Ford Motor Company (F) Earnings Call Transcript & Summary

Please welcome the Executive Director, Investor Relations, Ford Motor Company, Lynn Antipas Tyson.

Welcome, everyone, especially those of you joining us on the webcast. And also, those of you who came out on a Sunday to experience the products, I think the Raptor R jump was the favorite, yes, I think for those of you here. So I just wanted to go through a run and show for you and also show you safe harbor. So if we can queue the safe harbor slide, please. Perfect. You saw it. Now we can take it down. And let's go to the agenda for today, especially for those of you who are watching the webcast. The formal part of today, we'll start now and go through 11:00 a.m. that will include one hour of Q&A for the analysts who are in the room. We will have a break in between. So again, those of you on the webcast can take a break then. Then we will go off the webcast and have a networking lunch for those of you who are in the room for 90 minutes and then we'll reconvene to do the breakout sessions. Each one will also be webcast. Just to let you know, all information is going to be archived on our website. And again, we welcome you to Dearborn, Michigan. Thanks. [Presentation]

Please welcome President and Chief Executive Officer, Ford Motor Company, Jim Farley.

Well, good morning, and welcome to Ford and thanks for investing all of your time with us. When you're visiting Ford, you're surrounded by history. In 3 weeks, our company is going to be 120 years old. Right across the street is a Henry Ford Museum, where my grandfather went to school. Down the road is the Rouge, the cradle of the industrial revolution. Bill Ford works 1 office down from me every day. We work for all of you and for the next generation and then the one after that. Now some say history shows that companies like Ford can't win an era of technology and new competition. There's too many legacy issues, too much resistance to change inside the company. Over the past 2 years, this team has confronted each of those very real challenges head on. We created a compelling plan. We've been relentless in building a world-class team and tackling the biggest problems to face forward and our industry. A new culture is taking root, one that demands focus, collaboration and excellence. The history that matters now is the history we are making now. Two years ago, we laid out the Ford+ plan. It was a here-we-go moment in creating a Ford that thrives at the intersection between great vehicles, which won't change, innovation and rapidly deploying software. And as you know, 1 year ago, we announced plans to reorganize Ford into 3 customer-facing businesses. Ford Blue, Ford Model e and Ford Pro to drive speed, focus and accountability. And this year, we started to actually run our company with this new structure. Today, we'll take you deeper into our strategy into the big bets we're making, different bets than some others are making. Most of all, I hope you come away with a better understanding of our strategy and the potential for Ford to create tremendous value for both our customers and our investors. Everything we're doing is centered on our educated view of what customers want and expect, what they will love actually in this new era of connected and digital vehicles. If I fast forward a few years, great vehicle design, great performance, quality. They're going to be table stakes. The shopping and buying experience is going to be simple and delightful. Your cars integration to your digital life will be seamless and rewarding. The improvements to the vehicle, constant and ingenious, EV charging must be fast, reliable, safe and easy to access. And sending electrons back to the grid or running your house will be as normal as flipping on the AC in your house. Advanced data, predictive failure of components will catch most vehicle problems before they even happen or at least before they become serious. Think about a plumber whose van never breaks down. They know 2 weeks in advance if they need to change so much as the wiper blade. Repairs and upgrades will be handled over the air or by remote service teams. But here's what's most exciting about that future. Your vehicle will get to know you and your family or coworkers. Customers would choose the tech features they want just as we do the apps on our phone. Imagine a beautiful Ford vehicle sitting in the Farley family house of Driveway. And depending on who gets behind the wheel, the user experience is completely customized. No surprise to you, I would probably go for 0 to 60 in 3 seconds with very aggressive regenerating braking. And unfortunately, for my kids, probably Led Zeppelin on my phone. My wife, Lea, might choose 0 to 60 in 6 seconds for relaxed drive and twice the range that I want with CarPlay and Sheryl Crow, And for my daughter, Grace, streaming 1 direction would pop up instantly. And if she's driving, I better be getting an automatic text message every time she breaks the speed limit. At night, back in our driveway, the vehicles' cameras, the microphones, the lighting provide an extra layer of security for our house. As we move to this future, brand strength will still matter and we are fortunate to be stewards of one of the greatest brands in the world. I hope you felt that yesterday when you were jumping your Raptor or drifting a Mustang. Because Ford is an American original and there are not many anymore. It resonates in a way -- that way around the world. The blue oval badge is at home, with worth trucks or an $800,000 supercar, police cruisers, Mustang GTs, Ford's comfortable in the formula 1 circuit as is us being comfortable with Moab. We're as comfortable on a fashion brand or a vintage T-shirt. The opportunity we have now is to elevate the Ford Brand and introduce ourselves to millions of new customers who may have never considered a Ford to evolve and offer services and experiences that people don't want to live without. Now unique and compelling nameplates like F-Series and Bronco and Mustang. They create buzz and provide a platform. But here's the main point, features stretched horizontally across the brand; safety and security applications, partial autonomy like BlueCruise, productivity and predictive failure, like pro telematics. Those will be the difference makers. So okay, Farley, how should I look at that as an investor? The fact is auto valuations have begun strained for decades. And Ford has been stuck in a box. The industry is crowded. It's mature and to stand out. We let complexity overrun our business as we try to be all things to all people. We poured capital into fresh sheet metal in every segment, cycle after cycle. We jockeyed against our competition over slivers of share in markets where growth long ago stagnated and where demand evaporated every time we had an economic downturn. Well, this is a new era. We're playing the game differently. And we now have new tools. We set our sights squarely on the things that we do better than anyone, trucks, large SUVs, commercial vans. We're accelerating our use of low capital derivatives like you saw yesterday to keep our products fresh and improve returns. We're simplifying our offerings based on how we know customers actually use their vehicle from data off the vehicle. And then we eliminate waste that are permeating our companies for decades. We're now using software and data as a catalyst to create more value for our customers and offer personalization without complexity. And most importantly, we're using services like BlueCruise and charging for Pro and telematics and prognostics and predictive failure and safety and security to add value to our customers throughout their lifetime with the product. And that gives us 2 things we've never had. Number one, it gives us profit streams that don't dry up in a downturn. And number two, it gives us a chance to grow. Now I'm not here to tell you that we're undervalued. You'll make your own decision. I'm here to say that through what -- as we execute Ford+ plan, we have a massive potential to create value with a higher growth, higher margin, less capital intensive and more resilient business. A 10% adjusted EBIT margin by 2026. It's not the end goal. It's a waypoint, it's a milestone on our journey. We have much higher ambitions as a team. And we're going to show you the bridges today as you can -- so you could track our progress. It starts with our commitment to customers to deliver world-class quality in every segment we compete and to close the cost gap to the best in our industry. And to do that, we've launched a lean discipline operating system that reaches into every one of our plants we operate, every part we buy, every engineer that releases a part. And Kumar will get you very specific about the forward plan in Blue and especially around cost and quality. The appeal and pricing power of Ford Blue lineup is stronger than ever. I don't think people really understand the opportunity we have with Blue. We believe our combustion and hybrid business is more durable than other automakers because our iconic products, consumer profile and segments where we compete are unique. You will see a relentless discipline in capital allocation and brand management as we leverage Ford Blue to grow profit and cash flow. And bottom line, the business is stronger, -- it's strong, it's growing, and it's going to be that way for a while. Next, we'll take you inside Model e, which is focused on 3 mission-critical priorities. First, developing incredible EVs and software platforms for all of our vehicle businesses. Number two, launching a new consumer experience with our dealers. And number three, building our industrial system to deliver millions of EVs super efficiently. Doug will take you inside our plan to build an indescribably great second- and third-generation EVs that none of you have seen. We will -- we see indescribable as a team inside the company because these vehicles will be platforms for endless innovation and I believe offer features, we can't even imagine yet. I never expected to use my iPhone to measure my sleep. And it isn't much, by the way. But this is exactly what's going to happen to vehicles. The embedded electrical architecture, all those software that we design, the cameras, the sensors, the microphones, the speakers, they're going to open possibilities to software developers in areas like partial autonomy, safety and security and productivity for Blue e and Pro. Now achieving the vision comes down to 2 things: how deeply we understand our customer and how quickly we can iterate with that knowledge with the data off the vehicle and deliver better and better software and products. We're going to make that virtuous circle tighter and tighter and faster and faster. And I can't wait to show you what's coming like a Ford electric truck that's a technology due to force that will transform the job site or a 7-passenger SUV that's like your own personal bullet train. We're matching these vehicles with a modern and simple customer experience that starts with one major breakthrough, non-negotiated price. Our dealers can be a competitive advantage as we work together to lower distribution costs. We're going to reduce physical inventories dramatically in Model e and deploy a new marketing model that focuses on loyalty and customer communication and building a community rather than spending billions on TV advertising and broadcast media. Now all of this relies on building an industrial machine that can produce 2 million EVs a year in just a few years from now. And that includes our diverse battery technologies, comprehensive raw material plans and vertical integration strategy. When our new second cycle EV truck comes online in Blue Oval City in Tennessee, it will be the most efficient build pickup truck in the planet. And when our new LFP battery plant in Michigan begins production in 2026, we expect it to produce one of the industry's least expensive batteries ever. Lisa Drake will tell you more. Now let's talk about our secret weapon, maybe not so secret anymore, Ford Pro. There is -- this is one way to look at Ford Pro. Ford Pro today is a $50 billion revenue business. That would put Ford Pro by itself in the Fortune 100, just below the likes of John Deere, a great company whose market cap is twice Ford's. Now Deere earned that valuation by capitalizing on that same intersection of hardware, software and services while providing tremendous value to their commercial customers. The Deere plan perfectly describes a master plan for Pro. It won't be one easy to copy as some other automakers think because as Ted will explain, we are starting with clear, global market vehicle leadership across multiple work sectors and vocations. We have unmatched physical dealer network and deep collaboration with upfitters. It would take a decade or more to get even close to what we have today. Taken together, this constitutes a wide and very deep moat for us at Ford Pro. Now we're going to integrate digital and physical experiences that maximize uptime for our customers, accelerate their productivity and lower the cost of ownership. A superior distribution system for Ford Pro and higher software attach rates, which we're already seeing will drive revenue and earn loyalty. I'm especially pleased for you to get to know the Ford team better during this event. Now the competition for talent is very real. And for the first time that I can remember, it feels we are absolutely winning it Ford. People with rare talent can work anywhere they choose. And they're motivated to -- for the chance to change the world and put their own mark on history. And fortunate for us, some of these incredible leaders have been drawn by the opportunity to revolutionize the automobile at an iconic company like Ford. With this new talent combined with the best people at Ford, we now have a team I have dreamed of working with for my entire career. And later today, our CFO, John Lawler, will bring it all together with the financials and assumptions that support our investment thesis. But I didn't want to miss the chance to speak directly to our valued investors. I said earlier, Ford has been stuck in a box with thin margins, weak growth and low valuations. You've been in that box with all of us and it's now time to break out. Over the next few hours, you will see a new company come to life, a company our investors deserve. We intend to create unprecedented value through both share price growth and shareholder distribution. And that's why we developed Ford+. I want to end by thanking all of you for your time, the most valuable thing we all have. Please enjoy the day, get to know the team. And with that, I'd like to invite Kumar up to the stage. Thank you. [Presentation]

Ford Blue is a global industrial powerhouse with iconic vehicles. We're the #1 selling pickup manufacturer globally. F Series is the #1 pickup in the world. Maverick is America's #1 small pickup. Explorer is America's all-time best-selling SUV. Mustang has been the world's best-selling sports coupe over the last 10 years combined. And last quarter, Bronco outsold Wrangler at retail. All of this is enabled by one of the freshest lineups in the industry. The average age of Ford Blue's portfolio is 4 years. The average age of our truck portfolio is just over 2.5 years. And globally between this year and next, 60% of the Ford Blue product portfolio will receive a major or moderate level of freshening. The resiliency of our product portfolio in the face of EV adoption is remarkable. Broncos are coveted off-road vehicles. They go places where you're unlikely to find chargers for EV. And for those who want the range assurance of an ICE and lower emissions, we have Escape and Corsair plug-in hybrids and F-150 and MAVERICK full hybrids. We expect the strength of this portfolio will deliver Ford Blue low double-digit EBIT margin by the end of 2026. Ford Blue is also the industrial part of our company. Over 60,000 hourly employees build approximately 13,000 vehicles every day in 16 assembly plants around the world. Our manufacturing skills have been honed over 120 years. Kentucky Truck brand builds Super Duties, Expeditions and Navigators. Our team installs the right engine and transmission into the right chassis, makes it to the right body and a brand new vehicle rolls off the assembly line every 37 seconds. But delivering great products and having great operations isn't good enough. We have a lot of growth opportunity. And we must turn our cost structure and capital efficiency into a competitive advantage. We estimate that total Ford costs are about $7 billion higher than our competition. And most of that sits in Ford Blue. Closing this gap will yield higher margins and free cash flow to fuel the enterprise growth. So Ford Blue priorities are very clear: improve quality, reduce costs, grow revenue and profits. Let's start with growth. The strength of our portfolio makes Ford Blue a growth business. Our vehicles are iconic that become part of our cultural fabric. They have a huge loyal global and multigenerational following. We have Mustangs for on-road fun, Broncos for off-road adventures, F-Series to get all kinds of job done, Explorers and Expedition for long-haul family trips. And we're attracting new customers. Over 50% of Bronco and Maverick customers are new to the brand. Iconic nameplates like these helped Ford grow its U.S. market share by almost a full percentage point in 2022. Global Ranger sales grew 20% in the first quarter of this year. So demand continues to outstrip capacity for our key vehicles. In the next 10 months, Ford Blue will increase its capacity by over 160,000 units. We will further strengthen our portfolio and we will use several levers to improve our returns. We're developing derivatives. We're broadening our hybrid powertrain offerings. We're increasing our share of accessories and parts sales. So let's start with derivatives. Many of you experienced the breadth of our portfolio yesterday, including the derivatives. Derivatives are emotional products that are also highly capital efficient. We created the high-performance off-road truck segment with the F-150 Raptor. We've since expanded it with Bronco and Ranger Raptors. We deploy relatively low investment by deriving these vehicles from existing vehicles. These vehicles have about 80% commonality to the base vehicle and deliver 2x to 3x the EBIT for each dollar of invested capital. We have the Tremor family for our pickups. Timberline provides more off-road capability for our SUVs. Bronco -- Bronco has Raptor, Everglades, Heritage, all developed for different customers. And that's just the start. There are several more chapters in the Bronco story yet to be written. And we will be disciplined and efficient as we invest in these derivatives. We will focus on growth segments where we lead. These vehicles are an expression of our customers' passions and lifestyles. These are not commoditized vehicles. They have serious pricing power. And our customers also love to customize. The U.S. accessories are an $8 billion industry with very high margins. Ford Customer Service division or FCSD will unlock this growth potential. Our accessories are Ford tested and covered by our warranty. Let's take Bronco as an example, is a canvas for personalization. If you see a Broncho bolt, it means you can replace the part being held by that bolt with a more personalized part. And the average Bronco owner spent $1,700 in accessories at the time of purchase. We plan to expand this over the ownership cycle by doubling our market share for post-sale accessories to 20% over the next 3 years. Speaking of FCSD. Today, FCSD captures only about 25% of the post warranty service. We plan to increase this to 40% over the next 3 years. We will add service capacity by lowering warranty repairs and also add mobile service capacity. An effortless customer experience is key to growing the service business. This year, we'll add over 2,000 mobile service base to the entire enterprise. Welcome to the place of your choice and perform light service like oil changes and tire rotations. We already offer pickup and delivery to Ford and Lincoln customers in 16 countries. We will pick up your vehicles, service it and bring it back to you. The margins on our service business are robust, and FCSD will thrive well into the future as ICE begins to decline because we'll have a car park of millions of vehicles around the world for years to come. Another growth lever is software. Over the coming years, Ford Blue will benefit greatly from the software being developed by the Model e team. Of all DOT updates we've delivered to date, more have landed on ICE F-150 than any other vehicle. Close to 40% of all BlueCruise capable vehicles we ship this year will be delivered to Ford Blue customers. So clearly, lots of opportunity to grow. And because of our unique portfolio, we are less exposed than our competition during this EV transition. Truck customers travel long distances. They tow very often. They will buy our ICE and hybrid full-size trucks until EV range with towing improves and a broader charging network emerges. Mustang customers look for that unique gas-powered experience, both on the road and on the track. Outside of North America, Ranger is our hero. Over 70% of Rangers are sold in markets where the local infrastructure does not support significant EV adoption in the near term. Trucks, Off-road and Performance segments have a long runway but ICE volumes will clearly decline as EV adoption increases, and we embrace that reality. We think this will begin for us post 2025. But the pace of EV adoption will vary by segment and geography. Europe and China are transitioning faster than the U.S., our biggest market. We expect strong U.S. ICE and hybrid sales well into the next decade. Now let's talk about how we're reducing our share of that $7 billion cost gap. Let's start with quality. We've set very specific and time bound goals to improve. For vehicles like F-150, Super Duty, Bronco Ranger, Transit, we're targeting to be best-in-class by 2025. For the rest of our portfolio, the target is for each vehicle to be in the top quartile of their respective segment by 2025. We're addressing the 3 key root cause areas for improvement: engineering, manufacturing and supply chain. Let me share some examples. For near-term quality, we made meaningful changes to our recent Super Duty launch. We began our software testing before we even built a single vehicle. We identified and resolved bugs faster. We hit bug peak earlier and dramatically reduced the chaos of late software changes. We increased the number of launch vehicles we evaluated. Hundreds of drivers drove millions of miles in launch vehicles. We tested and held vehicles for quality verification, 3x longer than the prior launches. To address long-term quality, we've improved our durability testing. We're changing a lot of our testing regime from test to standard to test to failure. We used to test key vehicle systems to a certain standard that was correlated to real-life usage. And once the system passed that standard test, we stopped the test. This process works but you could miss the opportunity to increase the system life even further. What if failure was just a few cycles away when we stopped the test? Now for these key systems, we test until it fails. We find the eventual weak point. We can then eliminate it and prolong the vehicle life even further. Early data shows that these changes are working. Lessons learned from Super Duty are now a blueprint for future vehicles. These process improvements will lower our warranty and recall costs. This will improve Ford Blue's contribution margin and EBIT margin one point by 2026. Let's talk about material, commodities and logistics costs. We are attacking waste on current and future vehicles in 3 areas: first, the health of our supply base; second, just the pure cost of our parts. And the third is complexity. We have some chronically inefficient Tier 1 and Tier 2 suppliers. Post-pandemic suppliers shed labor, depleted critical skills, reduced buffer stock causing unstable supply. Unstable parts flow from these inefficiencies disrupts our production. This causes waste for us and for the rest of the supply base. We have worked with more than 125 key supplier sites to stabilize their operations. We've established ongoing monitoring of key indicators like quality and supply flow. And if the present supplier is not on a path to a permanent solution, we're resourcing the business. Semiconductor shortages have also driven production and stability resulting in premium material and logistic costs. We are working every day to improve this. Addressing the supply base instability will improve Ford Blue's contribution margin and EBIT margin 1.5 percentage points. Next, part costs. Our team is benchmarking competitive designs and collaborating with suppliers to reduce part costs. Let me share some tangible examples. Modifying material on exhaust manifolds, mounts and front rails will deliver $35 million in annual savings. Simplifying Explorer wiring complexity from 500 main harnesses to 14 lowers cost by $7 million a year. Eliminating a cable designed as a manufacturing aid will deliver $11 million in annual savings. There are hundreds of examples like these. And so far, this year, we have identified over $0.5 billion in annualized savings and are working every day to increase that number even more. These design actions plus others, including expected commodity cost improvements will contribute an additional 1.5 percentage point of margin to Ford Blue by 2026. So in total, these actions will deliver 4 percentage point improvement in EBIT margin from contribution cost. Now let's turn to Blue structural costs. We are reducing lever and overhead, depreciation and amortization, engineering and SG&A costs. For example, storage, shuttling, security and repairs of incomplete vehicles cost our manufacturing almost a point of margin last year. We will eliminate this waste as we improve the supply base stability. Complexity reduction improves both our quality and material costs. But it is also critical to improving our structural costs. Less complexity means fewer parts, fewer parts to engineer, fewer parts do tool, fewer parts to test, fewer parts to sequence. It means reducing engineering facilities, tooling and manufacturing costs. Over the last 2 years, we've reduced the number of orderable combinations for Explorer from over 1,900 to 23; for Expedition, from over 800 to 32. And we've done this without losing sales or share and in the process, made ordering a vehicle online, much easier for our customers. The space adjacent to our assembly lines is limited. High complexity parts must be sequenced in warehouses near the assembly plant. By reducing our complexity so far, we have identified 85,000 square feet of floor space that can be freed up to enable further in-sourcing for cost reductions. Later this year, we will introduce a new F-150. We removed over 2,400 parts from the bill of material for this truck. This reduced material and logistics-related waste. Also reduced engineering, tooling, depreciation and amortization costs. Our capital-efficient derivative strategy, complexity reductions and the benefits from greater cost absorption by Model e and Pro as they scale will lower Blue's structural costs by 4 percentage points. So let me end with how I began. Ford Blue is a vibrant global industrial powerhouse with iconic vehicles, vehicles with a lot of runway for profitable growth. We will get more efficient with our manufacturing operations. We will improve our carbon footprint. We will design flexibility into our manufacturing system to ensure we can serve our customers with ICE and hybrid vehicles. We're improving quality, reducing costs, improving our mix, growing our average revenue per unit, increasing profits and generating cash. By the end of 2026, Ford Blue will deliver low double-digit EBIT margins. That is the strength of Ford Blue and efficiently run business and an industrial powerhouse with an iconic product portfolio. Thank you. And now let me welcome Doug to the stage. [Presentation]

Good morning. It's a real privilege to be here and talk about some of the really cool work that's going on in Model e. So I'll start the Model e story actually with a Ford Blue product. Ford Blue makes some really amazing products like the Expedition. Now if you're hauling your whole family and a boat to a remote location, way away from chargers and paved roads, this is your product. There's nothing better for that job than an Expedition. So Model e isn't trying to play a zero-sum game with Ford Blue. We're building white space products that couldn't exist with a nice powertrain just as Ford Blue will keep making products that would be compromised without one. We are investing in really targeted applications where today's technology for EVs is already great and we're succeeding. So half of Lightning customers and even 2.5 years after launch, 60% of Mach-E customers are new to Ford. And these are different customers who are using their vehicles in different ways. So Ford's Generation 1 was a scrappy endeavor, low investments, really small teams and pushing against a large organization that hadn't really endorsed or embraced EVs yet. Now I wasn't here when these products were developed, but when I saw them, I was impressed. They're not just great, first-round EVs, they're great products, period. And they're part of actually why it came to Ford. If this is their first generation product, imagine what can be done in the future. But Ford went way beyond just taking products and converting them into EVs. And the best example is the F-150 Lightning. I told you about customers being new to Ford. But what's really staggering is more than half of Lightning customers are new to full-size trucks. This is a really big deal and it only happens if you've redefined a product category. So Ford knows trucks and they started by making Lightning a real truck built for tough to do real work. But when you engineer an EV with the capability to do this kind of work, you also get a truck that's mind-blowingly quick. Hopefully, you got to experience that yesterday. So this is a real work truck that accelerates like the best sports cars. That's a different proposition. The Mega Power Frunk is a really big deal as well. It's about the size of the trunk on the best-selling sedan in the United States. So you get your lockable, weather-proof storage and you get a truck bed. So this becomes a different product with different trade-offs. Pro Power Onboard provides all the power you would need for anything you can put in the Frunk or anything you could bring to your camp site. And in the bed, Pro Power is a lot more than just a bunch of wall plugs. This has a 240-volt power source capable of even charging another EV or running a work site and doing it with no noise and no emissions. And then finally, Ford was also first with intelligent backup power. So you plug your Lightening in to charge at home and if you lose power, your truck can immediately switch over and run your house for days. So a few years ago, back in California, I installed a bunch of Tesla powerwalls at my home. Now if I had waited, I could have had the same backup capability and I would have gotten the truck for free. And I have friends at Apple, who told me they bought a Lightning because it's the only EV where they can fit their child seats, 3 across in the back. So we're attracting new customers to the segment and to Ford because this really is a new product category. Now our Gen 2 products will take a lot further. We'll invest in Gen 2 only in look places and segments where we know we can win and where we know we can do something differentiated and where we're going to deliver great stuff and great products to the world. Starting with a full-size pickup that goes to the next level and the 3-row SUV. Our Gen 2 products will be unlike anything customers have ever seen. That starts by not trying to be everything to everyone and make every possible flavor for every individual. And as Kumar told you, that's not really what customers want anyway. So because of the connected data that we now have access to, we're much more informed on what customers want and what they don't value than any time in history. We take that information and engineers and designers focus on a small number of very discrete configuration and they optimize systems instead of components one by one. They pursue excellence for a specific customer and how these customers will use in EV. So those of you who were at some of our events have seen Project T3. Project T3 Is our next electric truck. And the complexity goes so far in this new project that you'll be able to count the buildable combinations on 2 hands. And that covers both Model e's retail customers, their Ford Pro commercial customers and commercial customers. So when we commit to this kind of focus, complexity falls off in a way that completely changes the company. Kumar told you a little bit about it, but the operational impact is profound. The inventory feeding the plant, as you saw, the sequencing, everything that has to feed an individual snowflake of a product down the line. Service parts, we carry changeovers that suppliers have to do. Every one of these and a whole bunch I didn't mention have costs associated with them. And they're unmeasured and they get forever lost in the system. But the biggest benefit is what we can do with the product with that focus. And the project T3 stands for Trust The Truck. And this is a truck people can trust, not only to do work, but they can trust it in the digital age. It's fully updatable. It will be constantly approving, rapidly learning from the moment it starts down the assembly line when it's computer is alive and communicating with the factory until years after it's been a part of a customer's life. Jim called this product a Millennium Falcon with a back porch. That's a great description of what this thing will be. And we're not going to show it to you today, but it's a bad a** product. Our Gen 2 3-row, which is also coming in 2025 will be equally groundbreaking. So think about a family that wants an affordable EV with amazing experience for road trips. Now we could have converted an Expedition into an EV but it wouldn't have made for a very good EV and it wouldn't have made for a very good Expedition. You'd have to put a really big battery in this vehicle in order to get just 300 miles of range on the highway, about 150-kilowatt hours of battery. That's a big, expensive and heavy battery. And instead of capturing the unique and great things that we could do for an EV, this product would have been a compromised solution for a customer that Ford Blue has already got covered with a great product. So that's not what the team did. There's a bit of an arm's race in the industry to show bigger and bigger batteries into large EVs to try and make them like ICE vehicles. But the real battleground in electrification is about efficiency. Efficiency is like God's work. When we really understand the physics around energy loss in an EV, we optimize it rather than compromise it. So when we set out to build our Generation 2, 3-row we started by changing the way we think about the tires with lower rolling resistance, squeezing every little drop of propulsion system efficiency out, optimizing everything in computer simulations. We took a bunch of mass out. We lowered the right height, changed the aerodynamics and the result is a different product. It's a 3-row family vehicle with 350 miles of range that can still cover 300 miles when you're cruising at 70 miles per hour. It's got a battery that's 1/3 smaller and lighter, thousands of dollars less expensive and with the same amount of scarce battery raw materials, we can bring our product to 3 customers instead of 2. And those 3 customers are going to get a new and a better product. As Jim said, we call it a personal bullet train and it's beautiful and it's unlike anything in the segment so far. It will be affordable. It will be longer, sleeker, quieter vehicle with amazing size and features of an interior space. We've engineered the battery and charging. So not only can you travel those distances on the highway, but you can stop for less than 10 minutes and pick up 150 miles of range. So this obsession in EVs is more than engineering. It's like a religion. The teams have put together these little pocket cards that say, what are the trade-offs of efficiency? How much do I get for every little piece of weight that I take out of the vehicle? What do I get for better tires? What do I get for more efficiency and propulsion. So it takes more though than great products to really win customers over, particularly new customers to Ford. It takes a buying and ownership experience that's way, way beyond what we do today. So we know that most customers would enjoy the buying process a lot more if they could skip the step of negotiating on price. So starting in January, Model e customers will have flexible purchase options online in the store with transparent pricing that they don't have to haggle over and remote vehicle delivery and later pickup as well. And these better experiences make customers more likely to build a relationship and choose the same dealer again. There are benefits to the dealer. Customers also want to get their dream vehicle not settle for what's on the lot. And soon, they'll have far more options available to purchase through their dealer from new retail replenishment centers. These centers can hold a couple of weeks of inventory and deliver the right vehicle in less than 10 days. And with how we've brought the complexity of our lineup down, we can cut the system inventory in half to 50 days. So our dealers are freed as well from negotiating with customers to sell what they have on the lot and that's happier customers, but it's also fewer discounts. So we want each of our Model e dealers to be a trusted partner for new EV customers who want to see and learn about these new great products. So we've talked about how electrification changes the product and changes the business, but electrification isn't the biggest transformation going on in the auto industry. And it's not the limit of what we're trying to do in Model e as well. Model e is intended to bring tech and software to the center of all ICE hybrid and electric vehicles across Ford Blue, Model e and Pro. And with software, these aren't just vehicles, they're products, but a very special kind of product. So a vehicle is a space, which we can design and curate in ways that no other space in your life can be. So we can place the screen in exactly the right place for the experience we are designing, not have to deal with the fact it could be in your lap, it could be on the wall or it could be sitting on your desk. We can put cameras in precise positions inside and outside the vehicle. We can put our speakers and our microphones, more importantly at exactly the right points relative to where we know that people are going to be in space. We can change the lighting and we can control the experience all the way from how you're sitting to what the air quality is and what the air temperature is. So this goes way beyond what you could do with just a device with software or even a smart home. They're all different. So this opens new experiences. So we start with how we connect the vehicle to your digital life. And we do that with media, music and games, but we do it in exciting new ways, leveraging that space. Our music experience, for example, should be so great that a family says, "Hey, there's a new Billie Eilish album out. So let's go out to the car and listen to it. We'll use the space to connect you to the outside world as well, not just isolate you. So you'll be able to connect with video conferences, bring people along the new trip virtually where they can see what's going on both inside and outside the vehicle. And the vehicle can be a remote presence. It's a guardian, a security camera, an alarm system, weather station or it could even be a mobile mailbox. So we want to make these experiences so great that you could take the wheels off our products and people would still want to buy it and have it in the backyard. But it will have wheels. And as we work towards this future with more and more autonomy, when you can eventually take your eyes off the road, all of this investment in those experiences, we can start to bring to people while they're traveling. But these digital interior experiences are really just the beginning. Products we make are not living rooms. They are moving, working robots. And our software ambition goes way beyond deep into how our products move, how they collect data and how they support people who are going to use them for real work. We call them unimaginably great products because the best things we will make are the ones we haven't thought of yet. So if you want to design for things you haven't thought of yet, the only way you do that is with a platform, a platform in which our creative and technical people are going to build their future. So platform thinking has been around a long time in the automotive industry. But it's generally been based on underbody structures, engines, transmissions. Things that take a long time to engineer require lots of capital spending and long lead times. This is a very, very different kind of platform. And it's one that still really isn't understood that well in the auto industry. So you can start with the electrical architecture and you'll hear a lot from the industry on this. You can find all kinds of block diagrams all over the web and less wiring, less connectors, these are generally the things you'll hear people talk about, but it's not the most important part of the plan. The most important part is the software. So Ford, despite the challenges we have in existing vehicles with industry standard, supplier controlled digital platforms, Ford has made a huge amount of progress in moving into the new world. So back starting in 2019, Ford made a commitment to put a modem in every single car. That must have been quite a leap of faith. But with it, we're learning from connected data and we're making better, more informed decisions. And we've already started improving the customer experience, 11 million OTAs over the past 2 years to add capabilities, enhancing existing ones. We want to focus on a few key areas with the software where we know we can make a big impact on customers. Connection with people and data in your environment, productivity, particularly in Ford Pro, but everywhere, safety and security and then autonomy. And while we're just getting started with the vehicles we have, just imagine what we can do when we control the platform. So we're building our next-gen platform, software and hardware for all Ford vehicles. And it will launch first on our Generation 2 Model e products in 2025. And when that happens, all of a sudden, a new world of possibilities opens and a new world of businesses like L3 autonomy. In the breakout session, I'll tell you a lot more about this platform, but we're not waiting until then to start delivering software. Ford Pro is our tip of the spear. Ford Pro Intelligence launched us into the productivity space at the beginning of last year. BlueCruise, we launched almost 2 years ago, long before I was here. And it transformed the experience for customers in light or heavy traffic on divided highways. Our Version 1.0 was consumer reports top-rated ADAS in the U.S. And it's the first hands-free system to actually gain regulatory approval for use at highway speeds in Europe, not crawling around stop and go below 40 kilometers per hour. So BlueCruise is the first place where we're in the software business. And with this success, we're now putting BlueCruise hardware in every single Mach-E whether the customer ordered it or not. And with no selling or marketing support just on the strength of the product and the word of mouth, we're already at a 20% take rate. And we have an even bigger opportunity with the other 80%. So we now have the confidence to install BlueCruise hardware on 500,000 Ford Model e, Blue and Pro vehicles next year. Even in some cases, the customer doesn't choose to order BlueCruise upfront. And what we're seeing is revenue that we think could be $200 million here and high margin across the business, which doesn't even include future activations or extensions. So that's just the start. And as we build out our next-gen platforms, we aspire to deliver L3 autonomy to as many customers as possible. When you can take your eyes off the road, everything changes. So my finance and business partners tell me that this is a different kind of revenue. They use these words like accretive to margins, less cyclical than vehicle sales, as Jim talked about, and its revenue to grow without fighting for vehicle share. Now we're going to do this kind of software in a different way in the Ford way. Ford is about democratizing technology. That's the history that you're seeing and hearing about today. So we want to design our software for our customers and their specific use cases, not our internal technical experts. We want to give customers capability but not complexity. We want simple products but products that are never patronizing. And I'll talk more about this in the breakout session, but this all starts with people. Fantastic teams composed of the most talented and passionate people in the industry that combined decades of experience building this company with new skills and perspectives from other industries. And this team that we're privileged to lead is led by senior leaders on my staff, on design, on product and in technology that I believe to be the best in the industry. We're now building third generation teams and projects and they're going to deliver breakthroughs in products and platforms that go completely beyond Gen 2. We'll keep going and we'll never be satisfied, but that's okay because this is what we love to do. Now I came to Ford because it's the opportunity to be best of both worlds. To use technology to create these unimaginably great experiences and products, but the ability to leverage a proven capability of a legendary team with more than a century of scaling and delivering products to millions of customers. And to show you how that part of the team is bringing to life the Model e plan, here's Lisa Drake.

Thank you, Doug. Okay. So to put these incredible products in millions of driveways, all we need to do is build the largest greenfield complex in Ford's history, transform Ford existing plants all across the globe to produce our EVs, build 5 new giga factories to produce batteries, hire and train thousands of workers, secure multiple contracts for lithium and nickel, and that's for starters. Fortunately, we have 120 years of industrial know-how at Ford, and we will lean on that. And we've learned a lot about building an EV industrial system just in the past few years. And luckily, vertical integration is in our DNA. From 2022 through the end of '26, Model e will grow from just under 100,000 units to well over 1 million. And when you add Ford Pro, our total capacity will approach 2 million EVs. So we are wasting no time already increasing production in our first-gen EVs, and that starts most recently at our Mustang Mach E plant in Cuautitlán. Now our quarter 1 volumes were down because we shut down the plant to expand the production capacity. We built a new paint shop, a new battery pack center, a new final assembly, and we were back up building customer units in just 8 weeks. By the 41st production day, we had doubled the previous hourly production. Now Lightning will undergo a similar shutdown this summer because we will nearly quadruple its annual capacity. And speed counts in this business, especially for time to market for our next-gen products. Ford standard of manufacturing excellence is to launch and hit full operating line rate within 55 days and we built the capability to do this through decades of innovation and manufacturing, taking on some of the industry's biggest challenges like the introduction of the aluminum-intensive F-150 a few years back. And now some of the most radical innovation in our final assembly process will happen next year at our Oakville complex in Canada. We will introduce a production process called zero faults forward and it takes advantage of our new fully networked product capability that Doug talked about, to self-test and communicate issues to the operator right on the line. We can continuously update software to the latest levels throughout the entire production process, plus we get to have some fun with self-driving and manufacturing too, as the vehicles will be able to move through various stages of production and testing without a driver. And we can leverage this autonomous vehicle technology, both indoors and the plant and also outside of the manufacturing facility. This is going to help us increase throughput, reduce our overall space requirements and of course, enhance safety for our plant workforce. We expect to scale this capability faster than others because we have the best of both worlds, with the vehicle electrical architecture and the manufacturing experience to pull it off. Converting our Oakville site allows us to start producing EVs about 2 years sooner than if we were to have built a new plant. We already have the land, the buildings. We have a proven workforce in Canada that's ready to roll. Now of course, we're building a greenfield site too. The Tennessee electric vehicle center at Blue Oval City. Tennessee is the home of Project T3, the Gen 2 EV pickup that Doug talked to you about. Our Tennessee Electric Vehicle center will create more than 3,200 new jobs and it takes another significant step forward in manufacturing innovation. We'll have 0 mainline operators in the body shop, a 25% smaller paint shop and final assembly area versus our Dearborn truck plant and more than a 60% reduction in the labor to produce the battery packs versus our F-150 Lightning today. A few examples about how we did this are behind me. The team is using autonomous mobile robots for material handling in the body shop as an example, laser-guided closure installs for the doors in the hood. In addition, we'll stack the bodies coming out of our paint shop vertically to take advantage of the volumetric space in the building, and we'll shrink that paint shop footprint 25%. And we'll have all of the connected and autonomous manufacturing capabilities, as I mentioned in Oakville, in Tennessee as well. When it opens in less than 2 years, the Tennessee truck plant, which can flex to a production capacity of 500,000 units annually. We'll have nearly 30% less labor and overhead cost per unit than our high-scale ICE F-150. Bottom line, scaling quickly, taking full advantage of our digital product capability, coupled with our manufacturing strengths is a really big part of the foundation for our industrial plan inside of Model e. Now let's talk about the battery plants. We've announced 5 vertical integrated plants globally. The first 2 in Kentucky and Tennessee are on track to open in 2025. And we've learned a lot from our current generation EV experience on what it takes to scale battery capacity with quality. Ramping these facilities will define our EV launch curve. These are massive, massive facilities, thousands of pieces of equipment and really deep raw material value chains. Two of those raw materials I'd like to talk to you about briefly. We've sourced about 90% of the nickel and the lithium that underpin our capacity targets. And today, we're announcing lithium agreements with 3 of the top producing major global suppliers, Albemarle, SQM and Nemaska. Nemaska is a joint venture backed by Livent and the investment arm with Quebec. And these are some of the largest lithium producers in the world with the best quality, existing capacity and IRA compliance. And our plan is significantly de-risked with these agreements versus relying on investments in junior producers or smaller entrants who are still in permitting or extraction and processing development. And while these majors give our plant stability, we're also investing in U.S. based development projects through agreements with Compass, Ioneer and ESM. We all need to continue exploring reserves, developing extraction technologies so that we can further diversify the industry. And Ford will certainly continue supporting that development. Now quickly on nickel. Companies like Huayou have made breakthroughs in nickel processing. And one of those processes is called HPAL, high pressure acid leaching. That process converts lower grade nickel ores that were previously considered waste or at best, maybe suitable for stainless steel applications to something called MHP, mixed hydroxide precipitate. And their process does this very economically and with very low carbon emissions. Producing battery-grade nickel sulfate from this MHP instead of your typical Class I nickel feedstocks saves hundreds of dollars per vehicle. Investment in processes like HPAL is growing rapidly and Ford moved early last year to combine this technology with the responsible mining practices of Vale who is an ESG leader in the mining space. The nickel from this arrangement will be used by the second BlueOval SK plant in Kentucky to produce cells for a lineup of Ford Pro commercial EVs. That plant will have 45 gigawatt hours of capacity, meaning this lower nickel will provide close to $200 million in annual savings. And if you didn't catch it, we have an entire cell plant dedicated to Ford Pro EVs. All of those commercial vehicles will qualify for the $7,500 tax credit. Now let's talk LFP, which is lithium iron phosphate. We're building a dedicated plant in Marshall, Michigan that will be owned and operated by a wholly owned Ford subsidiary, which will produce battery cells using world-class LFP technology. This plant will produce a single cell design that allows us to flex capacity between multiple products and it will run a world-class productivity levels only seen on a few production lines to date. Since we announced this plant in February, we've already found efficiencies to increase its capacity to 42 gigawatt hours from the originally planned 35. And when the plant begins production in '26, we expected to produce one of the least expensive batteries in the United States. And just to note, our LFP volume will make up roughly 15% of our portfolio in 2027. And it's also important to know that we're working hard on our NCM and we're on track to deliver a 30% cost reduction in our NCM chemistry impacts from the launch of the Mach-E in December 2020 and to our Gen 2 products in 2025. We understand the challenge ahead of us and we know that this is not going to be easy work. It's pretty exciting to see the significant progress the team has already made. Blue Oval City Construction is on track and equipment is being installed as we speak. Global battery plants are hitting their schedules and well underway. Workforce development is moving ahead and no one knows the American manufacturing workforce better than Ford, and it's really rewarding to see our teams building the curriculums and the training centers for the workforce of the future. We just showed you our progress on raw materials, and we're super focused on our plan, and we have a world-class team to get it done. With that, we'll begin our 10-minute break, and then Ted Cannis will come up and talk to you a little bit about Ford Pro. Thank you. [Break]

Please welcome CEO Ford Pro Ted Cannis.

All righty. So Ford Pro was born out of Ford's leadership in light and medium duty trucks and vans and our long history of serving both commercial and government customers. As you saw in the video, our customers are businesses of all sizes. They're trades like construction workers or plumbers, landscapers and electricians. You may not have noticed them or the trucks, but our vehicles are all around you, driven by the people who make up the backbone of our economy. And nobody is serving commercial vehicle customers like Ford Pro. We are a trusted partner who understands their complex needs and we cover every industry and every vocation. Ford Pro has the widest and most flexible range of vehicles of any brand and will have the freshest lineup. We have built relationships with hundreds of thousands of customers. Most of them are small businesses, municipalities, not just a couple of last mile delivery companies. Our customers don't just want a great tool to get the job done. They also need physical service to keep them running. And with the addition of software and connected data, we can help them solve some of their biggest challenges, like uptime, safety and security, lower total cost of ownership and increasingly environmental sustainability. Now technology is driving a paradigm shift and Ford Pro is uniquely positioned to integrate new digital solutions that build on our strong foundation of vehicle leadership and our unmatched support network. We truly offer a one-stop shop of work-ready vehicles, software, service, charging and financing solutions that make running a commercial fleet simpler and more productive every day because Pro stands for productivity. We have already have a powerful business in both North America and in Europe, and we're going to make it even better with new growth opportunities, increased margins and reduced cyclicality. So let's take a look at the opportunities ahead of us. In 2023, we expect to nearly double our EBIT to around $6 billion, driven by strong order banks and for our new vehicles and favorable pricing. And we plan to deliver a mid-teen EBIT margin level by 2026 as we scale our integrated solutions. We have nearly 12 million commercial vehicles on the road today, and less than 30% of them are connected with embedded modems. By 2026, we expect to grow that to around 13.5 million vehicles and almost 60% will be connected. Today, we had nearly 400,000 paid software business subscriptions for solutions like telematics and managed charging software. Our paid software attach rate at present is 12% of our connected vehicle base. And we expect this to almost increase threefold by 2026. And by then, nearly 1/3 of all Connected Pro vehicles will be using our software solutions including those powered by our next-gen software platform. This will add even more value for our customers through features like intelligent predictive maintenance, coupled with the big advancements in BlueCruise, partial autonomy and advanced fleet controls and other safety and security capabilities. And these together, these software solutions have the potential to drive up to $2,000 per vehicle annually in subscription revenue. And when you add on non-software opportunities like connected commercial insurance, the revenue potential gets close to $4,000 to $5,000. Our software, coupled with service helps reduce downtime and this will get better and better at prognostics and over-the-air updates grow and we expand our physical mobile service footprint. This will take our attach rate in our aftersales parts business from today around 30% to over 50% by 2026. That's the tremendous opportunity we are going after and we'll do it by executing on our growth strategy to which will extend and deepen our competitive moat. We plan to do the following: sustain our commanding position through new product launches and freshness, strengthen our industry-leading physical service network and leverage software and our new digital architecture to provide differentiated productivity solutions. That combination will lead to higher levels of customer loyalty and satisfaction, a growing share of wallet and a stickier Ford Pro ecosystem that will lead and fuel our future growth. So let's take a look at each of these growth areas in a bit more detail. So obviously, Ford's Pro success is built upon our diverse range of build for tough commercial vehicles, including gas, diesel, hybrid and now electric, our newest and fastest-growing category. We've built decades-long relationships with many of our customers. In fact, nearly 1 in 4 fleets in the U.S. are Ford only more than 2.5x as much as the next brand. And in the U.S., we have the largest share of the Class 1 through 7 commercial and government, full-size truck and van market with nearly 41% share, double our closest competitor. In Europe, we've been the #1 commercial vehicle brand for 8 years in a row with 15% share. We are seeing pent-up demand everywhere for all of our vehicles and new product launches will continue to drive our market share growth. By 2024, we will have freshen around 40% of our lineup, including the all-new Super Duty in North America, our most important launch this year. The new model has been redesigned inside and out with unprecedented levels of technology and work capability, a 5G modem, over-the-air updates, plus more towing, payload, torque and horsepower than any heavy-duty size truck on the market. And Super Duty pickups and chassis cabs lead the market in key segments, including mining, construction and utilities and have doubled the share of their closest competitor. It's a key driver of our profitability in 2023 and beyond. And in Europe, we are launching the new Ranger, followed by the all-new Transit Custom coming later this year. And the All-Electric e-Transit custom and E-Transit Courier in 2024, which will rapidly increase our EV customer base. Transit is the best-selling cargo van in the world. And the Transit Custom for the Americans is not only the #1 commercial vehicle in the United Kingdom. It is the #1 selling vehicle there overall in that market. A key reason for the Transit success is its versatility. In North America, the E-Transit offers 8 configurations to suit virtually any use case, not just last mile. The complexity and use case variety in the commercial space is very different than the passenger vehicles, making our broad range of vehicles, a key competitive advantage for Ford Pro. This year, we plan to expand production of the F-150 Lightning and E-Transit already the best-selling electric vehicles in their category since they've launched. And the United States Postal Service recently agreed to purchase over 9,000 E-Transit vans. So our early mover advantage with these vehicles and our trusted relationships with customers position us extremely well to win more share of the growing electric commercial truck and van market. And every customer is moving to electric at a different pace. So we will offer ICE, hybrid and electric vehicles for many years to come and we are guiding them through the transition. Now charging is one of the greatest concerns for commercial customers. They fear EVs won't have enough charge throughout the day to get the job done. And while public charging is important, the key is depot and employee home charging. And unlike others, Ford Pro is doing it all. We provide a complete end-to-end offering from infrastructure consultation to applying for regional and national incentives. And our charging software can help customers optimize energy costs through applications like split billing for employees that charge at home or in public and energy rate monitoring to determine the best time to charge. We have hundreds of customers using our charging solutions already and we're seeing an almost 30% attach rate. Now uptime is the lifeblood for all businesses, especially small and medium businesses. We are building our service capability to offer fast, reliable and importantly, data-driven service that is essential to keeping vehicles on the road. We have the largest physical support network of any brand broadly distributed across North America and Europe. This map shows our service footprint in the U.S. It is a key differentiator for us and it gives us a huge moat around our business. Our network includes more than 1,400 dedicated commercial dealerships including 800 Transit centers in Europe and over 1,000 mobile service vehicles, and our customers love mobile service because they come to you and we'll repair a whole line of vehicles at the same location and they even service multi-make fleets. And over the last 2 years, we've rolled out our data-driven Ford live command centers that help maximize uptime for customers by cutting the time of vehicles off the road through proactive fleet monitoring and issues resolution like expediting repairs and parts ordering. In 2022, we helped our customers in Europe avoid 300,000 days of downtime, equating to $150 million of savings or $500 a day. Another secret weapon is our deep collaboration with over 500 vehicle upfitters. We shipped more than 270,000 upfitted vehicles last year covering every industry. They include complex body builds, cranes, ambulances, bucket trucks and recreational vehicles and a multitude of accessories like shelves, racks and snow plows. We have integrated with these upfitters to drive efficient modifications with constant feedback loops. We provide convenience and speed by managing the end-to-end freight and logistics products from our plant to the upfitter, which many are located around our facilities and then on to the end customer. And we're also adding more than 100 service elite centers in North America and they specialize in fully upfit Super Duties, Transits and medium-duty trucks and have bigger bays and very long service hours. No other brand is doing what we are doing in physical and mobile service. And third, and most important growth lever for us is Ford Pro's software and digital experience. Software integrates with our physical service network and combines data from vehicles, charging hardware and daily fleet activity into a digital interface that a fleet manager or a business owner can easily access and integrate into their existing systems. Today, our software offering allows us to provide tailored preventive repair and diagnostics using vehicle history. Data not available with plug-in devices from third-party providers. We can tele-doctor the vehicle and order parts in advance to speed up repair times and allow fleet managers to limit the speed vehicle can drive at. A command and control functionality, again that plug-in software cannot do. We've created a curated system of Ford-built applications and third-party solutions that integrate it all together and can even support multi-make fleets. And our customers are already realizing the benefits of our Ford Pro Intelligence platform in productivity gains, fuel optimization, improvements in how they run and secure their vehicles and how they manage their employees. It also saves the money. Joint research we conducted with KPMG shows that Ford Pro's integrated digital and physical services can lower the cost of ownership by up to 20%. That is a direct and measurable positive improvement to our customers' P&L. And the quality of effectiveness of our software is only going to get better with the launch of Ford's next-gen digital architecture being developed by Model e that you heard Doug talk about earlier. Ford Pro's key differentiator is our ability to integrate the software, vehicles and services into a sticky ecosystem. And while others are trying to copy the formula, they will struggle to build the digital back end, leverage our huge scale and form these deep customer relationships that Ford Pro already has. By reducing friction for our customers, we can increase their loyalty, satisfaction and retention. And this in turn will help us to attract new customers. And we'll be able to capture more share of wallet as the economic value we provide increases. And this flywheel effect is the foundation for our long-term growth, powering our market share expansion and driving a portfolio of products, services and solutions. So before I conclude, I wanted to speak to the more resilient business model that we have. We are building that's less cyclical than traditional automotive. This is because we are expanding our revenue pools beyond the vehicle itself and extending it across the whole vehicle life cycle. And by 2026, we expect nearly 20% of our profit will come from these new, high-margin annuity like software and service revenue streams that are just nascent today. And Jim made the comparison to John Deere earlier. They made a similar push into software and a one-stop shop services as Ford Pro a few years ago. Our next-generation architecture will unlock the full potential of our software-powered connected vehicle ecosystem just like Deere is doing in precision agriculture. So no one serves commercial customers like Ford Pro. We have a huge competitive advantage. One, it starts with our strong relationships with hundreds of thousands of customers in North America and Europe built up over decades. Add to that, our trusted portfolio of industry-leading commercial vehicles with all new models and an expanding electric vehicle lineup then add the largest physical service network of any brand with mobile service vehicles and specialized dealerships staffed by thousands of specialized technicians and our connections to hundreds of upfitters. And finally, it requires building an integrated vehicle software and charging platform, leveraging data at scale, which is going to unlock even more value for our customers, more productivity, more uptime, more sustainable operations and lower cost. This gives us a deep moat around our business that is getting wider every day. It is not replicable by pure software companies. And for new EV players, it would take them 7 to 10 years and substantial capital to create. What you should take away from this is Ford Pro is building a high growth, high-margin and resilient business. We have generated an EBIT margin greater than 10% for the last 2 quarters, and we think we can expand it to the mid-teens by 2026 even as our EV mix grows. That is the power of the Ford Pro ecosystem. So thanks a lot and I'd like to turn it over to John. [Presentation]

At our last Capital Markets Day, we introduced our Ford+ plan and our investment thesis to all of you highlighting the key pillars of our plan, which leverages our foundational strengths plus new enhanced capabilities to drive growth and create value for all of our stakeholders. So fast forward to today. Over the last 2 years, we've developed proven capabilities in each of these critical areas, grounded in disciplined capital allocation and focused on value creation. And this year, we took another leap forward by standing up our new customer-focused business segments. This provides an unprecedented level of transparency and has the potential to transform the way investors value the sector. And as you've seen today, our strategy goes way beyond simple sheet metal and name plates. Ford is different. And we're deeply committed to unlocking the powerful customer benefits and value creation made possible by the connected, fully networked vehicles in a lifetime always-on relationship with our customers. This is a winning strategy. So let's take a look at some of the pivotal decisions that we've made since we launched Ford+. We de-risked our global operations by exiting manufacturing in Brazil and India. We streamlined our European operations to focus on our leading Ford Pro business and growing EV portfolio. We leveraged our iconic vehicle portfolio to develop new exciting ICE derivatives like Bronco and Raptor that are both very profitable and incredibly capital efficient. We wound down our investment in Argo and redeployed those key resources to focus on leading L2+ and L3 autonomy, which we believe is the near-term higher growth and more profitable opportunity. And finally, we monetized almost our entire investment in Rivian, generating proceeds of over $3 billion. And this is more than double our initial investment. And we used a portion of it to help fund our supplemental dividend in the first quarter. Now this discipline and willingness to make the tough choices is driving real improvement in our operating performance. Last year, we delivered a record $9.1 billion in adjusted free cash flow and most of which was generated by our automotive business. Now this is in stark contrast to prior years when adjusted free cash flow was driven primarily by distributions from Ford Credit. Now we know we still have work to do in China and Europe, but we know the playbook, asset-light, leverage core strengths and key strategic partnerships to drive efficiencies. Now before I cover our expectations for each of the segments, let me frame how we're thinking about capital allocation. Our strategic priorities are grounded in disciplined capital allocation that will drive growth and create value for our shareholders. Improving operations, free cash flow generation and a strong balance sheet provide tremendous flexibility and ensure our calls on capital are fully funded. Importantly, over the last couple of years, capital has increasingly shifted from restructuring our global operations to funding our Model e and Pro businesses. For Model e, this includes a greater level of vertical integration as well as a new distribution model. For Ford Pro, this includes investments in industry-leading products like our all-new Super Duty and E-Transit as well as investments in software and services. Our balance sheet remains a priority. In fact, since we last were together, we've taken significant actions to both strengthen and improve the efficiency of our balance sheet, reducing our interest cost by about 200 basis points or roughly $500 million per year. And all of this is done to create meaningful and sustainable value for our shareholders with an adjusted return on invested capital target of about 20% through 2026. So now let me frame the numbers and provide additional context regarding what the team has shared with you so far today. Overall, our Ford+ strategy delivers a much more robust business model, one that collectively drives higher margins, lower capital intensity, lower cyclicality and importantly, higher growth. One of the benefits of our new segmentation is you can see exactly what's happening within each of our businesses, engage their progress we're making each quarter. In our view, this is the only way to provide real transparency and accountability by business segment. Anything else, masks what's really going on under the hood. Now in Ford Blue, we're targeting an EBIT margin in the low double digits, about 3 points higher than in 2022. We expect lower volumes as we shift out of smaller vehicles like Fiesta, Focus in Europe and other commoditized segments. And these units will be more than offset by improved mix from our high-demand, higher-margin products like Bronco, F-150 and Ranger. Overall, we expect lower net pricing on ICE vehicles as industry volume and average transaction prices normalize towards pre-COVID levels and EV adoption grows. Now this bridge reflects Ford Blue's focus on reducing costs, which Kumar detailed. Specifically, contribution costs improved by about 4 points driven by several key factors including material, logistics and warranty along with lower commodity costs. Structural costs also improved by about 4 points as our investment profile shifts to EV and Blue focuses more on efficient capital investments around derivatives. As Model e and Ford Pro grow, this provides additional leverage as they absorb a greater portion of our overall cost structure. Now moving to services, which we define as parts, services and accessories as well as new digital services, growth here contributes another full point of margin supported by the scaling of BlueCruise. Importantly, post 2026, we assume margins in Blue will start to decline as the industry shifts to electrification and that continues. Obviously, no one can predict exactly how it's going to play out. But given our unique strength in trucks, we believe our ICE business will be around for a long time, continuing to generate free cash flow and returns. And that was quite a moat Ted showed you, and we have every intention of making it deeper and wider. Ford Pro, we're targeting mid-teen EBIT margins by 2026. Volume and mix drive the margin growth with Pro capitalizing on its leadership position as our commercial customers transition to EVs. We assume improvement in industry volume along with share growth in both North America and Europe. And as industry volume and supply chains normalize, we expect net pricing to decline by about 3 points. Pro will also benefit from many of the same cost actions that benefited Blue and structural costs will grow in line with higher volumes as we continue to invest in a growing portfolio of EVs to serve our commercial customers. Services will deliver about another point of growth, reflecting growth in telematics and charging as well as the expansion of Pro's dedicated network of commercial service points. In fact, by 2026, we expect Ford Pro's digital and physical services to account for close to 20% of the segment's total EBIT. And we think looking at services as a percent of EBIT is an important measure because it's a true reflection of the higher-performing, more resilient business model. And simply looking at large software and service revenue numbers, it doesn't tell the whole story since not all revenue is created equal. And this is especially true in retail, where as we've seen in other technology businesses, we accept some portion of the revenue to ultimately commoditize and become dilutive to margins. Now turning to Model e. At the teach-in, we showed you an EBIT bridge that highlighted the key levers the operating team is using to deliver our 8% margin target. And today, Doug and Lisa shared insights that support that target. Going forward, we will use our standard EBIT bridge to share our progress. Our target of 8% EBIT margin by the end of 2026 translates to about a 49-point improvement in margin compared to our 2022 results with 54 points of the improvement attributed to volume and mix. And this reflects the continued volume and scaling of our first generation as well as the launch of our second-generation products beginning in 2025 and that benefit from lower cost and higher margins and are EBIT positive in the first year. And as you would expect, net pricing falls as EV volumes increase, which is partially mitigated by lower distribution costs. We expect an improvement in contribution costs as we continue to refine design and other cost efficiencies and benefit from lower commodity costs, which is about 6 points on the bridge. Disciplined investments in our new EV products and expanding industrial footprint drives a 10-point increase in structural costs. This drives significant scale benefits in material logistics as well as manufacturing engineering and D&A costs. Lastly, BlueCruise and other digital and physical services will contribute about 20% of Model e's EBIT by the end of 2026, and we expect this opportunity to grow significantly over time, especially with the launch of our L3 technology. Model e is a unique opportunity for us, one that redefines the legacy business model and delivers new high-growth businesses. So how does it all come together? Let's look at our company target. And I hope you agree that if you look at just this bridge, you're missing the complete story. And that is the progress we're making on each of our business segments, which serve different strategic objectives and will otherwise get lost in our consolidated results. Our plan delivers a 10% adjusted EBIT margin by 2026, an improvement of about 3.5 points over 2022. We expect volume and mix to contribute about 5 points of margin with our whole sales increasing by about 30% from 4.2 million units to about 5.6 million units. Now this assumes normalization of industry volume in the supply chain as well as share growth in EVs. Now this growth rate may sound large, but let me explain and give it a bit of context. Last year, the last time we saw U.S. industry volume roughly 17 million units, which is what we're expecting in this time frame was in 2019. And in that year, our wholesales were around 5.4 million units. So we've taken a very pragmatic approach on net pricing. And as you can see from the bridge, our improvement in volume and mix is almost fully offset by lower net pricing as our industry trends normalize. Contribution costs account for about 4 points of margin improvement, supported by the cost actions on material, logistics and quality that you heard about earlier today. We also anticipate favorable commodity costs, especially for batteries, aluminum and steel. While structural costs will be higher in absolute dollar terms, they decline as a percentage of revenue from 20% to 14% over the period. Over time, the allocation of our structural costs will shift. We will see lower structural costs in Blue and higher costs in Model e and Pro as they continue to scale. And I hope you can see that we are in the midst of a historic transformation. While the 10% margin is an important target, as Jim said, it's just a single stop on our journey to reset the run rate of the company, which sets us up for the next 100 years. Now I want to touch on the art of the possible for services and potential impact to our company. Towards the end of our plan, we will launch the new electrical architecture that Doug had highlighted. This has the potential to accelerate increase and increase the amount of services we capture on each vehicle we sell further reducing the cyclicality of our business model. And as you heard from Ted, for Ford Pro, these solutions have the potential to drive up to $2,000 per vehicle annually in subscription revenue and up to $4,000 to $5,000 when you include non-software opportunities like connected commercial insurance. If we look at total company, we have the potential to drive software subscriptions of $1,500 per unit in annual recurring revenue for features like BlueCruise, safety and security as well as productivity solutions for our commercial customers. And the potential for connected insurance is another $2,000 per unit, assuming a mix of 2/3 retail and 1/3 Pro. The point here is not the exact precision of these numbers. Rather, it's about that with the benefit of our new electrical architecture, our TAM will grow encompassing things we can't even contemplate right now. And that will further reduce the cyclicality of our business model. I believe our Ford+ plan can create unprecedented value through both share price appreciation and shareholder distributions. Higher share prices driven by improved business performance, free cash flow and increasing investments in new growth opportunities that should expand our multiple over time. We'll continue to target distributing 40% to 50% of free cash flow to investors each year. This includes a regular dividend that is stress tested and sustainable through the cycle, supplemental distributions like we paid in the first quarter of this year and anti-dilutive share repurchases. Overall, we are targeting top quartile automotive return for our shareholders every year. And this goal has been embedded directly in both the objectives and compensation targets of the senior leadership team. So let me close with this. Jim said earlier, he wasn't here to tell you we're undervalued and I'm not either. There's a reason automakers have been trapped in the box on the lower left defined by low margins, low multiples, while best-in-class industrials have outperformed the market. It turns out that trying to be all things to all customers isn't a great business model. It drives complexity, capital waste, especially when you have a host of competitors all trying to do the same thing. But you've seen today that real change is underway at Ford. Each of our 3 segments has clarity and focus on one thing: efficiently delivering value to the customers that it is uniquely capable of serving. Each is a steward of capital, and each has a stronger investment thesis than Ford itself has had in decades. And as Blue, Model e and Pro execute their unique strategies while leveraging the many advantages that come from being a part of the Blue Oval, you'll see this transformation play out real time and the metrics that distinguish best-in-class industrials from legacy auto OEMs. We've talked in detail about how we're eliminating complexity and driving cost out of the business. And these actions will drive improvements in our EBIT margins. We also talked about the market-leading vehicles in compelling low capital derivatives, Ford Blue is developing and the disciplined where-to-play decisions that Ford Model e has made. This lowers the capital intensity of our business, and you will see this improvement as you monitor our CapEx-to-EBITDA ratio over time. And today, you've heard about the traction we're getting with BlueCruise and how we're using software and services, particularly in Ford Pro to deliver real value to our customers through ownership life cycle. This not only improves their businesses, but ours as well through higher-margin recurring revenue streams. And over time, this creates a business model that is more resilient and less cyclical. Again, you will see this in the contribution to EBIT margin coming from growth in services. And lastly, you've hopefully seen that we are not the Ford of the past, we are new, more focused with true growth opportunities across each of our businesses, including a vibrant and resilient ICE portfolio; a thoughtful, targeted and growing EV business; and a powerhouse in Ford Pro. And all of these will unlock value made possible by connected fully networked vehicles and life time always on relationships. So Jim opened this morning reflecting on Ford's history and our chance to make history once again. And I hope you can probably tell that this is personal for all of us. 33 years ago, I had a couple of offers when I came out of college and at that time, I chose Mustang and F-150s over and haven't looked back since then. And I've worked on 3 continents in just about every finance and general management job that you can imagine. My family and I owe everything to Ford. And it's hard to describe to people outside Ford, how much this team wants to win. If you would have asked me 5 years ago, I didn't see a way passed the automotive grind that this industry was. But today, this is a different Ford. The shift we've seen at this intersection between automotive excellence and connected technology, it's really unbelievable. You can walk across the street to the museum and look at the Wright brothers workshop, steam engines, broadcasting, microprocessors, you name it. And think about where you would have liked to have been when all those breakthroughs started to come along. Well, there's no place I'd rather be than here at Ford in this moment. I truly believe we're going to make history again for our customers, the people in our plants, our dealers in every community and for all of you are investors. So thank you for being with us on this important day. [Presentation]

Well, welcome to Q&A. For those of you who are watching on the webcast, we'll be ending at 11:00 a.m. the Q&A session and then this group will go and have lunch and the webcast will start again at 1:00 p.m. with our breakout sessions. So we do have people in the room who have numbers. And if you raise your hand, we will call on you. [Operator Instructions] But before we start, Doug, I just wanted you to clarify something that you had mentioned in your pitch about the timing of our electrical architectures.

Yes. There were a few questions about L3. Our next-generation architecture lands in '25. That will be our building block and our foundation for that. But as much as I want it to, we're not going to deliver L3 in 2025. It's just too ambitious and undertaking. So we have to lay the groundwork, but you're going to have to wait a little longer for L3.

And we have some exciting steps in between.

Way exciting steps.

Okay. Thanks for qualifying that. Why don't we start in the front row and move our way back. So we'll start with John.

John Murphy from Bank of America. I'll ask 2 hopefully kind of quick ones. There's a lot here that has to do with beyond the point of sale, right? We know there's a lot of revenue and profit opportunity there historically and there's a lot more potentially over time with subscriptions and services as Ted is kind of highlighting on the Pro side but you have partners in distribution and dealers that make a lot of money off of that, there's a lot of folks in the aftermarket to make a lot of money off it and a lot of folks in service outside of what you guys are providing right now on the fleet side. . So I'm just curious how you work with those partners to get after that revenue and how that revenue will ultimately be shared because there's an argument to be made that they really have a closer relationship with the customer than you do over time. And how do you benefit those folks so that they help you more? How do you rationalize it? I noticed in cap allocation it was 5%, I think, to like to market efforts or something like that looked like it was sort of a dealer rationalization plan maybe. Just trying to understand how this is going to work because a lot of it is going to impede or sort of compete with some of your existing distribution partners as well as maybe enhance their opportunity? That's the first question.

Yes. Thank you. So we have about 10,000 dealers around the world at Ford. We think it's going to be really different between retail and Pro on the software go-to-market. We're in the early stages of learning about that. I would say we're in the first inning. It's very clear. I talked to John Deere a lot about this. It's very clear on the commercial side that we can rely on our partners to sell software and actually, because of fulfillment often on the Pro side is physical service like prognostics, think of predictive failure, they're going to fulfill that. So it's really critical that they're involved in the software sale. On the retail side, it's a little less clear to us. We're experimenting right now with different models of what's the best way to sell software for our retailers. I would say the jury is still out what model is going to emerge on the retail side. I would say the company -- so if the poetic answer is forward on the retail side should be doing a lot of the selling on software, actually, the jury is out about our capability to do that. So it requires a completely different capability of the company. On the dealer side, they're closest to demonstrate Bluecruise. I mean that moment, when you click the button and take your hands off the wheel, it's a really scary moment that you can't do in a call center. So we think the dealers will play a key part. Will it be more to do testing and understanding how the features will work like we see in Apple at the Apple stores on software? Or will they actually be the ones doing the selling? On the retail side, it's unclear. On the Pro side, it's definitely clear. Do you like to say anything because you're going first, Ted?

Yes. We're visiting a lot of dealers. We are in the middle of a 25 city tour right now and 6 countries in Europe as well. It's a lot of new for them. But there's a lot of pull from the customers. If they had a vehicle robbed or an employee not working or fuel missing, they have a business need. So you have a lot of pull from the customer to get solutions. But It's also a lot of training for us, and we compensate the dealers for making that linkage together, customer, us and the dealer.

So I think just to visualize the -- like we said, visualize the industry 5 or 10 years from now, where we have to set this up now. There's going to be a lot of customization. There'll be a lot of OTAs of improved software, safety and security, productivity for retail as well and BlueCruise, all sorts of different kinds of software coming at the customer, we really believe that a physical place where the customer can understand all that and customize the software is like super important. And the industry, no one has figured that hour yet. Do you want to say anything? The reason why I'm taking a lot of time to answer your question, it's really -- because it's a really important question. We're not sure the answer yet.

I guess maybe just to follow up. When you think about the $3,500 opportunity you highlighted in the total bridge and I think U.S. was $4,500 plus, which you said might be as much as $5,000 plus I mean, where does it capture that? I mean because as this business is transforming over time and you're rationalizing things and then creating opportunities for growth, that's the incremental profit pool and opportunity. And you have these partners that may step in front of that or you might have to share with, right? I mean not that you compete like capturing that is really key to getting to the lack of cyclicality or less cyclical business and a more profitable business with higher returns. And if a big chunk of that is to those partners or other folks, then you're still creating the hardware port of sale and not benefiting from this lifetime opportunity with the consumer, right? That connectivity is the dealer right now? I'm just trying to understand like how -- where that ultimately is going to get share...

Those numbers is what we think we'll capture.

That's what we'll capture.

Okay. To be really clear. No question about it. That's what we think is coming to Ford Motor Company. But there's -- no one's ever done this really outside of John Deere, CAT and other people. So how it is get implemented at the retailer is still unknown, I would say. But that's what we feel. We absolutely deserve. Just remember, I should say this, we have 600,000 software subscribers today. So it's not a theoretical thing for us.

So John, one thing you said was you saw the donut, the capital allocation donut and you saw the amount that went to distribution. That's not for a huge dealer rationalization program. We're setting up vehicle holding centers to make speed quicker for e. And so there's capital in there for the inventory.

Ryan Brinkman from JPMorgan. I see that you continue to reiterate the 8% EBIT margin target for the EV business by the end of '26, which is great. But I wanted to ask about that in light of the recently increased price competition in the EV market? Have you maybe found additional sources of savings? Or do you have increased confidence in the product, helping drive the anticipated tailwind from volume mix, which looked to be by far the biggest opportunity in the bridge? Or do you expect to maybe compete in parts of the EV market that are less subject to price competition or expect that price competition to eventually settle or normalize in the walk that you're expecting less headwind from net pricing in Model e than in Blue, which seems different than the existing trend? Or what are the drivers of your increased confidence in this profitability target in light of the fact it was established prior to the intensification of EV price competition.

Let me start. Yes. Yes. So we tend to look at the EV space as a model with, it's not, right? We want to talk about Mach-E all the time and we do because the prices did come down. But we've been pretty consistent over the last 2 or 3 quarters, talking about the fact that, that segment is going to get commoditized. What's not really resonating, we've talked about it, is we've increased our prices on Lightning significantly by more than $10,000. And if you think about what Doug was talking about in the segments we're going into, those aren't segments that are going to commoditize and we're going to create products that are uniquely distinctive and different. And so yes, 2-row crossovers is competitive. Yes, there's been price competition in there. But we're not going to follow pricing down at all costs for share relative to margins. So we think we have a way to manage this. And we think that our products being distinctive and unique in the segments that aren't commoditized, which we've proven with Lightning is where we will be able to manage this more efficiently than what you would think if you just look at Mach-E or that 2-row crossover segment as the defining element of how pricing is going to unfold for the segment.

That's helpful. And then lastly, can you talk about the strategy in China? Or what are your -- what internal targets might you have? Or what might you expect from the operation there over time? It sounds like you're focused on finding a profitable niche, so I wouldn't expect a market share target, but -- does that mean you're driving towards a certain level of EBIT or equity income or return on investment? How are you thinking about China broadly? And is there a time frame you have in mind for getting where you want to be?

I think it's going to take a few years. I think we've said what we want to say about China. It will take a few years for us to get the business to where we want it to be, just like it's -- we've done in Latin America, in India, so many other parts of the world that we've reoriented our business. I think the metric that may surprise you that you didn't ask about because everything you did ask about are really important to us. We want to put less capital at risk in China, but the metric that is going to be really key is export from China too. We really believe that our commercial partner there is really good at creating products. And we have an amazing distribution network around the world for commercial. And if we combine those 2, we have an incredible opportunity that we've never had in China, really anywhere of having affordable commercial or electrified commercial vehicles globally. But we don't want to go into our China strategy any more than we have. Thank you.

Dan Levy, Barclays. I wanted to first start, John, if you could maybe just clarify on the CapEx. In your pie chart, I think you're looking at 60% distribution. It looks like it's 60% to CapEx, if that's correct. I think the implied number is based on what you might be looking at for profit is something like anywhere from $8 billion to $9 billion annually of CapEx. If you could just clarify that. And then that's a slight uptick, but I think we've seen from some of the other players like a very large uptick in their CapEx plans to underwrite a lot of this growth. So maybe you could give us some context on the flow of CapEx and why sort of a slight increase is enough to fund this very large transformation.

Yes. Well, part of it is, as Doug explained and Kumar explained. We're more efficient. We're going to be much more efficient with our capital. So we're 8% to 9% this year. It will uptick again next year, I think 10% to 11% in that range. As we continue to roll out, right, Lisa went through all that we're investing with our footprint, et cetera, the new products that we're developing in Model e. But it comes back to that $50 billion. We're comfortable with that number. And the team is working every day to drive efficiencies in there. So 8% to 9% this year, it'll uptick again next year, and then we'll talk about where it goes from there.

And John, can you just clarify what goes into the $50 billion because it's not all CapEx?

No, it's not all CapEx. There's a CapEx, there's expense and then there's an investment in our partnership's direct investment in the JVs, et cetera.

Great. And then as a follow-up, I wanted to just clarify the view on volume, which sounds like you're looking for volume to increase back to sort of 2018, 2019 levels. I think at the time -- this was a very different forward. And I think what we've seen since then is much more of a focus on a rationalized Europe, asset-light in China, asset-light in South America and some of the other regions. So maybe you can help us reconcile the views of what seems to be a much heavier focus on mix. I think that seems to be a very central part of the story today versus going forward with asset light as well.

Yes. So we are getting out of some of the commoditized vehicles, like Fiesta, Focus, et cetera. And we've made that decision, which is a good decision for our overall profitability. Go back to 2019, 5.4 million units, 17 million units in industry. We think we're going to get back to 17 million unit industries. We have in our plan, rationalization on pricing, pricing coming down in blue as we break through the supply chain barriers and customer affordability comes back into play. So we think that will normalize. And so when you grow to 5.6% and what that is, that's growth in EVs and its growth in our derivatives and Kumar said, he's adding 160,000 units of capacity. But on higher margin vehicles where we have pricing power. So that's how all that works together. And 5.6 million units, we think is reasonable in a $17 million industry in the U.S. and in Europe.

If I could just clarify, Jim, you've mentioned that the volume side, the CUV area is just an incredibly intense area. So at what point do you decide that some of the segments you need to basically pull back on, sacrifice a bit on volume and skew even more heavily towards mix?

Yes. We've already made kind of that decision to be honest. We've been working on the second-generation product for a couple of years now. And we saw a company like a freight train. If your EV strategy depends on a 2-row crossover right now, you better have the cost of BYD to compete. So we knew that freight train was coming, 1/3 of our volume Mach-E is in that segment. So we feel it and we've already reduced the cost by $5,000 by the end of this year but that's not sustainable. You can get that in the second generation, but the third and fourth generation, it will become smaller and smaller in terms of how much you can get out of the product. So from our standpoint, we made that decision. We made intentional the choice to go after conquest customers, but in segments we really know, which seems like a bit of a contradiction. How can you go into the full-size truck EV market, but go after Conquest customers. If you're 1/3 of the ICE market, what we found with Lightning and E-transit is that there is a group of customers who don't look at Ford today or may not even look at full-size truck today but if you could change the product to a new category, then you can get incremental customers. And then when you do the math of the competitor's bet, it's clear that most of them are not betting on those segments. And that's the math we did a couple of years ago. It's a mix math. It's not a volume math but there are large segments. The full-size truck industry has been 13% in the U.S. industry for as long as I've been in the U.S. industry. Then Lightning comes along and half of the people have never bought a pickup truck. So could it be 15% or 16%, maybe because some people want to put 3 car seats in their electric vehicle. So I think we've been extremely precise about where we want to compete because we knew the pricing and the overcapacity would come. We've been in the industry a long time. We know that pretty much everyone bet on 2-row crossovers, at the same time that the ICE had the pricing premium. But by doing that, everyone arrives at the market at the exact same time with the same product written with 20% more pricing than a sedan. That usually doesn't work out.

You come to the front row here, in the middle, Adam .

Adam Jonas, Morgan Stanley. So first, just a clarification for the Model e volume targets by exit 2026 Model e specifically. What's implied in there, it has to support that 8% margin, which -- the 8% margin, by the way, apples-to-apples to Tesla, probably better than Tesla when you think of -- when you exclude China and when you exclude the dealers, which you know stacks the retail. So it's pretty punchy margin, curious the volume fall.

It's over $1 million, $1.2 million, around that $1.3 billion.

Is that -- as a annual run rate on the exit?

Yes.

Okay. Thanks for that, John. And just there's a lot of people in this room who are thinking, going head-to-head with the Chinese and Tesla, even if you're not directly going so much of your volume on the 2-row crossovers, it's kind of -- in this environment, a pretty easy way to destroy billions and billions of capital over a 3- or 4-year period. Has the management team and the family considered funding the EV investments in any other way, besides using Blue and Pro?

Not as of yet. But we don't really see ourselves competing directly with Tesla and BYD in our second cycle product. That would be maybe your characterization, but it's definitely not ours. I don't see how there's a large size 3-row crossover industry in their indigenous markets. It seems like actually the opposite is the case. It seems like they're going down in price. That's not our strategy with the second cycle product. So we feel really confident about our approach. And because the competitive landscape, we feel we'll be quite unique. Now ultimately, the company has to be cost competitive with the best. And in the EV side, it looks like those 2 companies are among the best. You could put GLE, maybe SAIC, Changan and there, there'll be some others that you would put in there. Ultimately, that is the core capability on the cost side. But we believe going into those segments, Adam, and then that are underserved, where customers actually will pay more for software because of the way they use the vehicle is different -- is actually a quicker answer than to just try to get to the very lowest cost in the lowest cost segments. See, I think we keep framing the change in the company as electrification, but that's not what's going on in our eyes. It's Pro Power Onboard in the front, we're just as cool as [ 0.16, 4 ] seconds. So it's for us, it's the Pro software and integrated services and the retail BlueCruise and new safety and security software that no one's seen from Ford yet. That's the big change for the company. It's actually outside of the 4 walls of the physical hardware. That's what gets us excited. That's why in the second cycle we want to go to segments where customers use the data and the software more intensely even retail customers. Having a personal bullet train that goes 300 miles at -- 70 miles an hour is like safety and security, BlueCruise, like those software items are perfect for that kind of vehicle concept. So I think the way we look at it, Adam, is that we aren't just going to raise, we have to be competitive on cost ultimately for the EV components and the platforms. But really, what we want to learn is the fitness cycle between getting data off the vehicle, changing the software, shipping it back to the vehicle, getting tighter and faster and faster. That, to us, is as important as anything.

Why don't we come right here in the second room?

Rod Lache from Wolfe Research. I appreciate what you've been saying about the revenue opportunity focusing on emotional products, services that people value. But I do want to ask about EV costs because we are hearing just so much innovation in the industry and at a speed that we have never seen before in this industry, things like open box manufacturing, containerization of software so that you can port things over to multiple different vehicles, solvent-free, battery manufacturing. I'm hoping that you might be able to just talk to us a little bit about in this mid-decade period, what are the benchmarks that you see for the industry in terms of batteries and vehicle manufacturing? And how far away do you expect to be in that kind of time frame for Ford?

So in terms of benchmarks, obviously, Tesla has done an amazing job of being the first company that really started from a clean sheet and designed a product around ease of manufacturing and cost. But ultimately, a big part of -- when we talk about excellence is that we don't look just at competition because you're always looking in the rearview mirror, it's 4 or 5 years ago or even more. We're taking inspiration from the limits of physics, from other industries in terms of how we keep pushing ease of manufacturing, an obsession over removing parts, removing steps, removing complexity. There's so much to be done in EVs because it's such a new industry. But Ford is good at this. They're good at it. And it's part of what I love about being here is taking the new technology, which we're getting better at. And there's some level of vertical integration that's required as well, but you have to be selective about it. And then a huge part of this, as you said, is in batteries. And the key to low cost in batteries is to own the supply chain, which is exactly what Lisa took us through. So those are the key elements, I think, are -- you have to start with a clean sheet on an EV and not inherit the way ICE vehicles are built and constructed, any [ guide ] on the battery supply chain?

Yes. And I would mention just the competitor you referenced in their Investor Day said that their target was a 90% OEE, a 45-second tech time. That's what we've done for years. Our standards are higher than that. And you saw Kumar's presentation, that was a 37-second tech time, producing trucks. The Tennessee plant as we stated, we'll be 30% more efficient on our cost than even our best truck plant we have. And that's only enabled, to be honest because we designed the factory and the product together, which admittedly, we haven't done before at Ford. We weren't building new factories to be able to do that. But the teams are co-located. And honestly, we set the footprint of the manufacturing facility before we even had most of the truck developed. And we decided jointly between the product team and the manufacturing team that we had to get that much more efficient in square footage. And then we started to pair the teams up and they weren't developing components, they were developing systems on the line and then the complexity started coming out in an incredible fashion. I mean it's just so radically reduced. In some cases, there's complexity of one, that's it. And when we can do that, we shrunk that manufacturing facility around that product that enabled us to get the savings that we talked about. So I don't think you have to radically change the manufacturing process, you take what's already excellent, you make it even more excellent and you do it in conjunction with the product design.

I just want to say one thing that wasn't said, which is I don't think we're ever going to really be done. I think there's a third generation we're looking at now. I don't want to talk a lot about it, but it's yet another leap forward. We'd love to be able to figure out how to make vehicles without paint shop. So there's always going to be in this change, more room for innovation at lower cost. And that will go on for a long time. It's like we're back in the mid-20s when vertical integration became a thing in our industry and people started to really make big leaps. We're starting the same cycle again for the industrial system. And I don't know what the answer is, but I do know enough to know that that's why we have to work on a third generation.

Maybe just to clarify, Lisa, that 30% reduction corresponds with what in terms of cost per kilowatt hour? Do you have a number that you can share for that?

Sorry, that 30% reduction is on our labor and overhead for the full vehicle compared to Dearborn Truck, ICE as an example.

So could you share a cost on the battery target?

No. I -- what I can say is a few years ago at Capital Markets Day, we talked about a 40% improvement. We're 30% of the way there. So we've got -- instead of 40%, we're at 30%. But what we also had meaningfully considered is the impact of LFP on our portfolio then. So...

You include LFP mix at 15%. You would say, between those 2.

Probably pretty close.

Just lastly, John, I've asked you this question before. There's a structural cost investment that you're making to accommodate the growth that you're targeting to get $1.2 million, $1.3 million Model e vehicles, $5.5 million for the overall company. But still, it's a big volume growth target. I know you think it's achievable but there's also a significant structural cost investment. What is the flexibility that you have to adjust structural costs as you get out to that time frame in the event that maybe the volumes are a little bit different, and you just want to sort of hit those kinds of margin targets?

Yes. I would say that flexibility is part of that equation, of course, that Lisa is building through. We have the ability if the e volumes don't take off, we can -- and ICE is still greater that we can flex with him, some for Blue and Pro on the eyesight. So I think there's going to be flexibility there and depend -- and we're watching this. And depending around on how far out in front of, we see the volumes maybe not coming in as strongly, then we can adjust what we're putting in from an installed capacity base. So we do have that capability to adjust. And so I think it's important because, again, Lisa, we're always talking about that. And the other thing that Doug was talking about that I just wanted to highlight for you, for me, having been here forever, and seeing this cost structure. And a lot of these folks can tell you that I'm real pain when it comes to cost and have been for years. The thing about Doug, that's different for me is -- and it's subtle, but you miss it is this focus on excellence. Before we used to always benchmark, benchmark, benchmark, who's the best? And it goes back to that Wayne Gretzky saying we were always skating to where the puck is. Doug keeps talking about define where the puck is going to be with excellence. And that's why I have more confidence in that because of how they're approaching it with both in the design of the vehicle, the design of the battery and then how they're bringing that together with manufacturing. So -- and all of that coming together as they're out in front should allow us to have a little bit more transparency if things are shifting where we will put that in and have the flexibility to adjust. So those 2 things are tied together for me.

John, can you just talk a little bit why you have the structural cost scaling on the consolidated bridge? Why that...

Yes, because you're investing in our growth businesses of e and Pro and for Kumar's bridge you saw structural costs were coming down significantly. So it's really important to understand that as it shifts, part of that is efficiency. And part of that is just the distribution of the cost between the business units. And one of the things, we've got to be careful or think about how that's happening because we have to understand that not all that structural cost and that scaling of volume is going to be directly in our structural cost too because we're building out vehicles and electric vehicles with our partners, and that comes through contribution cost. So there's some puts and takes in there and some give and take in there. And as we continue our discussions, we can talk more about that when we unpack things.

One certainty about the flexibility we should just say is the Pro structural cost investment is multi-energy, okay? So that gives us a lot of flexibility. Probably one of the most important things about Ford is that we have Pro. It's like a dominant part of ours, not just strategy, but our volume and our revenue and you need to know that the investment we're making, refreshing all of the products on Pro is that on the van side, we've made a multi-energy bed. We'll have a pure EV for sure, but most of the investment we're making today, like on transit is multi-energy. And so that gives us a lot of flexibility to go where customers are going to go because commercial customers don't overbuy batteries. Retail customers do so far.

Colin Langan, Wells Fargo. Can you -- the Model e margin targets are a little hard to follow because you have the allocation of cost. I think it would be helpful if you could talk a bit about contribution margin because you mentioned in your last investor event, that you were losing or had a negative contribution margin today. I assume to get to an 8% margin, you need something maybe closer to a 10,000-plus type contribution margin. So how are you walking from exiting breakeven to getting something that gets you there? What are the main buckets of cost savings from this gen to the next gen?

John, do you want to start? Go ahead.

Yes. Well, it starts with volume, right? Being able to leverage the capital and just put more products through it and the efficiencies go way up when you do that. Even on Gen 1, I think Jim mentioned that we've found a plan to get $5,000 out of Gen 1 and Gen 2 being from the ground up is even better. So then when we add platforms that give you the opportunity to build software, that software has pretty nice margins. So it's all part of that journey and having an organization that looks at cost reduction as beautiful. If you want a great example of cost efficiency being beautiful, look at our Model T. Just a continual obsession over it getting better and better after you've launched as well.

Smaller batteries, less labor content, cheaper distribution okay? When it comes to smaller batteries, I have no idea what's going on in this industry right now. All here is all these announcements, a 450-mile range, a 500-mile range. There was another one today, about a 3-row crossover, it's going to go electric. These batteries are huge. If you have those kind of batteries, you will not make money. So we got to start talking about the size of batteries for the range, the efficiency. The second cycle of Ford's batteries will dramatically change, as Doug said, the cost of a battery because we're optimizing for the size. We're not going to go to 600-mile range. We're trying to make the smallest possible battery for competitive range. We're trying to get the simplicity of the product down so that we have very low labor content. We're trying to get the distribution so we get the physical inventory out of the distribution that we don't have to go on broadcast media and spend $500 a vehicle on TV advertising. These are the real physical things that we've designed in the second cycle product. And I don't understand why everyone is so obsessed with battery size. It's like 3 years ago, everyone was obsessed on how much money they were spending on EVs. And you wanted to know, hey, is Ford spending enough money on EVs? Now it's, are you spending too much money on EVs? It's okay. But the same thing is going to happen with batteries. Right now, it's like what range can you get? But the next question is going to be, well, what size battery do you need for a competitive range? The second is a better question than the first. So the size of the batteries in the second gen is really important on our cost.

Did I get it right on the slides that your next gen will have a 300-kilowatt battery for 300 miles a range and that would compare to like a Lightning the extent it gets like 140 gets 300 miles? Is that part of that opportunity?

Well, what we showed you was a walk that went from 150-kilowatt hours to 100-kilowatt hours and 300 in general to 350 mix, 300 at 70 miles per hour. So we think -- but it also depends on the size of the vehicle and the mission that you're trying to accomplish. But yes, we think numbers like 350 mix, 300 at highway speeds, plus super fast charging is a really great combination. And we want to push that energy even lower. The efficiency obsession isn't in the first year of the program. It goes on and on finding every little change as you can get for aerodynamics, a mile here or a mile there. So we're not going to stop.

And just to clarify, does -- what about IRA? And is that baked into your targets and lithium prices? Do you have those going down in your 8% target? And will all the vehicles qualify for IRA by 2026 because I know some of the rules changed in early '25 with foreign entities a concern and stuff like that?

Yes. Our current eligibility are Lightning is eligible $7,500 for the full IRA. And then the rest of our suite, whether it's EV or even PHEV because we get those cells out of Howlett, Michigan have the [ $3,750 ]. We fully believe that we'll be competitive and we'll be able to qualify for IRA. We're still doing some of our final sourcing for those battery cell plants, so we don't have anything to confirm. And we believe that the PTC will be a nice tailwind for us, partially baked into the numbers that you saw, and we have 3 battery plants in the U.S. that we announced with Blue Oval SK plus we get cells from Atlanta. So we believe we're really well positioned with the PTC with our volume.

One of the little known facts of IRA is that 100% of the commercial customers get $7,500 irregardless of where the battery is from, where it was built, where the raw materials are from. So it turns out that IRA for Ford Pro is a really important thing for us, it's a differentiator. As we always talk about the retail, we need to consider them. A lot of our volume is Pro.

On the lithium side...

Yes, a slight decline, but not probably as dramatic as we've seen with some of the banks and the estimates.

Okay. In the back, in the middle. Itay.

It's Itay Michaeli from Citi. Just 2 questions. First, going back to the art of the possible slide for 2030 with some of your businesses already expecting to see a 20% EBIT contribution from software and services. I think by 2026, where do you think that can go roughly by 2030 as your installed base grows on the new electrical architecture that you'll be launching? And second, just to clarify, how much for 2026, cannibalization are you assuming from EV to ICE for Blue in like some of your high-margin products like the F-Series?

So the incrementality we see today, it's much higher, as Jim has talked about, that 50% to 60%. That starts to come down, and we think around 40% as we get through second gen in that range. So that's what we see there. The art of the possible, when we look at that, it comes back to the units in operation, all of that. And when we step back and look at 2030 and we look at the blended in the numbers we talked about, that's for the new vehicles that we're selling. But when we unpack everything, and I'm not going to give all the details on it because I know you guys are going to want it, we're just not ready to do that because we're learning here to, and we're learning a lot. But we can see by 2030 for Ford, the revenue for services in the $10 billion to $11 billion range plus. Now some of my colleagues think that's conservative. And that's changing all the time because we're learning more and learning more and learning more, but that's the power of this when we get out there and what the potential it has for the business model and the cyclicality issue this industry has dealt with.

The difficulty is going to be handicapping where it gets commoditized. Some of the software is going to get commoditized. So when and which software revenues, when that happens will be a key part to handicap. That's why we have a lot of debate as a team because it's not altogether clear. When will hands-free Level 2 be commoditized? Right now, it's extremely attractive for customers. But at some point, if level -- when Level 3 comes, maybe that's not as -- doesn't have the same pricing power as today.

Mark Delaney with Goldman Sachs. Picking up on that point around L3. Can you talk a little bit more on the types of use cases you imagine L3 covering because some companies may have L3, but it's very situational like a traffic jam. It sounds pretty broad. But then the second part on L3 beyond the use case, maybe you can talk about your visibility and confidence in being able to deploy a more comprehensive L3 because we've seen L4 at scale has had a lot of difficulties as part of your pivot, I think, towards L3. So now that you've been working at this, if you could give us a better sense of your confidence and visibility there?

Sure. Well, to start with, we want L3 to work everywhere BlueCruise works. And BlueCruise is going to expand where it works between now and when L3 arrives. And the key use cases that we see are stop-and-go traffic which is really tedious and actually a cause of a lot of accidents because people take their mind off of what's going on. And then steady-state cruise, long trips, in which the same thing you can tend to get bored or sleepy, so it adds safety, but it's also -- I've taken 7- to 8-hour trips and the way you arrive at that trip and how tired you are and exhausted is just completely transformational. So we want to start by being able to do that and now take your eyes off. And then gradually, once we deliver that, start expanding it past what I just said that BlueCruise can do into more and more and more areas. Downtown operation with pedestrians and stop signs and double parked cars, that is the hardest possible place to get L3 up and going. And so that will come last. But the reality is it's not the most valuable place we can give customers autonomy.

Emmanuel Rosner from Deutsche bank. Maybe I'll be the one asking the first question about Ford Blue and essentially Kumar has an opportunity to chime in. But -- so a big -- you're targeting Ford Blue margins by 2026, which are basically unprecedented for the business for Ford. And a big piece of it comes from cost, 4 points from contribution margin, 4 points from structural cost. You've been in it for a long time at Ford, essentially trying to fix cost, improve cost, like how do we get confidence from the outside that you could actually pull it off this time? And in particular, are there any specific big discrete actions that you can point us to? Is there going to be some typical restructuring headcount, capacity reductions, things like that, that we could put a number the next few?

So let's start with the contribution part. Quality has been an uncompetitive view and we were uncompetitive. Just fixing quality at the pace that we're fixing would be about 1% -- or point of that 4% I talked about. And that's pretty easily calculable because we know where competition is. We know what repairs per [ 1,000 ] or the kind of repairs we're doing. So physically, what's different is how comprehensively we're looking at quality. Quality from suppliers, quality in our own manufacturing facilities and quality of how we design vehicles. The failure mode analysis is much more robust than it used to be, our engagement with our suppliers is much more robust and our assembly plants, very, very key initiatives to reduce the air states. To your point, we've done it before, but this time, what's different is truly institutionalizing all this. And what we're using there is lean. That tool and those principles are going across every organization, PD manufacturing.

I'm sorry, supply chain.

Oh, yes. And supply chain also with John's team, like I said, we've now covered more than 125 suppliers very, very detailed reviews of where their processes could go on. The second big part is our part cost. And in our part costs, again, what's different is a very cross-functional level of work between supply chain, benchmarking, PD and manufacturing. Got a -- 30 years ago when I first started, and somebody sitting next to me said, we're really going to improve complexity, and it never really seemed to gain traction. This year last 2 years have been a watershed moment for complexity in our company. We've gone from thousands of combinations, in some cases, millions of combinations to light handful. And that saves in so many different areas in contribution cost, in quality and structural costs like we have to engineer less. So in that entire process, again, providing the teams with those tools and marketing and specifically marketing and PD working very closely, where we are reducing orderable combinations by a magnitude that we've never ever done before.

So Emmanuel, we're going to have to take that into the lunch. Sorry, we're out of time.

I think I need to say something as CEO about your question, which is like, hey, Farley and team, how do you handicap doing this? I think a couple of things I see that's changed. We spend Tuesday once a month on costs, material costs and supplier costs. I've been here for 15 years, never seen that even during Allan's period. Number two, the comp for the team, a large part of it will be tied to getting the best-in-class quality. We've had year-over-year improvements, which we missed, by the way, but we've never tied being best-in-class in quality to cash bonuses of the company. So if we don't do that, people are going to -- they're going to financially have a big impact to them personally. What I see differently is that cost at Ford was always something that was done to you. And now on Tuesday, I'm starting to see it to be something that we all want to do and it's a volunteer kind of ground-up exercise. What really feels different to me at Ford after being here for 15 years, is that I'm starting to see an excitement around waste elimination, not task designed like the word task is starting to leave our vocabulary that's what Ford was for the last 15 years. You've got a cost task. And that's why it never stuck. That's why I was tied to the CEO. The most important thing is that the team does this on their own, I think that feels differently at Ford as the CEO. We have a chance to actually make it sustainable. But we'll see, right, next quarter and the quarter after that, the quarter after that. Is there anything else you would like to say about to Kumar's point about the -- as you've been here for more than my 15 years?

Yes. I think Jim's point about cost was something that was done to us. People didn't own. What Doug has talked about is excellence in the design that's permeating through not only E, but Blue as well. And it's a different approach. There's a tool we have now. There's a lexicon, there's a language, there's an approach. Jim what we do every Tuesday, but the other 3 weeks in the month on Tuesday, Kumar and I are doing deep dives with Doug and Lisa and the rest of the leadership team driving cost because we know this is our biggest issue. And quite honestly, Emmanuel, we've talked about this for years. You're not going to believe us until we start delivering it. So I know that, and we know that.

Correct.

Right? Because we've told you this before. That's the truth that we have, and we haven't delivered. So we have to prove it. We didn't talk about it, but we have to prove it.

Okay. All right. Thanks, everyone, and enjoy lunch, and we'll reconvene in the breakouts at 1:00. Thanks. [Break]

So Good afternoon. It's great to have you all back. And what we're going to dive in here is on software. So building a software business and putting it in the middle of our products is a pretty profound change in a company. And if you're going to play in the software business, Darwin has it right. Survival is going to be about agility and the ability to adapt and adapt really quickly. Competing with software is just very different than competing in the traditional automotive technologies. There's no tooling, there's no factories. And as a result, everyone else is going to move really, really quickly, but you can't hack this to go fast. Writing software is hard. It takes really, really great talent and its different talent than the auto industry typically had, and it takes a different kind of focus. So I've been really lucky in my career to work with some digital teams that really understand how this is supposed to work and understand that software is a craft. Has a standard of excellence and it's every bit as important as the physical work. And that's what we're trying to build here right now at Ford. So when we were here -- when I was out front earlier, I said a vehicle can be a really great place for experiences. It would be so great that wouldn't even need wheels to be a product. But the ability to actually deliver that vision and the vision that I told you was about things haven't heard, I have even thought of yet, comes down to a couple of things, and Jim spoke about this too, how well do you know your customer? How quickly can you learn, respond, make their lives better, and then figure out what to do next. But both of those are learning about your customer and responding, both of them are software problems. So the first problem to solve is what happens when you put software in the center of the vehicle. That's not even what the world sees it first, and that's a connected data platform. Ford has 120 years of experience with customers. But now we have 5 years of connected data, which, at least for our current customers is probably more important than all of the rest of that. So it takes the way we think to a completely new level. It's real information on how the customers use the products. It's anonymized to protect their privacy, but it's super powerful. There are some easy examples. For example, we improve service by diagnosing vehicles remotely before the customer even knows anything is wrong. We're starting to do that now. And then we want to have the dealer order parts be ready. Ted will talk to you about even taking the next step in that, which is about prognostics. We know before the car has a problem or truck or van. And when it needs maintenance, we can make that completely invisible. We can show up, take care of it, get out. And one of the most annoying parts of owning a vehicle can be gone basically. So if we want to have software-based thinking where it's woven into everything we do, that data platform is critical. So it's really tempting for product companies of any type to make decisions based on ourselves. And what we think as customers, I'd like to call it DFM, Design for Management. But that's not how we should be designing vehicles, especially with connected data. We should meet the customers where there are. So there's a really simple example, not a glamorous one, but in a rugged vehicle like the Ranger Raptor there are amounts that connect the body to the frame. And these need to be as soft as possible for comfort, but then they've got to survive really rough environmental conditions. So typical industry practice is run at temperature that is the worst case is cold, worst-case hot design them around that and put them in a truck. But what we would do in connected data is we would actually look how people are using their trucks and what the temperatures are and how often they are at these different temperatures and how hard the loads are at those different temperatures. So the team went often did that. And they made the Raptor R, the Raptor ride a lot better, smoother, quieter and it saved $1 million. So designing to specific requirements like that lets you optimize instead of compromising. The most important part of that whole story is I never knew it happened, until I went out and started asking people give me an example, give me an example. So this type of work is happening deep in the organization. It's not a top-down initiative. It's engineers looking for the data to solve the real problem. So this is a fundamental culture shift, and it's happening all over the company. Instead of theoretical conversations about what customers want, yes, you hear people say, "Hey, we can know what customers really do." And the data goes beyond just engineering and product development. You can actually use it to changed customer communications. We know where customers use BlueCruise the most and what times they use it the most, where it's most useful. So our customer team can go out. And if they want, they can put a billboard in a location where we know everybody that's got BlueCruise tends to use BlueCruise, basically speak to them at their point of pain and say, "Hey, we can make your life better right now." And the connected data platform though bridges into customers as well. So for retail customers, that's FordPass that's our app. And whether it's your phone is a key remote heating or cooling or unlocking the vehicle from a far FordPass is RNE really heavily used. Our customers have spent over 1 billion commands to their connected vehicles using FordPass. And in the commercial space, of course, Ford Pro Telematics and the ability to control a vehicle connects things back to the fleet owner and Ted talks about just how important this is to a commercial customer for running their fleet safely and efficiently. So another fundamental ability in your connected platform is changing the vehicle without bringing it back. Everyone takes that for granted now on phones, but it's actually way, way harder in cars. So in 2019, Ford put modems everywhere, which was a leap of faith. And now after just a few years, we've started Ford Power-Ups, which is what we call software updates, and we've delivered 11 million OTAs. And the pace there is actually accelerating. I've heard that in the last couple of weeks, we've already done 1 million updates. So it's accelerating dramatically. And we're the only traditional automaker that's actually gone in and made a major user interface update where we change the experience for marketing customers. So that really great UI, which was based on what we learned for customers, what are they actually doing with the UI, what should be upfront on the first surface and what do they really use, and we can put back in the settings menu. And we brought that all the way back to vehicles that were launched in 2020. So these customers are thrilled. They feel like they get a new car. And next Lightning, we'll get it. And then a really big deal is we start pushing it out to F-150s and explorers and expeditions, navigators, aviators, huge numbers of customers our FordBlue portfolio. About half of the update, we do are customer-facing features. Things like in Model E; we improved the accuracy of range prediction. People were commenting that the car was too pessimistic on range. We precondition the battery so that as you're heading to a fast charger, we bring the battery temperature up, so you can charge at full rate, even little things like the smoothness of Mach-E when you get on and off the accelerator in 1 panel driving. We improved dramatically over an OTA. We didn't even make a big deal of it, but you could go on social media and say, "Wow, my car is operating a lot more smoothly." We also, of course, use it for rapid response to quality issues. We can detect them quickly and make changes before they've really turned into big issues. So this has been going on for quite a while at Ford, and they're building a lot of success here, but it's really, really hard. Today, when we want to do an application for the customer. We've got to go deep, deep down into the fundamental architecture of the vehicle. So the pile of parts over here that Jim was talking about, and I'd love you to like pile through it when you have a minute. Every single one of those comes to us with software in it. Software that's not written by us, it's written by a supplier, and it's in there to try and control something in the vehicle, and then it comes in and gets integrated into the rest of the car. And you can imagine what it's like to try and develop software on a platform like that. Its slow changes are really hard. You have to coordinate across all these different companies. So when the team actually went out and said, "Hey, we want to get BlueCruise now to Version 1.2, which is what you got to experience if you were on the ride from the airport. We have to change code on 7 of those different modules for BlueCruise. And 5 of them we don't even write the code for. And then we have to go through and do 5 separate updates. So we have to do one weight, do a second, do a third, do a fourth and the fifth one is what finally changes everything in such a way that you're ready to go. And customers have to wait longer, of course. And then you can imagine the engineering resources for teams that have to prepare each one of those updates in each piece of code. So we've got to move beyond that. So the next-generation architecture that we talked about this morning is changing things in a really big way. So we're moving to much more of our software being in a centralized high-performance compute where we control the software, and that brings infotainment and our autonomy software also into 2 internally controlled modules for both the physical design and the software. And then we're doing things like upgrading communication buses. You need to talk over Ethernet, not just can. We're using high-speed connections like that. We're designing and developing a lot of other key modules in-house as well, which gives us that control of our software. That also actually fundamentally changes the supply base. So when we design a module, we picked the silicon, we start managing the supply chain way beyond just whoever makes that box enhances to us. And that's really, really important when there's a chip crisis, it's really, really important when you want to get on to the latest silicon, and it's really important for managing cost and quality. So that's a big part of why we are vertically integrating in some of these key spaces as well. And we can't just delegate our future to Tier 1 suppliers. So you can hear about industry transitioning in this way broadly. And you can go online, you can see different block diagrams of central compute plus zonal control. But the really big change is not just dropping the hardware and it's, okay, now we build a software platform on top of it. And that's what we're trying to build right now, what we are building, and we'll build. So this will be a modern, stable secure platform, and we will have the ownership of the critical software and all the different layers we need. So applications that used to come down and be woven all through different modules out here, will sit on top of a platform where a programming interface will go between that and the lower parts of the software platform that we don't change as often, and that we can work with suppliers to get nailed down. So the applications then can access sensors, actuators and other modules really down deep with the applications themselves can be updated really quickly and really easily. This is a really crucial enable for agile software development for teams that must iterate, learn, redeploy. And again, it's something that you would expect from a phone where you can get an app very quickly, but your updates to your iOS actually happened much more slowly. But it's a fundamentally new way to think about cars. And the software down deep is a different kind of software. It changes infrequently. It has to be validated. That's where you put your safety critical software. And it actually becomes even more stable in some ways than the hardware. It's kind of counterintuitive. So you can spin the hardware spin the board's, upgrades to the latest processor, actually faster than you would actually go down and change this low-level platform software. So it really changes the way we work. So this platform first lands on our Gen 2 EVs and then it will start rolling out across Ford Blue and Ford Pro and really be the basis of how we start to build our future software business in software-centric vehicles. Platform thinking actually extends into a lot of different areas. And we want to focus a lot of these different areas into 4 pillars: connection, safety and security, productivity and autonomy. So when you try and develop software across a horizontal, you have to drive out complexity. And this is not the traditional definition of how things are done in the auto industry. So we want great human interface experiences. And when we started, this shows you the kind of range of different display sizes and form factors in each vehicle program got to pick its own. And so the design was completely fragmented, and every vehicle requires its own design problem. Digital design was not really a discipline. It was a service. You sprinkled around across the software teams. So going forward, if we want these fantastic experiences, we have to standardize. And so now the programs get to pick. They get to pick from 3 different combinations of how we want to set up display configurations, and then we can focus our engineers and our designers and our product people all on making these grades across the different vehicles. It doesn't mean every bit of the software is going to be exactly the same, but you leverage the capabilities of the basic platform over and over. So these 3 will be used across every Ford, every Lincoln vehicle. So we can optimize our products across the fleet as well. So when you go to update, we can bring along the whole fleet. If you spread all this complexity into your installed base, you can't bring your customers along. So looking at things as installed base rather than annual sales, it is also a big part of this transition. How many products can we put into customers' hands that we will ship software to and that will improve over time. And that's a key part of this complexity effort to is in the world of software and post purchase, it doesn't matter how many cars you just shipped this year, it matters what your installed base is and how many customers you can basically need. So ADAS is another one. of our most important horizontals that extends across the whole portfolio. And this is an entirely different kind of software to what I was talking about before. We talked about robot software. This isn't a device like a phone or a laptop. This is a robot. It moves and the software actually controls motion of mechanical systems from simple stuff like doors and mirrors, but most importantly, deep down into things like steering and braking and acceleration. And that's what makes it possible to do autonomy. So Level 3 autonomy, where you're able to actually take your eyes off the road is going to launch on our Gen 2 EVs, not right at the point that we land our platform, but as soon as possible, later after we can get it right. And that's when you start giving time back to customers. That's their most valuable commodity. And all of these experiences that we talked about developing for when the car is stationery, all of a sudden, they become experiences and things you can do, including productive things like doing a video conference with work why you're moving. This is going to be a complete game changer. But BlueCruise today even before we get to this new platform is already a really big deal. It's risen to the top of recommendations from publications like consumer reports. And we can already lean on it and start using that to build the future. Connected data, we looked at said #1 reason people leave BlueCruise is turn signals and a lane change. So if you experienced 1.2, one of the biggest changes is we put in lane change assist. And that update is not only already in '23 Mach-Es, but it's going to over the air back to vehicles in the fleet, and it's going to do that starting this year. Now the number of time people that leave BlueCruise is now down by about 25%. But we want to keep working. So the next round of data has come in. And our internal testing, this is a release that will take a little longer than 1.2, but we're already seeing the data that says we can take it down by 85% now. So the evolution of autonomy is a journey. There's not some gigantic breakthrough, where all of a sudden, you can turn on L3. This learning, even though it's on our old platform, is really, really critical to us building the base of what we need to know. And suppliers can't hand you this capability. They can't do it and learn and be in contact with the customers the way we are. So we will use suppliers in autonomy, but there will be key pieces of technologies, whether that's sensors or maps or things like that. We will integrate the platform, and we will develop it. So we need the best talent in the world to do this. Autonomy is a really hard problem. So this desire to build the best team is really focused in what we did with Argo. So Latitude AI is our new team. It's already up and running, and it's formed from the best and brightest minds at the form of Argo AI. And they're building the technology that will allow us to do this. So when we say unimaginably great, as I mentioned this morning, it's a very intentional choice of words because a great platform is only a great platform. If it's ready for all the things, you haven't thought of yet. We love to generate ideas that challenge the platform. We do this in brainstorming session, come up with an idea, even if it's a stupid idea and see when the platform can support it. But even those ideas, we know we'll change them 100x before we launch them, and we'll change them 100x more as we learn from our customers and put it out. So we'll just show you some simple brainstorming ideas of what's possible. Instead of the relatively mundane ways you might think of, well, let's start with trip planning. So trip planning, you can bring together a whole bunch of information and do things that you can't do just by attacking your cellphone on the dashboard. We can look at weather, but now look at this as sort of a journey through space and time and say maybe it's more important to know when it starts raining based on where you are in the trip. It's going to start raining when we get to about here. Maybe we want to know when it gets dark, not based on the time, but based on where we are in the journey. We can identify a scenic view before you get there, you could zoom in, you could see it, decide whether you want to stop we can keep track of where your friends and connections are, show you where they are, show you where you stop, where BlueCruise is available, so you may want to route your trip in a way where BlueCruise or L3 is most available, you have been slightly longer. And then I mentioned bringing people along the trip, Grandma can log in, get on the inside camera and sing karaoke with the rest of the family or they can look outside the car and look at all the cool scenery that's going by. You can play games at a charging stop. Obviously, there's just many, many ways that we can do this. So what about safety and security? What are some brainstorming and kind of crazy ideas around that. So let's say you have a Bronco, and you go camping. So a Bronco can now be your game camera. It can watch, identify video and record animals that are around the vehicle and around your campsite. We might see a deer and record it, so you can watch on a FordPass later or maybe we identify that it's a bear, not a deer. We've got the capability to do that with our autonomous systems recognition. And maybe that makes the light flash and the horn come on. So even safety and security can be a lot more than just putting a ring camera on the front of the car, which is what a lot of people are doing out there. And then a commercial driver, I can show you really detailed examples on this, but they can lock, they can unlock from remote, they can attach very specific workers to very specific vehicles and give positive feedback when the employee actually drives in a way that they know is safer and puts less wear on the vehicle. Give them positive feedback. And all of these examples, they're not unique and given enough time, others could build these experiences out. Although with our design teams, I'd like to think they're not going to be anything as useful and as cool as ours. But what's important is that we understand what customers are doing with this. And we use everything that we can possibly know about the customers as well as the connected data, and that we can develop these features in weeks rather than months, deploy them, find out right away whether people even use them and if so, how. And then make them better and better and better. And the best features, the best productivity, the best safety and security, we'll deliver on those we haven't thought of yet. So ultimately, the hardware platform won't be what differentiates. Our competitors can tear our vehicle down and figure out what kind of hardware platform here. The key is this software platform, and that's what we have to set up to be able to move more confidently than anyone else and more quickly. My -- I'm into airplanes. My favorite airplane is the SR-71. Designing in the 50s still holds all the records for speed and it was designed to spy and not get shut down. There were no defense systems on it at all, except for one. If a missile was fired at you, you push the throttle forward. And that is really what we're talking about in the software world is speed is what becomes your competitive advantage, speeds the only defense and to do that, we have to set up this kind of platform and this kind of organization to be ready for the future. So I have time to take a few questions at this point.

Yes. Tom [ Reiner ] -- but you talk about speed, right? That's the thing with software. And there's a very high profile European OEM that's tried to do speed with doing software internally and have had issues doing it so much so that they've, you could say, somewhat capitulated and are using a supplier to provide them with Level 3. To what extent we heard also from Jim earlier about how some of the ADAS is eventually going to get commoditized. So maybe you don't make as much money off of it. So if everybody is going to have the same product why not outsource it? What exactly is it that -- what is the need to distinguish yourself? And would it be quicker to use somebody else.

So it's a good question. So if you want to have the same software as everybody else, there's no better way to do that than to outsource it. So if you want to preserve the option to have something differentiated, you're going to have to do it inside. But the other piece of this is if you are starting to change your product to be different than the rest of the industry, outsourcing the software, it doesn't work. Because of that right over there, where they've got to get in and now start working with your suppliers through your channels and I have not seen with a product of the complexity of an automobile, the ability to actually outsource that level of work and have it land and get integrated in your product and integrated well. So the way a lot of auto companies have tried to manage software is the same way they do supplier hardware. So what can happen is, what were design engineers inside the company become program managers. And the program manager supplier who actually has the CAD and engineers and design the product. And once you do that, you're at the mercy of the supplier. But the main question of where is your differentiation going to be? I mean you could ask the same question of some very successful companies today. The other people have exercise services, other people have cameras. The difference is in, I think, how we connect them to our customers. People respond to really, really well done software. They respond to companies that pay attention to latency to beauty in the system to ease of use to the ability to learn and know what you want. Software can be very personalized and people can love and be loyal to software in ways that are just as strong as hardware. So it would be a complete delegation of our destiny to hand over this kind of core software to a supply base. And I don't think it would be faster, actually. I think it would be a lot more complex and we'd end up with something that we couldn't change. It would be really hard to change in the future.

Enjoy the rest of your day.

Okay. Good afternoon, everyone. How are you? Okay. I think before we get started, Lynn, did you want to make one small announcement on questions.

Yes. Just turning to Q&A, we're going to limit it to analysts [indiscernible].

Yes. If you could, please, there will be microphones for you to ask your questions because it is broadcast. So we want to make sure that the folks online can hear you as well. So if you could oblige that would be great. So this is going to be a little bit lighter in format this afternoon. We had a lot of announcements this morning on our raw materials strategy in our lithium deals. We talked a little bit about our EV industrialization plans and manufacturing, although given the limited time, we couldn't go into a lot of detail. So this is your opportunity to ask us any questions that you might have. I have with me some of our fantastic team members, and I will do a quick round of introduction. First, we have Erica Rannestad. Now Erica leads our lithium team and needless to say she's been pretty busy over the last 6 months on all the lithium deals, 15 years of experience in the commodity industry, everything from commodity pricing, forecasting valuations, and she came to Ford by way of Rio Tinto. We also have Katie Wang. So Katie started at Cisco, 15 years of experience in supply chain. She spent 10 years at Apple and Tesla buying batteries, and worked on iPhone, Apple Watches and of course, EVs. A lot of expertise all the way down to the Tier 4 and 5 levels in battery cell raw materials. And she leads our global battery cell and raw material team inside of Model E. And then Peter Wilson. So one of our manufacturing veterans. He leads our manufacturing teams for all the battery cell plants and then all the battery pack plants as well. 28 years at Ford, he has helped us build 4 major plants in Mexico and China, 7 major existing transformations, great depth in manufacturing expertise and technology. And again, he's dedicated to us on our battery cell team. So with that, we wanted to actually spend most of the time. We actually ran out of time on our first session. So we want to turn it over to you to ask us any questions you might have, again, raw material strategy, battery cell strategy and anything around the industrialization plan.

It's Colin Langan from Wells Fargo. Maybe to kick it off, I mean you have the EPA rules are imply about 67% or at least the proposal for implying 67% by 2032. Since we have lithium supply chain experts here. Do you think there's enough lithium that's going to be available by those time frames? Obviously, it's pretty important since you just locked in a lot of big deals this morning. What are your thoughts as experts on that? I'm kind of curious.

Yes. So lithium is actually an abundant material in the ground. It doesn't mean it's abundant economically and at the time frame that the market wants it. It's also not abundant and that there's not a lot of know-how or capability in the industry. Just 5 years ago, the lithium market was 200,000 tonnes, it needs to grow to over 3 million globally to meet demand within the next 2030 or so. So the real bottleneck is time. And mining lead times and development time lines take -- not a lot longer and there's [ Walmart ] work because you were agitating the earth. You have to really plan that out. So I guess my quick answer is that there's enough lithium, but at the timing that everyone wants it, I would say, no, there is a supply-demand gap. And so in the past several years, you have seen a lot of OEMs recognized the bottleneck and go into direct sourcing the material. And those suppliers, those lithium producers, they want to be connected to the OEM directly. So they can understand really where demand is going rather than sort of hearing it along the great line of the value chain. So in the long run, there'll be -- there could be enough lithium. It's just going to take a long time, but to grow at that pace is also pretty unprecedented for a commodity industry in and of itself. I mean, when was the last time you saw commodity growth of supply increase at 20% of clip chronically. So it's not very easy.