Ford Motor Company (F) Earnings Call Transcript & Summary

Good morning and welcome to the Wolfe-hosted fireside chat with Ford on the E-Transit and the company's commercial EV strategy. Today's webcast will be hosted by senior auto analyst, Rod Lache. [Operator Instructions] And now I'll hand the call over to Rod.

Thanks, Julienne, and thanks, everybody, for joining us on today's call. Look, beyond light vehicles, the light commercial truck markets are expected to be amongst the next to electrify. These vehicles typically drive limited distances, certainly certain types of these vehicles. They're typically parked overnight, which presents an opportunity to recharge. The regulatory environment is supportive. And it also seems reasonable to assume that operators would focus on total cost of ownership, maybe even more so than consumers would. We've seen some estimates that up to 28% of the light commercial vehicle market could be electrified by 2030. I wouldn't be surprised to see an even higher penetration rate for certain types of vehicles like vans. Ford is a dominant supplier within this market with 45%, 50% share in the U.S., and the segment is an important driver of profitability globally. So a strong entry here is obviously very important. We're really pleased to be joined by our old friend. Ted Cannis, who's now Head of North American Commercial Vehicle business for Ford. Ted, it's great to connect with you again and thanks for taking time to talk to us. I do want to mention 2 things before handing it over to Ted. One is that there is within this webinar a slide deck that is attached and also a video link that's attached. I think Ted is going to refer to a couple of the slides just in some prepared remarks. And I also want to encourage everybody to chime in. [Operator Instructions] Those questions only appear to us. I will ask those questions anonymously, try to weave them in. So with that, let me pass along to you, Ted, to kick things off.

Alrighty, Rod, thanks very much. Glad to be back doing -- talking to the investment community. It's a subject and a group I love speaking with. Always good to speak to people about the opportunity for improving our growth, improving our returns and lowering our risks. So what I would like to talk about is my old job, electrification, and my new job, the North American Commercial Business. And the E -- this new E-Transit sits right in the middle. I'm going to refer to a presentation for those of you online. We're all sitting at home, doing lots of video meetings. It helps orient me. It might make it more interesting for you but not required. So I just wanted to cover 4 main things in this presentation. It's sort of structured around it. One is, what's the strategy at Ford? You've heard Jim Farley lay out a new -- the new direction for Ford and very clear where we're planning to go and how this all fits into the strategy. I want to explain to you the differences of commercial versus retail. Rod already alluded to some of those changes already, but I want to bring that to life because I don't think it's easy. I remember when I was going out with the investment community trying to explain the new Super Duty, and it was clear to me then that many people, if you're not close to our business, and frankly many people in Ford who are working on resell vehicles, who bring home their Mustang, really don't understand the commercial business and commercial customers. I want to talk about our commercial strategy at Ford versus other electrification strategies, kind of taking that next step. And then I want to talk about the entire commercial business as a business and ecosystem, a lot like we did with the Mach-E and the entire ecosystem beyond the vehicle. So those are the main areas. And I know you guys will have your questions, and we have enormous specifics about financial data and projections, which I will underwhelm you, as always. So what we'd like to do is we're going to go to Slide 2, if you're following along. Now -- so a new part of the strategy that Jim Farley laid out when he just came to the CEO role was 2 pieces. We got 2 transformations to happen. We've got to turn around the Automotive business, especially that core North American business that generates the big dollars. And we've got to grow the business and disrupt ourselves. And in my area, that covers both. There's plenty of opportunities to turn around the Automotive and be a part of better North American returns out of commercial vehicles, and we are going to invest to do that. And in the growth side of the business, we're what I'll call key pillars of that growth. When you look at the business, we said we -- it's called -- we are going to expand the leading commercial vehicle business, both in North America, Europe, around the world, and expand it with a suite of software services that drive loyalty and recurring revenue streams. Everybody's got stationary bikes with workouts online. How do you create an entire ecosystem to improve the businesses of the customers that you're working with? So that's what we'll be spending a lot of time on, and I want to explain that. And the other key one on the growth leaders is leading the electrification revolution and compelling Ford products. Obviously, in this case, and definitely today, those overlap 100%. So what I want to go through is take it from there is how we are going to take that forward. So I'm going to Slide 3 now in my home deck, which was all about new job. So in our electrification business, we said 4 key things. We're going to play to our strengths: commercial vehicles, performance vehicles. These are the kind of vehicles that brought us there. We know our customers. Our loyal base is very large. We know them and how they operate, and we can better line up the vehicles to them. We're going to leverage the scale and technology across vehicles, across vehicle lines to get that purchasing and engineering and quality scale by multiple vehicles with [ mainly ] the same underpinning. We're going to leverage iconic brands. There's a lot of new brands coming out there. Establishing new brands is expensive and takes time for the customers to figure out what it was. When we said Mustang Mach-E, you know the intent is to be fast and fun to drive. When we say F-150, you know it's supposed to be a tough truck pickup in the kinds of size and product expectations you would expect. If we say Transit and you're a commercial customer, it's a van that's going to be able to do Certain roles for you to operate your business. There is no years and investment dollars trying to match up all those customers about what [ can be ]. And then most importantly, it was expanding the business model innovation to the entire ecosystem, beyond the vehicle to all the services and software of a software and electronic-enabled vehicle to create an end-to-end business. So that is the key part of the electrification strategy, and nowhere more does that play out than commercial vehicle. So I'm going go on to Slide 4, which is just an elegant slide that -- the business of commercial vehicles is the backbone of our business, and we own work in North America, in Europe and other locations. This is what we do. And these are vehicles that are doing real work. Employees drive these vehicles. Individual owner operators, the guys that are coming to your house to work on your plumbing, your home heating and cooling, your electrician that's coming in to install Wallbox, those are the kind of people we're talking about, individual to big companies servicing commercial buildings with commercial solutions like that or bucket trucks fixing downed power lines. These are kind of applications, and that's what I want to talk about today, how that business is very different than other business. And Ford owns work definitely in North America, and I'm going to take you through some of those numbers. Slide 5, and this is it. If you look at those, the real key parts of the business where we dominate it, we have over 45% share of this U.S. commercial market share. That means full-size trucks, all the vans that are registered for commercial owners across North America, we have a huge [ share ]. So nearly 45% of that business is Ford. We have the best-selling van for 41 years. We have the best-selling pickup for 43 years underpinning that. So whether you're a van customer or F-Series customer, you are thinking Ford. And there's a loyalty there that's very important in this business, and I just want to go into that. There's the base that we're building from both for electrification and this additional share of wallet that I want to talk to you about as we build beyond the vehicle going forward. So I'm going to go to Slide 6 now. And here's the heart of the difference between commercial and retail, and then I want to explain these as we go through the Transit strategy. First, right tool for the right job, and let me give you a couple of examples. If you're an electrician and you have a garageable vehicle, you need a low-roof van. You can't park a big sort of Amazon delivery van in your garage. It's too high and too long. And the things you need to do are -- can fit in that van as a plumber. If you can do the task with an F-150, why would you buy an F-650? Much more expensive, much more gasoline to run. You fit the work to the tasks. And that is it. If you need a bucket truck to fix telephone lines, a van with a -- racks and bins to put tools in as a roofer are not going to work. So each application is very specific to what you need to get the job done. And they're very focused on total cost of ownership: the fuel, the maintenance costs, the residual value, the cost to operate the business. The difference between retail customers and commercial customers, and nothing more true than electric, is the math of the thing. Businesses are businesses. They're monitoring costs every day, trying to improve their profitability. They're filing tax returns, expense reports. Employees are running their operation. They're business people like us who are analyzing their business numerically to improve productivity and efficiency all the time. So total cost of ownership, when you're visiting a commercial customer, is the center of all applications. First, will it do the job, the tool for the job I need to get done? And then what's it cost to operate that? We learned that the most recent would be example like the police business where we hybrid police vehicles because police customers have hybrids that idle in many hours. So it was a perfect opportunity to save a lot with a hybrid engine when you're idling a lot. Those kind of maths or use cases are in this business. That's very different than a, let's say, a retail Mach-E customer who says, will I -- retail customers buy on something they like or something they might? Well, I might drive 300 miles, and we might go to grandma's for Thanksgiving. They could have 6 extra kids in the vehicle. And I might tow because that one time, we thought about towing. That's not how a commercial customer is doing. A plumber is doing the same job. Every day, he needs to do that job. The bucket truck, the same thing. The person, the communications -- telecommunication van that's coming to your house to fix your WiFi or fix your cable installation, they have a role. Their role's the same, and they're operating it for that business. And therefore, they need max uptime. Any day that the vehicle is down is a problem. It either means they're not producing money or they're not getting happy customers. And it is affecting the business directly. And this is why there's trust factor of not just buying the vehicle but will you support my vehicle in my entire areas of operation. I might be local like my neighborhood. I'm a plumber for 2 or 3 communities. I might be super regional or I might be national. I need to make sure you're going to cover me. I'm going to keep my business in operation. And then how can I make my employees the most productive they can be in a business that thrives and now a connected business that can provide data? Like all of us who are wearing Apple watches or some other device that we are gathering information, well, I'm not standing. I didn't walk it much. I didn't run. Many of these things you know intuitively, but until the data is presented to you and you can act on it, you're not aware of those daily operations to improve productivity of your business. So now not only can we help the fleet operations better, we can provide them data to help their business thrive. Another thing for commercial customers is health and well-being and collisions and care for their vehicles. Again, if the employees are not going -- do not enjoy their vehicle experiences or cannot work because of ergonomic or some other issues, that's a problem for maintaining your business operation. And then, of course, many of our customers have -- [ corporate ] sustainability [ criteria ] like we do. We're going to be carbon neutral in 2050. They have their own. What's one of the key enablers? It's my fleet of vehicles that I'm running and operating. And that used to be a discussion of the garage and the maintenance team. Now it's a CEO-level discussion and a strategic enabler for the company because these vehicles are now sensors on wheels that can help me build a better business and solve my sustainability issues. So it's a big change. So those are some of the big -- and now I want to go through the rest very quickly. With that framework in mind, you'll see the differences between us and others. So first thing is, the majority of Transit are upfitted. This is important because some of the use cases you're seeing from our competitors that have announced are very specific. I'll give you an example. The parcel delivery business in North America, despite all the growth still in 2020, is only [ 7% ] Of the vocations of full-size van business when you're looking at the areas we are going to cover with the van, which is cargo vans, cutaway chassis -- cutaways and chassis cabs. And most of these are upfitted for special purposes: for the plumbing van, for the telecommunications van, for a parcel delivery van. And what we're doing is we built a van that can cover most of these applications. And the upfitters that already have -- mainly around our Kansas City plant and others, they have fixed points where they can attach and are fit to these vehicles. So they can take their internal combustion vehicles and use the same pinnings as that to move to electrification. Very easy, very specific to their task. And we have a huge range of specialists at our dealers in the field of our 645 commercial vehicle centers that help them match these upfits and products and will now help them move to electrification for their needs. So that is pinning number one. This is not happening with the competition at all. They're going for big names to raise their brand recognition because they don't have this huge base of loyal customers. The next one I wanted to mention is the range. So like in the F-150 to F-650 example on Slide 8, you don't buy more battery ranging. You don't buy a bigger engine. You don't buy a bigger tool. You buy what you need for the job because it's cash out the door from the investment side and then its operating costs. We did an analysis of -- in North America of over 30 million miles of telematic data for commercial customers in this space. And we know that they drive an average of 74 miles, and we know what they're doing across many different locations. And the product was targeted at those vehicles. So we will have on the low-roof van a 126-mile range, and we will know out the gate that we will cover the bulk of these customers. Why is that? Because if you're operating in your local township or neighborhood a plumbing route, you're running a plumbing route with all your equipment in there, and you're not driving with your family from Detroit To Chicago. If you're running -- and own an application, a parcel delivery van [ and ] others, fixed routes, multiple stops, many ins and outs, they know their routes, and because they're operating their business, many of them on telematics data today, and because they're running their business as a business, they're using data. And they know exactly, is this application going to meet for me. If I buy more battery, too much investment, too much cost ongoing. So that is the first big difference. They're very informed customers about their data and needs, and they operate as a data and needs business. So that's on range. The next part I would like to say on Slide 9 is operating costs and this total cost of ownership. As we mentioned, scheduled maintenance costs are less, 40% less. And on average, it's going to cost about half as much to drive an electric vehicle. Fuel is less. The one -- many of these things are going to vary a lot by, again, specific use cases or where you live in the country. If you're in Louisiana, kilowatt costs and the -- are going to be different, and fuel costs, than they are in California. In fact, quite different. Your incentives being offered on electric vehicles today are also very different at the local level, state level and federal level based on your tax position and your local utility companies. And this, again, is where our commercial customers embedded in the community, knowing their commercial customers and commercial vehicle center dealers, where we have certified dealers to do this, they can match up those equations to fit the right application to the incentive plan, et cetera, and talk them through those in their communities, which leads to Slide 10. Another big difference between retail and commercial solutions are the charging solutions and how we're going to help our customers there. First is home charging. Like my Mustang Mach-E that came last week, I'm going to charge that at home. I have a Wallbox I decided to install. For a fleet of customers like many telecommunications companies, their employees drive the vehicle home. I need to provide them 2 bills. Obviously, their own refrigerator, they need to pay for, but I will be providing them a list of here's the expenses to charge the vehicle. The fleet manager will get all those vehicles added up, the charge status, et cetera. So managing home charging is very important as many small, medium and large customers charge -- will be charging at home. The next biggest -- another big form of charging that we expect in the commercial space is depot charging. Imagine a place where you're a potato chip supplier, and the employee picks up the vehicle at the warehouse every day, loads up that vehicle and then does their route around the local corner store to deliver potato chips there to the different stores and stops. Again, many stops, very predictable route, been doing it for years. You need a string of vehicles all in a location and the fleet management tools to match that so that you're charging it at the right time, you're not overtaxing your peak charge rate for the month. And that whole management services the status of all the vehicles. And you need other things. Did the charger get plugged in overnight? Those kind of software tools is what we will be developing. And then public charging. We expect the higher-cost public charging to be the least used in commercial space because it's not efficient. If I can have my employee charge at home or at the depot overnight, then I don't have to pay him to go to a gas station and out of his route to do that, and I can improve my uptime, operating cost and efficiency. Public charging is a -- we will provide at Ford using our Ford fast-charging network, but we don't expect that to be the main use of commercial customers even though we have 13,500 locations that they will be able to roam easily across America -- North America to do. So that's Slide 10. I'm going to go to Slide 11. So here's my answers to the customer. Different from the other guys, we will have 3 lengths, 3 heights. Why would you have a different height? The low one, garageable. The medium one, you can walk, head into a medium van without a head obstruction and get to your tools and items very easily. So many customers like that. It's a convenience element. And a high-roof van and the different lengths to carry the amount of parcel, package, tools and equipment that you need. We will have driver-assist technologies because many of these customers want to improve that for insurance reasons. And again, with their employee drivers, connectivity is an essential part of this to make this a data-enabled platform to help their businesses thrive. The serviceability, they know they can expect from Ford. And then this versatility of size, as I mentioned, All designed around the human-centric design. For example, one of the things we changed in the vehicle was a shifter in this, so it's easy to enter into and get out from the cabin, going back and forth. When I go to Slide 12, what does this mean from a business standpoint? Globally, we expect the BEV industry to grow to over 1.1 million vans by 2030, which is a CAGR of over 50%. We think this is a high-value space in small, medium, large. We have a lot of calls coming in, let's say, from California businesses to our dealers who are -- who their customers are asking them to go green. We recently did a study on packaging, and people were willing to pay more if their packages were delivered sustainably. The customers in North America are requiring, demanding and globally that the businesses go climate, and they're talking to our customers. So we expect that growth to happen very quickly. So when moving beyond the vehicle -- and this is a big change as they created this new business when Jim came on board of the commercial vehicle business. As an entire business beyond the vehicle, what does that mean? So we have these great vans with this great share to build a base on, but there's a lot more of that base that we can build today. So I'm on Slide 13 now. So we have the van. It's the best-selling cargo van in the world. We have 10 million produced with very long years of longevity, addressing many very specific locations. Very hard to copy. I've got this expansive network of dedicated upfitters that can fix their upfits that they already got prepared and make it easy to move from one vehicle to another and manage the mix fleet because many customers can't risk going in all-in on electric at -- all at one time. They need to phase in because otherwise, their business could be a threat. So they are operating 2 sets of systems. I've got 645 commercial vehicle centers in North America and the U.S. I've got many more in Europe covering the different regions in Europe. And of those 645, 90% are already EV certified. And I've got 2,100 across my entire dealer network of over -- of 3,000-or-so Ford dealers that are EV certified. So that means they're ready to go today, and we don't launch this vehicle until late 2021. And then we've got these services that, beyond rolling out, that we've been building for the last couple of years, are just starting to hit the market now like our Ford Fuel Card for managing -- fuel management, which was a couple of months ago; Ford Telematics with GPS tracking so that you can monitor the activity of your vehicle. All of those telematics and software services are now coming to fruition that we've been investing in, in the last couple of years. So what you have is not just a van. You have a van planned around upfit; planned around additional focus on sales and financing, which we're going to be spending more time on commercial business; parts and service support because they've got to keep their vehicle up and running and they've got to know wherever it is. They can't operate a ton of different contracts all over the North America. They need to have a common set of support; new connected services that are going to drive additional loyalty and ongoing streaming revenues and helping us to provide data for their businesses so -- to make more strong decisions to make their businesses thrive, which will increase the stickiness; and a set of charging and software solutions that, again, have to -- an ongoing relationship with the customer. That's a pretty big difference for our commercial business. So the next slide, Slide 14, shows you some examples of a dashboard of what a commercial fleet manager may see. They'll see vehicle health reports of my fleet of vehicles from the Ford Telematics data. They can see in-cab coaching, very important. I've got new drivers who keeps going over the speed limit. That in the past used to be 1 (800) call me on the back of a truck. Not very scientific and dependent on all sorts of variables. But you want to watch for harsh braking, harsh braking to be -- collision in the back. Collision in the back means litigation. It means vehicles off road. So this whole process of turning insights into operation, to the data and data to hand to the fleet managed -- their operations manager in your business will not just make them operate their fleet better, they will see how to operate and make their business more efficient. Some of those specific solutions are on Slide 15 for electric things that we're adding for the Transit. So they will get OEM-grade data that tells you the battery state of charge, pieces of information like that. Or on the top right, preconditioning would be great in Michigan. In the winter, you're lining up to get your potato chips with the other fleet drivers at 8:00 in the morning. Mid-winter, the vehicle's already pre-climate, the van is already ready to go. So you're leaving without impacting range. From the warehouse, the driver's ecstatic. By the way, the drivers are ecstatic anyway. It's an amazing thing driving an electric vehicle without all the shifting. And in this vehicle, we had an independent rear suspension to handle the additional payload, so -- and also to support rear wheel drive, excellent traction. So they're going to feel like it's going to be a fantastic driver experience for employees. And then measuring energy consumption, driver behaviors, in-cab coaching, which will come through the SYNC module that say, hey, you're over the speed limit harsh breaking because, like everything else, with laptops, where we had hints at how we're supposed to behave online in a company, these are company assets and then company employees. So when we go to Slide 16, that's kind of a wrap-up of the all-electric Ford Transit. But I want you to know it's a much bigger strategy. It's a bigger strategy because it's about this vehicle, about handling a multitude of locations, big ones like service and maintenance, which are really big ones like plumbers and HVAC, electricians to the parcel delivery that's getting a lot of conversation. But it's a good business decision for these customers. It's not just sustainable. We've got solutions here that are going to help them run a better business. So with that, Rod, I'm turning it over to you.

Thanks, Ted. This is great. Pretty exciting what's going on here within this space. I was hoping -- maybe just first if you can help us by backing up a little bit. You mentioned these 1.1 million units by 2030. Maybe just to put some context around this, how big is the van market today in the U.S.? How big is it in Europe? What is the penetration assumptions that you're thinking maybe 2025 or 2030?

So the total global van business today is about 2.5 million units. This year, we're guessing. It's all a bit of a guess this year, of which about 400,000 are in the U.S. And our guess, and looking forward, is that the whole business will grow by about 1/3 over the next decade. There's a lot of reasons for growth: normal economic growth, parcel delivery, et cetera. And in this business right now, we see by the end of the decade about 1.1 million of that will be electrified vehicles in many different locations, not just this, just by the dimensions I mentioned earlier.

Okay. So the 2.5 million will grow by 1/3, and about 1.1 million of those, you think, will be electrified. Is that fair?

That's correct. That's fair.

Okay. And we've had a number of questions come in. I had this question as well. If you could just maybe talk a little bit more about the customer segments. Well, there's a lot of focus on last-mile delivery. You had mentioned -- I think you said that it was 8 -- it was 7% of the market. Can you talk a little bit about how large that is likely to become? And a little bit more color on -- some thoughts on that particular segment.

Sure. Absolutely. So in the full-size van business -- and there are some nuances between North America and Europe. In many cases, what we do in North America with a pickup, Europe handles with a van. So when I was running our Ford [ AutoZone ] operations there for the van business, many of those applications, you would look at it and you would say it's a pickup. So knowing that there are some nuances in the different -- so I'm going to speak about North America. North America, like I said, in this year with growth, it's about 7% of the business is -- are general deliveries, the big last-mile guys. But there are so many other vocations. Service and maintenance is a huge one. Rental is a big one in North America as well. And none of this is the bus or wagon business. This is just a cargo van business. And you see this -- because there are so many different applications, it can be in landscaping, it can be individual owner operators, you just see it across. And many of these are upfits. So when we say the 3 kinds of van, which has a -- we sell as a complete van or a chassis cab, which is that front part of the vehicle that you can attach something on and walk through the van, to a cutaway where you just have the flat bed and the customer can upfit that completely for their own use, these are all -- they handle many, many different vocations, and all of them are leaning into electric now from what we see. And none of them is really any bigger than 20% of the market in the vocations. They sliver down into very small pieces for that specific use case. I'm a plumber.

Yes. Yes. So there's -- it's kind of fragmented in terms of the customers, and that's presumably where the upfitters really play a big role. I've had a number of questions about...

And maybe just a -- just before you pass on a number of questions, and that's also our advantage because the applications, the upfits are so specific to the job. And because that takes some matchup to get the right job and the right tool, this is where our advantage is. It's very hard to match that hands-on experience of right tool for right job for the new guy without the relationship and without knowing those vocations because it is so long tailed and [ fragmented ].

Aside from the last-mile delivery, which you said is 7%, are there any other categories that are very meaningful percentage that you can quantify just to give us a sense of who those customers are? You've mentioned them broadly, but are any of them 5% or 10% of the overall market?

Like the service and maintenance guys is at least 20%, for example. But again, if you start bringing down, then you can do the fracturing out, the plumbers and the electricians, et cetera. So they all start -- end up being 2 to 3 to 5. I mean nothing stands out on its own once you go out to these super categories.

Yes. And a few questions that we've received about -- and I'm not sure if you are or are not involved in this, but Ford is being, in fact, for the replacement for -- even for the U.S. Postal Service trucks. Is the E-Transit part of that? Or is that a completely separate endeavor?

We haven't said, so I'm going to hold that one. But yes, we are participating in that USPS process.

Okay. So it -- but this is kind of a joint venture bid, so it might be separate or might be somehow connected to some of the things that you guys have developed inside it, I presume.

It's definitely related to Ford. And -- plus it also reminded me that on a separate [indiscernible] is that I should mention -- again, I should probably have mentioned at the beginning, but the commercial business for us, because we're going to be the only full-line OEM with F-150 and Transit, this is important. Many customers, you guys probably don't know, they buy multiple vehicles from us. So I was doing a big mining review with one of our customers. They buy F-150s for one set of tasks. They buy Super Duties for another set of tasks, and they do Transit for another set of tasks. And you can imagine one's like a bus in one case, another one's a van doing things. To have -- to be able to offer customers that we are focused on work with all the testing that we do, can the payload really go uphill in heat or cold, all that testing -- or tend to pick up with a F-150 battery electric, do the rugged work and own a working type of work, those kind of things, but to be able to offer a full line of electric vehicles as a full-line OEM and all the services and support is essential for many of our customers. Rod, back to you. I think you might be on mute.

Thanks, Ted. Sorry about that. I was hoping you can share maybe a few specific data points on payback. So I think you guys have mentioned there's about a $10,000 premium for the electric version of this truck. How do you -- what kinds of -- I'm sure it depends on the use case. But can you give us a few just specific thoughts on what -- is there a payback period that some customers are looking at? How is that related to the utilization, that kind of thing?

Yes. I'd be happy to talk about that. I'm not going to give you as many specifics as, of course, people like, but we've had -- over the last 2 to 3 years, we have many customers that we're talking to about this product, and some we captured in the video that we just did and others that are involved, and I'm sure we'll be sharing over time. Again, because there are so many different vocations for us to do the proper testing on our vehicle, we had to use a number of customers to handle the different applications. I will tell you that in the most cases, the -- with a $10,000 premium on that start price of $45,000, it will pay back within the parameters of most of our customers who've been talking to us. in fact, that's why they're talking to us, because we know what will work for them. The math is, like you said, dramatically different by customer. Higher roof height has different range than a -- and if it's a longer wheel base vehicle, a completely different range. Depending on where you operate that vehicle, the cost equation is totally different. And with the incentives varying a lot -- for example, I haven't even known until recently, in California, not only is there the California Air Resources Board of the total state, but there are air resources board in different valleys that have their own incentives and support mechanisms. So it is so dramatically different by use case, geographic location and incentive structures. But in all those cases, we're seeing a lot of interest. And I -- and as I mentioned, I want to make this clear, it is individual owner operator as well. You might be a florist in San Francisco. And it's still -- because your client base is so interested, it's still a really important product for you.

Okay. Great. And from Ford's perspective -- I'm not sure if you can address this maybe at a 30,000-foot level, but is it reasonable for us to presume that the premium that you're charging kind of covers the incremental cost from Ford's perspective to maintain contribution margins?

So contribution margin on these vehicles are going to be positive, profitable. And every one we sell, we're going to make more money. So that was from the beginning part of the plan, and that is the plan.

Okay. And should we be thinking about this as incremental to the van business you have? You're a huge player in this market. Is this kind of a slice of the share that you currently have? Or do you see this as actually being an incremental opportunity?

I think it's too early to tell. I think what we believe is, with our 41 years of van leadership and all-[ vehicle ] leadership, we have all the underpinnings in place. As you said, nearly 45% share of the market in the commercial business of owners and in a business where trust and real data is essential because they can -- it's a real business offering -- essential concern for a business. They can't just take risk willy-nilly. So we think we have the right team in place with our huge presence in the field to support customers, and we think it's going to be growing. And with -- being the full line of OEM and the first to cover all those different vocations with all the different derivatives, we think we're very well positioned in commercial business to go out of the gates flying. And because now we're building beyond the vehicle in the services area where we do have opportunities in connected services and now -- and continuing to [ harness ] relationships through data and connectivity that we didn't have before as we learn and implement more on prognostics and more on that connection between real vehicle usage, which was basically invisible to us before, we feel that, that relationship will only get stronger and create a foundation for extension of wallet beyond the vehicle. We are very -- and we're investing in that.

Okay. And can you talk to us a little bit about what the competitive landscape looks like in BEVs? There are clearly advantages that you've highlighted, the footprint that you have, the product, the history, the service network, the data, all very clear. There are other electric vans that are coming out, from Rivian, which you actually have a relationship with; Workhorse; I think a few others. At a high level, if you look out over the next 2, 3, 4 years, whatever you have visibility to, can you just chat a little bit about what -- how you see that landscape looking? Are there very big differences? And are there certain advantages that others might have if they're kind of starting from the ground up with a kind of a bespoke electric van design?

Yes. Sure. So I think there's a couple of different things there. So you and I can read what is written in terms of who the competition is coming. So very few full OEMs are coming with a pickup and a van and -- as far as I can tell, and then difficult to see what kind of offering. And very few has said they're targeting commercial work. Lots of higher-end applications, very retail and very premium. But commercial work, very little. And of the new guys, the Rivians, the Arrivals, the Workhorse, they don't have the footprint to support many of these and these close relationships it takes to figure out what is the right product just to fit my needs and then the upfits and applications. Just that alone, we feel we are very well positioned. And there's -- as opposed to the retail EV space, where there are a lot of vehicles coming in different segments, there are not that many in the commercial vehicle business in North America. So to come out of the gates pretty strong in '21, and we said by the summer of '22 we will have the F-150 battery electric, we think we've established those relationships very early on. And because we've built this software layer on top, which we've been working on for a number of years, but the [ 2020 ] model year internal combustion Transit was the first year that we got all the modems on the vehicles, for example. So now we're underpinning the layer of both the battery electric side and our enormous internal combustion base with these additional telematics and software learnings and can bring that forward. And that's going to be difficult for these other guys to establish that learnings of the multiple vocations, test sequences and use cases to be there. So I think they can say it. It's really hard to copy, very, very difficult.

Yes. Thanks for addressing that. I got a question about range extension and plug and hybrid versions. In Europe, you do have a plug and hybrid electric Transit. Is that something that is also coming to the U.S.? Do you think that markets are shifting increasingly towards just pure electric?

So we -- definitely, Ford is offering some plug-in hybrids across the business. We haven't made any announcements in the commercial space. In Europe, it's on the 1-ton Transit van, which is unique to Europe. And we definitely learned some lessons from there, like people forget to plug it in overnight. So that's one of the software solutions that we provide to the fleet managers with this product. So -- but we're really seeing there's a lot of this opportunity for us, and that's why we've made the announcement this way, is that we should lean into the full electric for its combination of benefits to the customer for their TCO operations and their own goals of sustainability. It was good for us in North -- fit for us in North America.

Great. And I got a question about the strategy that you've -- you're pursuing on battery outsourcing. And I think, Ted, you've got great perspective on this just given your involvement more broadly in the electrification strategy of Ford. But you are outsourcing batteries for this vehicle. Is that the correct long-term strategy? Do you think that vertical integration is something that is important competitively?