Rivian. They're also excited about launching a new line of electric and combustion vans, including the one-ton Transit available in diesel, gas, and electric versions. The dialogue also touches on potential pooling agreements in Europe, which are influenced by the company's new Battery Electric Vehicle (BEV) portfolio and overall compliance strategy.

In the paragraph, Emmanuel Rosner from Wolfe Research asks about the progress of a $2 billion cost reduction program focusing on materials, freight, and manufacturing. John Lawler responds that most savings have been realized in the first three quarters of the year, with some left for the fourth quarter, primarily due to design changes with the new model year launch. Looking forward, Lawler acknowledges the opportunity for increasing cost competitiveness as part of the Ford+ strategy but does not provide specific figures for 2025, noting that planning is still underway.

The paragraph discusses Ford's focus on cost reduction and competitiveness. Jim Farley highlights efforts in material cost reduction, mentioning progress made but also new product costs added. He notes that there will be a renewed focus on reducing material costs and a special emphasis on costs related to the first generation of EVs. Ford is also targeting software warranty and repair costs, especially for modules and powertrains. Improvements in manufacturing, freight, and duties are ongoing, especially in North America. The company is carefully managing supply chain costs through competitive negotiations with suppliers, addressing inflation-related matters. There are dedicated teams benchmarking competitors to enhance processes and talent. The operator then introduces Dan Levy from Barclays for the next question.

In the paragraph, John Lawler discusses the company's ongoing efforts to narrow a $7 billion cost gap with competitors that was highlighted 18 months ago, primarily concerning material costs. Despite making some progress in reducing costs, the company has not been able to outpace its competitors in cost reduction, and thus the gap remains. While improvements have been made in material costs, increased warranty costs have negated some gains. Inflationary impacts, particularly through a joint venture in Turkey, have further complicated cost reduction efforts. Lawler emphasizes the need for faster progress, particularly in addressing warranty costs, to effectively close the cost gap.

The paragraph discusses the company's efforts to reduce various costs, including material, manufacturing, structural, and warranty costs, in order to remain competitive in the industry. Despite progress, they acknowledge competitors are also cutting costs, necessitating an accelerated pace. Jim Farley highlights confidence in their cost reductions for a new EV project, having already sourced 60% of the bill of materials. They adopted a unique approach in developing the vehicle by verifying part designs earlier and evaluating multiple suppliers, including less conventional ones, to better understand actual component costs. The importance of having a competitive and affordable battery, like those from BYD, is noted as crucial to their strategy.

The paragraph discusses Ford Motor Company's innovative approach to vehicle design and manufacturing, highlighting their efforts to simplify vehicle components and reduce costs by working closely with suppliers from the early design stages. They mention using new strategies, such as a unit casting strategy and a new kitting strategy, to streamline production and emphasize the importance of engaging the supply chain earlier in the development process. This approach has led to significant progress and is expected to be adopted by other companies. The paragraph is part of Ford's third-quarter 2024 earnings conference call.

This summary was generated with AI and may contain some inaccuracies.