Ford Motor Company (F) Earnings Call Transcript & Summary

Hello, everybody, and thank you for joining us for this session with Ford Motor Company as part of Deutsche Bank's Auto Tech Conference. My name is Emmanuel Rosner, and I'm the senior U.S. autos analyst at Deutsche Bank. I'm very pleased to host Ford's Executive Director of Enterprise Connectivity, Stuart Taylor; and Director of Investor Relations, Jeff Zelenick, for a discussion with us this morning. The format of this session will be a short presentation by Stuart, followed by a fireside chat around some of my prepared topics as well as questions from all of you on the call. To submit a question, please type it in the box on the left side of the webcast window. Only I will see your question, and I will ask it on this call without mentioning your name or affiliation. I highly encourage you to do so and to get involved in this discussion. So with that, Stuart, thanks for being with us, and over to you.

Thanks, Emmanuel. So good morning. My name is Stuart Taylor. And today, I'm going to talk to you about the role that connectivity plays at Ford and our plans to leverage the technologies that we have for maximum benefit for our customers. So I'm going to give you some insights into how we think about it in the context of our business ambitions, and I'm also going to talk to you about how we're leveraging the platforms that we're designing and our scale to move faster and to expand our offerings in all the areas of our business. But firstly, I wanted to show you this slide because this summarizes what we communicated back on October 1 when Jim Farley took over as CEO. And this is really what we're focused on as an organization. The allocation of capital to enhance our strongest businesses and our vehicle franchises is really at the core of turning around our automotive operations and then, of course, expanding our commercial vehicle businesses. And for us, we think about connectivity as being foundational to this plan, and it's supporting both the strengthening of our base, the core strengths that we have, whilst expanding our reach and enabling new areas of growth for us such as new propulsion choices and new businesses. Connectivity, really, as we see it, is the enabler for a lot of those growth levers. So I'm going to touch on those on the next few slides and go through them. So I wanted to show you this slide because this is really important in framing how we view connectivity. These are really the 4 pillars of business that we view connectivity through, and this framework informs our choices. We use our connected vehicle technology as a common platform that supports these 4 pillars. And this enables us to define, to design and to build products and services as well as applications that can work or serve a wide variety of customers, spanning from our commercial vehicles right the way through to our retail businesses. And many of the same platform capabilities can be tailored then to serve the purpose we need in any one of these pillars, including how we generate internal value or third-party enablement. So next slide, Jeff. As you think about how important these 4 pillars are to our plan and the breadth and depth of our vehicle lines, along with our diverse global markets that we serve, the importance of connecting all of our vehicles really comes into sharp focus. So this year, 100% of our Ford vehicles in North America are now connected. And by the end of this year, 90% of all of our new vehicles will be globally connected. So this is a really important milestone for us as a company. So focusing now on the customer. Our customer really is at the center of everything we work on, particularly in connectivity, as we think about how we can derive customer value as the primary input. And we use this circle as an explanation to many of the team. So on the inside of this circle, you can see how we frame value for our customers. And these are very traditional measures that you'll have heard us talk about before, but very relevant now right up to the minute in technology terms: so providing choices and optionality for our customers; creating experiences that are relevant to the retail and the commercial customer; driving engagement beyond the initial point-of-sale throughout the life cycle of the ownership experience; and then importantly, how can we gain insights from that to design better experiences and better vehicles. And then the Ford value is returned both directly as direct revenue through subscriptions or activations, the traditional way and, more importantly, an area of focus indirectly through loyalty and, quite frankly, better performing products, better performing vehicles. Now all of this is built on our tech stack, and this is our Ford tech stack, next slide, please, Jeff, that enables us to focus our resources and efforts where it matters most to our customers. All of our experiences, be they retail, commercial, internal or third-party, are built on this platform. And from now through to 2024, we are investing a significant amount of money in this tech stack to support our connected vehicle ambitions. And this is how it all shows up to our customers. So this is the new Mach-E. I think most of you will be familiar with this. It's a great example of this strategy starting to come through in our products that are launching right now. And it's all around building platform capability into every vehicle, design experiences that matter most to our customers and then engage our customers through this life cycle, and particularly now increasingly relevant, providing over-the-air updates, keeping those vehicles fresh, up-to-date and increasingly getting better over time. The connectivity platform also enables us to reframe the approach for our commercial customers, providing a suite of software services for our small, medium and large commercial business customers. Because of the loyalty of our commercial customers, really built on the strength of our vehicles, we are uniquely placed to work directly with them to derive innovative products and services that enable them to drive efficiency in their operations. Next slide, Jeff. I want to give you a bit more of an explanation of what that looks like. So this is the symbiotic relationship with our commercial customers in more detail. We're very proud of the relationship we have with our commercial customers. So the importance of tailoring new services, new capability to serve what is a very diverse set of customers that can add substantial value to those businesses, and to do that, you have to know what's important to those businesses, those diverse groups. So it can be as important as keeping uptime as the highest priority, the total cost of ownership or a complex fleet management tool. And internally, the value of [ data ] is also not underestimated. We're already seeing the value this can bring to all areas of our business. So connectivity is enabling new ways of deriving internal value, serving manufacturing teams, serving marketing, serving our Ford Customer Service Division and dealers with products and capabilities that can drive efficiencies in those businesses. And these teams are now finding new muscles based on informed and curated data from us that allows them to make step function improvements in both their financial health and their business but also in how they engage their customers going forward. And so the internal value should not be underestimated either. And then bringing that back to our retail customer with the power of choice through new subscription services and potentially new revenue streams that are derived from that. And just in case you think I'm kind of talking about the distant future, it's not. This capability is here and now, and you'll see it in all of our upcoming launches, which are really starting with these 3 iconic vehicle lines launching right now. So new vehicle connected capability such as over-the-air updates, keeping vehicles at the forefront of technology while providing uniquely tailored experiences and capabilities that serve a broad spectrum of customers. So in this example, from connected off-road navigation for Bronco being one example, a cloud-based smart distance-to-empty for our Mach-E customers to new connected towing capabilities for F1 customers. That's just the start of this, and there's a lot more to come very shortly with the follow-on launches. Now the good news from Ford's perspective is all of this is built on a platform, and that means that with our scale and our diversity, we can roll this out at scale very quickly across all new vehicles as we launch them in the coming years. So from my perspective and Ford's perspective, it's truly an exciting time to be able to deliver this content and really usher in a new era of capability, a new era of experiences and start to determine and derive real value for our customers and for Ford. So thank you very much. That was a very brief overview of how Ford is thinking about connectivity. I'll pause here, and Emmanuel, perhaps we'll open for a Q&A at this point.

Yes, absolutely. Thanks a lot for this presentation, Stuart. So maybe let's get right to it. So this focus on connectivity seems to have been a key area for Jim Farley even before he took over as CEO. What would you say is unique about Ford's approach to connectivity?

Yes, Emmanuel, I think it's a good question. So we've really focused on those 4 pillars that I talked about in the earlier slide, those 4 pillars being our strength in commercial vehicles; our diversity of our retail vehicles; and then two which perhaps are nontraditional from a sense of what you would see from other automakers, this idea about internal value creation, how we serve the business internally, and then third-party enablement, which is really how we use the data to design better card and to work with third parties. All of this is centered around that slide which I showed you around making the ownership experience better. It's not just being a shop-by experience, it being a life-cycle experience that you will have with Ford. And I think what this will mean to us is building commercial applications or retail applications off of this common platform that can serve a multitude of different customers. That is a competitive advantage because of the strength we have in those areas in specific markets with specific customers. And then, of course, the other advantage that we have is, once you've built a common platform is that you can scale that very quickly across all the vehicle lines. So you can deploy to all markets globally. You've seen that in how quickly we've managed to connect the whole fleet. And so that really allows us to serve as many customers as we possibly can very, very quickly. And that really is an approach that Jim has talked strongly about in the past, and we're really starting to see it come to life with these new launches.

That makes sense. So you were mentioning, I think, 100% connectivity in the U.S. as of now by the end of the year, 90% globally. Do these numbers include both retail and fleet and commercial customers? Is it across the entire customer base?

Yes, that's correct. It is. It's across the entire customer base. So we've been building the tech stack that I showed you for a number of years really, and really building to this point, but it's really starting to explode now. And then what we're doing is using the data analytics capability across our retail and commercial customers to turn -- in turn, turn those vehicles into better products. It really is -- this feels like a jumping-off point, in all honesty, Emmanuel, because we are at the point where we now have the entire fleet connected, and we can provide commercial and retail capability everywhere that we serve vehicles. So it's a really exciting time to be here.

So one point I wanted to come back to, can you elaborate on the connectivity's ability to increase your engineering efficiency over the next few years? It feels like this is, in terms of dollars and cents and sort of impact on the P&L, this seems to be probably the largest piece. Am I right?

Yes. It's certainly the most immediate efficiency that we can get. The data from connected vehicles is already telling us, in significant detail, the kind of features our customers use, what they really value in their vehicles. And that allows us to look for design efficiency. So we can optimize designs for a specific market or for a specific customer. And of course, we can deprecate features that they really don't use or don't value. And so what we're doing is really sharpening the pencil on the work that we do as engineering to make sure that we're really focused on what the customer wants. I'll just give you one good example, Emmanuel, because this one's a -- was a really good insight from the data that we're using to drive these efficiencies. We have a proximity sensor in every single door to remotely unlock the doors. When you look at our F-150 customer, that feature is used on the rear doors almost never. There's -- because there's very few people traveling in the rear of an F-150, and if it is they do, it's a rare occurrence. But that feature was really not valued by our F-150 customers. And so we were able to deprecate that feature off of the rear doors. It didn't really reduce the capability of the vehicle at all by any stretch, but it was a material opportunity and no negative customer impact at all. So a really kind of positive way of finding those efficiencies. I think there's another point around the internal value of this that we don't talk about too often, but it's really important, the idea that because of this data that we can act and provide insight a lot earlier in the customer ownership experience. So if we do detect a problem with an early failure of parts or an issue because of a calibration or a fuel type or -- there's a whole gamut of data that we're getting. We can now act much earlier. And so before that even becomes a problem for our customer, we can get on to the game and start to address it. And I think having that data insight early and having all of those early indicators allows us to eliminate problems before they really become problems. And so you'll see that in the improvement in our quality numbers and the cost that we spend in quality.

Right. So one question that came from the audience, which was literally my next question, so perfect timing. Will Ford leverage partnerships or your alliances to create this connectivity plan? I was going to ask specifically about your partnership with Volkswagen, but I guess the broader question is even more interesting.

Sure. So let me touch the Volkswagen question because that one does actually come up a lot, Emmanuel. We're continually looking for any opportunity where we can collaborate with VW. That partnership is strategic, and it's important for us, and that alliance doesn't extend into all the areas of our business. So while I can't talk to you about specifics of exactly what we're working on, let it be known here that, that is important, and we're exploring every avenue for further and deeper collaboration with Volkswagen. On the broader sense of partnerships, I think you're probably aware, we have a number of very long-standing partnerships, particularly in the electronics space and software space. And we're very pleased with those partnerships. We're going to continue to look for extending those partnerships, of course, because they've served us very well. We've accelerated our deployment of content like you're looking at now through those partnerships and through those relationships. And we'll be looking for new ones. As the business evolves, new partners emerge from within the market that we will look to work with. We do value these long-term arrangements that we have that have really contributed to our growth and our success so far. And we'll evaluate every new business opportunity based on a partnership or an in-house type activity as it arises.

That makes sense. One more, if you don't mind, from the audience. So on your F-150 slides, I think the first bullet said post-launch OTA capability. Can you maybe elaborate on that? What exactly are you enabling as part of the new F-150?

Sure. So I'm not actually going to be able to tell you right now exactly the content of what's going into that first OTA release. I think we've given you some pub talked publicly about some of the information. So we're planning a series of OTA updates to add features, to add capability over the course of the life cycle of the vehicle. And if you imagine that at the scale that we're talking about for F-150, it's substantial. And the complexity, obviously, is substantial. But this allows us to really keep those vehicles up-to-date all the time for our customers. The difference with our OTA solution is that it really is a full, what we call, multi module. So pretty much every device in the vehicle can be updated, most of it behind the scenes. So without having -- with only having minimal impact to the customer, we can do it. For example, when the vehicle is shut off at night, we can do the update in the background and shut the vehicle back down again. That capability and our ability to reach every device in the vehicle allows us to really start to build out features, content and capability over time. The first one which we've really talked about is adding some of that capability, some advanced driver assistance capability in our first release, which is part of the plan that we've shared already publicly. That's a fairly substantial active drive-assist update post launch that we're all very excited about. I've actually driven it myself, Emmanuel, and it's a whole lot of fun. So I'm looking forward to being able to get that out to the market as soon as we can in that first over-the-air launch.

Got it. But just to clarify, though, when you're saying post-launch capability, the OTA capability is there from the launch. It's -- you're saying that?

Exactly.

Or -- okay. So the OTA capability is there from the launch?

Yes. So exactly. So from launch onwards for the life cycle of the vehicle, we will be scheduling regular OTA updates for all of the vehicle fleet, not just for F-150, for all new vehicle lines will be receiving OTA updates on a regular basis from this point forward. And that will become a very important part of our business as we offer new capabilities and new features to our customers, all part of the vehicle life cycle.

And the list of things that are updatable, that's already defined at launch? Or is that something that could change post launch as well?

So this is part of our new agile thinking within Ford. It really is -- Jim Farley has really encouraged us to think on a more dynamic basis. So we'll have a number of things which are set and substantial, but we'll think of these are the right things to deliver at this right time, and then we'll be adding to that over time. So as market changes, customer preferences move to in a different direction, this will allow us to react to those on a much faster basis. So we'll be filling up, if you like, those OTA updates as we travel towards the release date. You've seen this very similar. If you think about the PC industry, you think about the mobile phone industry, this is really the next iteration, but applied from an automotive perspective, so this continuous update, continuous addition, continuous capability. And to do that, we've built excess capability into the vehicles so that we know that they're going to grow over time, and we want to make sure that we have the capacity to be able to offer new capabilities, new experiences to our customers over that life cycle. That's a fairly substantial lifetime of usage.

Yes. So the questions keep coming in. So that's a good sign. So let me just jump back to the rollout of the ADAS and the DMS features that you mentioned. What -- can you tell us what the next important ADAS feature is for Ford? What is the timetable for rolling out driver monitoring across the fleet?

I can't talk to you about very specifics of exactly what's going on. I can mention to you around -- a little bit around what we're adding from an advanced driver assistance, which I think you've already seen publicly. The rest of the content is really for later communication as we refine it over the next couple of months. So what you'll see is a sequence of updates as we show you and reveal to you fully what's in those releases. And as we go through our final validation, obviously, we want to make sure that everything is rock solid as we take it to launch. But the advanced driver assist one, which is really this item, which is the second bullet point on the screen that you can see now, is a substantial upgrade for automated driving.

Okay. And then specifically on the driver monitoring, how important is it? How much fuel is it for the Euro NCAP mandates? Is it something that you need to roll out across your fleet? Is that something that could be -- become important in the U.S. as well?

Yes. To that, I'd have to defer to the driver assistance specialists. So what we provide within my group is the capability to do that update. So the legal bounds and the actual technical implementation is left to the specialist team. So I wouldn't want to comment on their areas of expertise. But what we are enabling for them is this ability to build on that feature set very rapidly by updating multiple devices within the vehicle simultaneously, and that's -- so that allows them to move at scale very quickly, particularly in that exciting area. That area is moving very, very quickly from a technology perspective, and so they'll build on that over the coming releases.