Ford Motor Company (F) Earnings Call Transcript & Summary

Hello, everyone, I'm Joseph Spak. I lead automotive research here at RBC Capital Markets. And today, we're very pleased to welcome the Ford Motor Company to RBC's inaugural Global ESG conference. Representing Ford, we have Bob Holycross, he's the Vice President and Chief Sustainability, Environmental and Safety Officer. We're also joined by Lynn Antipas Tyson, the Executive Director of Investor Relations. So Bob and Lynn, first of all, I want to thank you immensely for joining us today. I think everyone is probably familiar with what Ford Motor Company is. But I know you have some introductory comments. So Bob, why don't you take it away and then we'll get into some Q&A discussion.

Very good. Thanks, Joe, and thanks for having us here today. It's great to have this opportunity. So yes, I just have a few slides, and we'll look forward to getting into the Q&A. But when we talk about the overall ESG landscape at Ford, everything always comes back to being grounded in our overall corporate plan. And this is the foundation for everything that we do and was launched with Jim Farley and our leadership team back in October. So the 3 strategic areas that are key for us are turning around our automotive operations, modernizing everywhere and really disrupting ourselves for the future. And ESG is embedded in all of this. So if you go to the next slide and just click in a little bit more on some of the detail. When we really think about the opportunities we have in executing our plan and driving the growth, the things around improving quality, reducing our costs, restructuring underperforming businesses as we've done, that's really going to leverage the capital and resources and assets we need to really invest in how we move forward and truly disrupt ourselves. So we're expanding our commercial vehicle business, both in terms of electrification and software services, compelling products that are unique to Ford that really resonate with our customers across our areas of strengths, more affordable vehicles across the lineup and new customer-facing businesses that are enabled by whether it's autonomy, connected vehicles and these types of services. And ESG is going to play a role in all of this, again, when you think about the opportunities it presents for us. So if you go to the next slide, and we kind of tie it to what is the overall landscape. And this is obviously traditionally what you would see across industries. And we call out these individual areas whether, obviously, it's everything that's been going on with COVID-19 and climate change and social environmental justice technology. You could almost redraw this slide as an intersection of all of these things at once. And for us, these aren't any areas that are new in terms of the journey that we've been on. And when we get into these moments in time, whether it is COVID or what's going on with the climate change crisis and the urgency around that, it's really a matter of how do companies respond in the now and step up and really take actions. And that's what we've been most proud of in terms of the work that we've done in combating COVID-19 and transforming our operations to produce PPE and ventilators and respirators and whatnot. It's not new to us. When you think about our legacy and some of the things that we've done in the past, even around the Polio epidemic where we got into production of the iron lung and the efforts that Ford was involved in during World War II in converting our factories into making planes and other things. It is in these moments in time that often remind us of how fragile the overall ecosystem can be and what we really need to do to contribute in terms of improving lives for everybody in the communities that we impact. So if we go to the next slide, and we think about the areas of focus for us, especially in ESG space. And whether it's climate, air, water, waste, energy, human rights, materials, diversity, the core thing here is we all have aspirations and know that -- where we need to get to. But the key thing as well is how do you measure progress along the way? How do you set targets? How are you accountable and actionable on the things that you've set out. So when you think about climate change and the aspiration that we announced last year to be carbon neutral by 2050, we didn't just stop there. We talked about the need to have science-based targets that are set year-over-year, that we have transparency in measuring our progress. And then we really turn this aspiration, as well as others, into action. And so that can also mean taking positions and taking a stand even when it may not be popular, given the politics of the given situation. And so if you're grounded in your values, then the actions that you take should really be driven just by that. And we took a stand last year in terms of stronger greenhouse gas emission standards with the state of California. And it's serving us as we continue to engage in the U.S., in particular, with the Biden administration on new standards that are about to be set. And that becomes a key in terms of how we ultimately get to where we need to be is making sure we're taking actions in the here and now. So if you go to the next page, and you look at some of the progress that we've made across the whole spectrum, I mentioned carbon neutrality, but it's also about how are you engaging with stakeholders, whether it's investors, NGOs, your customers and the broad range of the entire ecosystem. We've been on a journey for more than 20 years in terms of our reporting on sustainability and it really goes back to the heritage and our legacy as a company. And that's what's also going to propel us forward as we think about the true definition of sustainability and making sure the actions that you take now are going to preserve the ability for future generations to meet their needs. So things around energy and moving towards more renewable energy into our facilities, all the materials that we use to produce our vehicles, ambitions around how we address human rights and the supply chain and diversity and responsible sourcing. These are the types of things that we know we're going to have to have close attention and transparency on in our reporting to really make a difference. And even on the governance side, right, when it comes to advocacy and accountability, a lot of investors and other stakeholders want to know, are you putting your money where your mouth is? How are you engaging with policymakers, or what have you, to advocate for the policies that you're going to need to help set these goals and ultimately achieve them. So it's really the full spectrum around, not just your actions, but your accountability, your transparency and the progress you're making along the way. And then if we go to the next slide, and this is the last slide. Obviously, when we talk about the long-term for us and the ambitions around whether it's climate or air, water, waste, energy, the electrification revolution is at the heart of that. And we recently announced the upping of our investment up to $22 billion through 2025, focused on the areas where we lead: in Pickups, utilities and commercial vehicles. And most of this is going to be around battery electric. So we're extremely excited around the Mach-E, which has already launched. It's the North American SUV of the year. The all-new F-150 that's out is the North American Truck of the year, the battery electric version of that will be coming out later next year. And of course, our commercial vehicle franchise, the Transit, excuse me, is going to be fully electrified later this year. So as we make this transformation and recognize the opportunities these vehicles present, not only for being zero-emissions, but how they'll impact people's lives on a daily basis, it's really indicative of where we know we need to go and where we want to be. So Joe, I'll kind of leave it at that and look forward to the Q&A.

Yes. No, Bob. Thanks. That was a great overview of Ford's ESG strategy. I guess, maybe just to kick it off. One of the things that struck me as very apparent is certainly within my covered industry, in automotive, I think you guys have been on this ESG path for longer than most. Maybe arguably even in a broader subset beyond automotive. I'm curious though, how has it evolved, especially over the past few years? I mean, we're definitely seeing a bigger increase in investor interest, but internally, what has changed on ESG strategy?

No, it's a great point. I mean, what's -- and it continues to evolve, like you say. So where the traditional focus was really heavily weighted towards environmental progress and how you respond to even environmental activism. What we've done along the way is really made sure that sustainability, ESG is integrated across every function we have in the company. It's not some after add-on strategy where you say, okay, now that we've done everything else, how do we now come in and put the ESG part on the vehicle or something, it really has to be a part of your culture and your values that you that you live every day. And as we've evolved that and used it more as a tool for how we can generate more progress as opposed to something that's viewed towards something we have to do or a compliance mechanism, we've found that we've been able to unleash all kinds of creativity and innovation within the Ford family of employees around the world itself. We have so many passionate people in the company because of the vision and the leadership that Bill Ford and the family has set, really all the way back through our 117-year history. It's really an inspiration for us. So that becomes the real key for us, is honoring that legacy and heritage. We all feel it as part of the family and then making sure on a daily basis, it's a part of everything.

You mentioned the push from Bill Ford, the Chairman. I'm curious, though, on this ESG journey, is it just sort of really an internal push? Or has this also been led by an external investor push, maybe even internal, not from leadership, but from employees or other stakeholders? What's really propelled you on this journey?

I think it's been a combination of all those things, Joe, when you really think about it. And part of what we've really done over the last several years is made sure that we are engaging externally with a wide array of stakeholders. So yes, traditionally, engagements have been with environmental NGOs or what have you. But as you mentioned earlier, right, as investors and our shareholders have taken more of an interest in this area, we make sure that we listen to them as well. And making sure it's not just about what's on their minds, but getting their advice on how we can do better, almost like a third-party evaluation of not just how we report and feedback on some of the additional actions we can take. So our partnerships with the broad array of different stakeholder communities, especially within the investment arena now is a big part of it, and what drives us as well.

Yes. I mean, to that end, maybe a little bit on sort of how you internally measure your performance. I mean, how maybe investors should measure and hold you accountable. You mentioned there's a number of reporting standards and frameworks. Those are -- those itself are continuing to evolve. So how do you think about that internally to measure yourself? And then how should external investors measure Ford's progress?

Yes. I mean, we -- certainly, with all the different number of reporting frameworks out there, we've been involved with those very early on, whether it's the Global Reporting Initiative or the Sustainability Accounting Standards Board. Now most recently, the task force on climate-related financial disclosures. A number of these are ways that collectively, different stakeholders can speak the same language. But admittedly, it is still a bit of a complex array of all these different frameworks and so navigating through that can be challenging. But also in terms of the progress, so that stakeholders know how we're doing, there's also a number of different ratings and measures of progress. And so we make sure we report in that format as well and understand where we are, whether it's through MSCI or ISS or Bloomberg or others. And then the data tells the story. And we're really proud of the leadership we've had, not just in the improvements in our performance, as I highlighted earlier, but on the breadth of the transparency of our data, right? Because obviously, you can't measure progress unless you have full transparency on where you are. And so to your point about how some of this has evolved, again, beyond just the environmental metrics when you think around a lot of the social areas and especially with diversity, equity and inclusion, we're really proud of a lot of the work that we're doing to be more transparent around our data. We signed on to the CEO, DEI action pledge United Nations Women Empowerment Principles, things like the Disability Equality Index. So it becomes really important that folks know that you're not just talking around what you want to do or what needs to be done, but you're actually showing progress you're holding yourself accountable and you're being transparent around it. So we're really proud of the progress we've made there as well.

Yes. Bob, you mentioned some of your outreach, especially to investors on -- along the ESG lines. And I'm curious, and I'll -- allow me to sort of interject some of my opinion here, but it seems to me that especially as Ford is screened on some of these third-party ESG ratings, a lot of it's backwards looking. And I'm curious how that comes up in your conversations with investors because on the one hand, transportation is routinely identified as a sector that generates the largest share of greenhouse gas emissions. And I think when we worked with our ESG strategist, it seems that transportation broadly, we could include -- we can sort of make it more granular down to automotive, but it's broadly on your own among some of the dedicated sustainability funds. On one hand, I think that makes sense if you're looking, right, where things have been. But it seems to me, again, that if transportation is one of the bigger potential levers for real change in decarbonization, then that rate of change is going to start to matter a lot and be a very important driver. So I'm curious, I guess, a, how you personally think about that; but also b, is that an increasing theme as you speak with investors?

It absolutely is, Joe. I mean, especially to your point around, let's call it, carbon or fleet greenhouse gas emissions. A lot of the historical look back or where we are today is obviously driven by the areas that we play. So being a full line manufacturer, right, of both passenger and commercial vehicles globally, and because of the footprint that we have and the reach that we have, absolutely. On a relative basis, our absolute greenhouse gas emissions are going to be higher sometimes within our own sector, again, relative to non-full line manufacturers or niche manufacturers that only make certain types of vehicles, but even across certain industries. So -- and shifting the conversation more to the future, and that's why I emphasize our electrification strategy. I mean, that is obviously the biggest opportunity in terms of our vehicles, in terms of the future and how we get there in terms of lowering that carbon footprint. But also remind folks that there is a much broader ecosystem when you look across Scope 1, Scope 2 and Scope 3 right, and also the broader life cycle emissions and engagements with your supply base. You have to touch on all these areas, right? And you're also going to need to recognize where help is needed in terms of interfacing with government agencies around the world, and that comes back to, again, the advocacy and the actions to match up with the aspiration. So we try to keep it all tied together and focus on the future and know that some of the traditional metrics around fleet emissions or what have you are going to have to evolve as we get into these new technologies. But also as we get into other services that we provide to customers, right? And the opportunities that's going to provide once products are on the road and how it contributes to everything else. So it is something that can be a challenge because of folks that will look at it more in the here and now, but we're making progress in getting that understanding out more clearly.

Yes. I want to touch on a couple of things there. I'm glad you brought up the net-zero targets because the key theme that we've identified, right, is the rise of these targets increasingly across sectors and geographies, there are ambitious targets being set out. And net 0 is clearly one of those. So how is Ford approaching that push for net 0 target, especially since when you look at the science-based targets initiatives, right, it seems like it's the most rigorous requiring companies to move all the way down to Scope 3 emission-reduction goals. And look, automotive is a very complex value chain, right? But how do you approach that as one of the leaders in the industry?

Yes. For us, it's nothing that's new to us, right, in terms of, first, again, tying it back to our value system and the commitment that the company has made to the Paris Climate Accord from the onset, and we've been consistent in that, not just through the political cycles, but from the outset, recognizing the urgency around climate change. So the net 0 targets and a lot of the information and aspirations that have been announced over the last few years by companies, it can get into a bit of, how does one company pick a date, whether it's 2050, 2040, 2030. And for us, it comes back to the science, right? And when you look at the collective science and the way the targets have be laid out in the Paris Climate Accord and the need to get to carbon neutrality by 2050, that's where we start. And then to your point, it's one thing to just have this end goal aspiration and be aligned with it. But how do you set targets in the interim and that is like what the science-based targets initiative does. And we will have our SPTI targets published in the near-term here. You have to show that you're being accountable and you're delivering along the way. And that means the actions you take in the short term. And I mentioned again, the stand that we took in standing with California on emissions reductions now in addition to what we need to do in the future. So that's a lot of how we approach it. We'll follow Science Based Targets initiative. But we set those targets internally as well. So as I mentioned, every area of the business inside the company in one form or another is contributing to this. It's much like how companies approach call. There is not this separate add-on that kind of fixes it at the end or when the car comes off the line, or what have you. It has to be a part of everything you do, including the supply chain and the interface with suppliers and whatnot as well.