Ford Motor Company (F) Earnings Call Transcript & Summary

Next up, we're very happy to have Ford Motor Company. We have our dear friend, John Lawler, who is the Vice Chair currently, prior CFO and had many, many roles in the company over the years. John's new role is focused much more on strategy, traveling the planet, trying to understand what's going on in the industry everywhere as well as Ford and everywhere. So it's an all-encompassing job. I'm sure John is not slept in a very, very long time, given everything that's going on right now in the industry and with Ford, and it goes way beyond just the recent tariff noise. So John, thank you very much for all the help over the years, partnership and especially coming today. So we really, really appreciate your time.

Thanks for having me.

We're going to kick off with the obligatory tariff question just to get that out of the way and then get into some of the real meat of what's going on at the company in the industry. Hopefully, we'll get through this pretty quickly. There's a lot going on tariffs. There's a lot of extreme uncertainty. I just wonder if you could kind of sort of review some of the public statements and how Ford is thinking about this at the moment. And in reality, Ford is very, very well positioned. It's been a great American company for a very long time and has been very sort of responsible in supporting the country and producing here in a way that maybe many other companies are not. So I was just wondering if you could kind of talk about your current take, your current positioning and what your thinking is on the current situation?

Yes. So I think personally, I believe one of the most important things you have to do in corporations position yourself for success no matter what happens. And I think we've done that. Our balance sheet is in great shape. We've got a good position from a cash standpoint and liquidity. So I think we're positioned really well as a company to manage through whatever is coming at us. I'd also say, as you mentioned, we are positioned better than most in the industry because we are the most American company. We assemble more vehicles than anybody else. We have the most hourly workers, and we export the most vehicles from the U.S. And so I think that gives us a unique position. Now are there going to be headwinds in as this unfolds? Exactly, there will be. And quite honestly, we're all working through that right now to understand how all the tariffs align, what the impact is going to be, how we're going to work through this. And so we're going to work on managing what we can control, continue to engage the dialogue and continue to work through this. But at this point, there's really not much more I can say. And we will have more information when we do earnings in a couple of weeks. And as things unfold and we understand how things are going to shape up, we'll have a point of view, and we'll communicate it at the right time.

Great. Appreciate that. Beyond this, though, there's a lot going on in the industry, right? If we round the clock a month or 2 ago, there's still a tremendous amount to talk about. So maybe just in an overarching way, as you think about all the changes that are going on in the industry globally. I mean we kind of refer to as tectonic shifts, it might be a whole lot more than that with the tsunami layered on top. But I mean, maybe you could talk about your view and how you're approaching your new role and trying to understand how the industry is evolving and changing and how Ford fits into that?

Absolutely. So I moved out of the CFO role at the end of February. And pretty much for the last 2 months have been on the road. I've been in Asia, I've been in Europe, of course, the States. Tectonic, I think, is -- I like the idea of that in the Tsunami on the top of that. So when you look at the industry, it is transforming dramatically. Look, not only do we have the Chinese coming in, which are real competitive player. So right, we had -- if you used to go back and you look at the domestic OEMs, the Japanese came, then the Koreans came or the Chinese are coming, right? And they are a force to reckon with. In Asia, Europe, and eventually, they will be here. I don't think we could -- don't know what the time frame is, but I don't think we can say no, they're not going to come to the U.S. So you have the competitive nature of the industry accelerating. And this is much different than what we saw in the past when we saw the rise of different companies around the world, is that not only are they bringing product and technology, they're leaders in electrification. But the pace of change in the product development system is unbelievable. I guess what is it now? If you look at the Chinese from concept to market 2 years, maybe less and that's shrinking. There are leaders in cockpit software. When I left China in '16, it was a digital society back then, and it's just only advancing. They're leaders in battery technology, they're leaders in development. They have the lowest cost structure in the industry, all of that's coming together. And then you have, on top of that, the pace of change for electrification, ICE vehicles are going to be around longer. You've got multi-energy with ICE so HEVs, plug-ins, EREVs, that's coming. So you have to invest in all of that. EVs aren't going away. Then you have advanced digital electrical architectures, you have the software-defined vehicle. All of that requires capital, and it requires not only the dollars to invest, but the human capital to make that happen. And each of us can't afford to do that on our own. So step back and look what's happened to the industry over the last couple of years. Do you know that between probably over the last 10 to 12 years, there were roughly $80-plus billion of profit in China. Now a big chunk of that was the global OEMs, and they use that to invest in products. They use that to fund development. Profits in China are down over 40% over the last 3 years. And I don't think it's going to get any easier. It's only going to get tougher. So how are we going to replace that to fund all of these things coming at us. We have to think about the industry differently. We have to think about joint ventures. We have to think about partnerships. Maybe there will be consolidation. But if something doesn't change, all of us can't do all of this on our own, especially with what has been our largest profit pools and cash generators in this industry over the last 10 to 12 years drying up. So tectonic, yes. Tsunami, absolutely. So we have to figure this out. And that's what I'm trying to do is figure out what our plays will be, how we work this. And as I said, we're positioned really well right now because of the strength of our balance sheet, the cash we have on hand. And what we've done so far working on restructuring the company. So yes, I think that this is going to be an inflection point for the industry and every company in the industry regardless of what happens with tariffs.

So interwoven into that, the changes that are in China are the EV revolution, right? I mean we look at product cycles dropping from sort of looking at car wars 5 to 6 years now to 18 to 24 months, which will make all of our lives more challenging. The old adage is you guys were over in China. Your partners are learning from you, but now there's a tremendous amount potentially for you to learn from them. And as we kind of think about sort of in this context of the EV revolution, evolution, big bang, whatever you want to call it, what are the lessons that you think you're learning as you're kind of going through this? I mean you've been doing this for a while, certainly trying to learn from them beyond just the last few months. What do you think you're learning at Ford from these folks? And how can you increase those cycle times and become really competitive with them because as you said, they're not going away, and they're going to continue to grow and spread probably over time.

Yes. I think the #1 thing that we're learning relative to them, one, we need to increase our development cadence. That's for sure. It seems like there's 2 development processes in the world, right? Now there's the East and it's the process that Tesla follows, which is an agile approach to developing the vehicles, which has cut the development time dramatically. And then there is the linear waterfall process that we've been using in the industry for decades. And so we need to learn how to do that and then we need to find the right transfer function to bring that back. Now we had realized this a few years ago and what we did is we went out and we hired folks that were doing it similar to the way the Chinese do it with Alan Clarke and some of the folks in Tesla and some of the other tech companies. And we put that in place with our advanced electrical development center out in California, previously known as Skunk Works. And so they're using that process, and we're very much using that to accelerate the pace of development. And we're also looking with our partners and working with our partners to develop electric vehicles as well to understand how they do it. Now, let me digress for a second and then come back to that. When you look at our China business, we've already changed how we approach it and how we learn from our partners. So one of the silver linings in us hitting the skids in '19, '20 in China before everybody else is we had to adjust our business, which we did. So we went loan capital. We leveraged the partners' platforms. We leveraged the partners development process to create Ford-branded vehicles off of those platforms, and we use those to export. So last year, in China, including exports out of China to Southeast Asia and South America, the China business, if you frame it that way, was roughly $900 million of EBIT. So you have to look at that differently and have to leverage their capabilities and their platforms and their development process and it's working well for us. So we're trying to take that transfer function and bring it back. We've made a huge step forward in electrification with the Skunk Works team out in California, and we need to bring those learnings together and we need to continue to accelerate that. I'd also say what we're learning from them is they are the lowest cost structure in the industry? And how do you use that? Now one of the things that we need to do is we need to work with our partners to understand how you bring that cost structure outside of China. Is it going to be the same cost structure, no? But whoever can do that at the lowest increase? Is it 10%? Is it 15%? Is it 20%? Whoever can do that at the lowest increase is going to win and establish that cost structure and that supply structure outside of China. And so these are the types of things we're working on. And then the other thing I would say when it comes to electrification, John, we made the shift, and I think this was an advantage of being a first mover, having the Mach-E and the Lightning and the Transit van out there early, although not optimized, and we understand that. We learned a lot about the customers. And we learned a lot about where to play and how to win. So 3, 4 years ago, the whole narrative in the industry was I can remember it is one who's going to invest in most money, which I've talked about in the past was a mistake because it seems like whoever invested the most was winning. So no, it's $10 billion, $20 billion, $30 billion, $40 billion, $50 billion. That was a mistake across the industry. But the other thing that proved to be an error state was everybody thought battery costs were going to come down dramatically, right? What was it that we'd be roughly by '26, $50 a kilowatt hour for a pack. We're nowhere close to that. So as we started to pivot and we went with the Advanced Development Center, we started to look at where we would play in electrification, and we concluded it was small and medium-sized utilities and pickup trucks. And the reason why is because those smaller form factors require a smaller battery. So these large vehicles with these huge batteries at the cost of electrification today for the battery the kilowatt hour, they just don't work. So that's why we pivoted and that's what we're going to be coming out with the products we launch out of the Skunk Works team. So it's a little bit of a roundabout answer, but that's how we're thinking about it, and that's how we're pulling it together.

When Skunk Works was first announced, there's a lot of skepticism, right? But I think what's become clear we're going to have some great folks from Caresoft later today doing a presentation on some of the Chinese teardowns. It really is becoming clearer that some of the ICE notions in the platforms that have been created by other folks and to yourselves as well to sort of leverage some of the know-how in the past really is kind of almost sort of missing the whole point and stuff like NVH is totally different in an EV that allows you to take cost down. So I mean if you think about the Skunk Works team and what you're learning in China and then learning from some suppliers, do you think that you've kind of made this step forward with the non-ICE folks and these all whole new crew understanding really what needs to be done because I think there's some platforms that some people have out there that are EV platforms that are 20% heavier than the Tesla's and the Chinese. And it's just -- you're like, Oh, that's a great platform, but it's still incredibly inefficient. Or you're seeing that payoff page comes from the Skunk Works team at that...

Absolutely. And it's because of the talent we have. Alan Clarke was the Chief Vehicle architect engineer, I guess, for most of the Tesla platforms. So he understands the importance of that, and that's what he's brought. So absolutely, we believe that our vehicle is coming off of that platform and the top heads we put in that platform will be fully competitive with the global base. So the Chinese as well as anybody else that's out there. So you had a question on autonomy.

Yes. I mean the technology is everywhere now, and it's growing, but maybe if we could drill down on autonomy. Do you think it's important to build that in-house. Can you look outside and integrate? Just give us a little update on autonomy.

Yes. So we'll be pragmatic when it comes to autonomy. We were with Argo. I think we moved sooner than anybody else and moving away from Argo until L4. We brought a lot of the best engineers from that team inside with Latitude. We've created a great product in BlueCruise, it's #1 rated. We have over 300 million miles now with the system, and it's only getting better.

$300 million.

Yes. And that -- $300 million. And then we'll eventually move into L3, which is eyes off the road, right? So I think it's an unlock and it's an important unlock. Now the road into true L4, where you don't have a driver at all, that's a ways off, we're going to be pragmatic about that. There's nothing that says we're absolutely going to develop it in-house. We may partner, we may look at others. But I think we're on a good trajectory right now with that for the L2 to L3. Now one of the things we have to come to grips with in the industry, though, is that ADAS technology is going to be different in the West than it is in China. And so when you look at the software-defined vehicle, the fully integrated electrical architecture and then ADAS technologies, right now, the industry is probably requiring 3 fully developed systems, which are not inexpensive. You have China. You're going to have less, and then you're probably going to need a system for low-cost markets because they're not going to be able to afford the full system, but there's going to be some of that technology and benefit they're going to want. So how are we going to do that efficiently. Can every OEM do all 3 of those on their own, how is this going to develop? These are the types of things we're thinking about, how do we position ourselves to win and what's the best path forward in that.

Maybe if we could talk about one of the more mundane but very practical technologies of the connected vehicle. And with Ford Connect, you guys are kind of leveraging this to some degree. As we look at this, this is talking about the dealer level, there's $1.2 trillion captured into dealers and $53 billion of profit. Beyond that, in the lifetime of vehicles there's another $1.2 trillion that's not captured at the dealership level and for you guys, that's $133 billion products 2.5x the profit, half the revenue. I've talked to Farley about this a number of times. You guys have the opportunity and the right to play because it's your asset you created in the beginning. And it's kind a little bit while that over time, somebody else picking your pocket, making the profit returns. So you really have a right to play here. So this connected car technology maybe opening the door to you're playing in that lifetime revenue much more than you have in the past. You got a good business there right now on the OE parts with your dealers, but there's a lot more to be had, another $1.2 trillion, [ $133 billion ] of profit. So how do you think about that connected car technology and using that and utilizing that to get after that half the market that you and your dealers are not getting after and how do you partner with these dealers to get after it as well.

Yes. So I got a lot to say on this.

Yes, keep going, I want to hear about that.

Yes. So outside of the competitive landscape and how quickly things are changing in the industry. This is the most important question in my mind. So let's all face it, the multiples in our industry are terrible. I'd like to use a different word, but I probably shouldn't say that [indiscernible]. Yes, exactly. They're terrible. And so what drives that? Why is the -- just compare yourselves to best-in-class industrials. Our margins are bad, capital efficiency is atrocious. So we haven't been good stewards of capital. Growth hasn't really been there. And our cyclicality is off the charts, peak to trough during recession, right? So those are the 4 things. If you compare us to best-in-class industrials, I think really hold us back. So it comes back to what you just mentioned, John, is that we invest billions of dollars in the hardware and how much of the TAM generated by that hardware do we capture? You just said it. We get our pockets picked. It leaks out. That's why our margins are so low. That's where our capital efficiency is, one of the reasons why our capital efficiency is so low. And then peak to trough. So this idea of the connected vehicle and having revenue streams that create value that not only are higher margin, more capital efficient and reduce the peak to trough, cyclicality in the industry. That is the unlock for the industry that, quite honestly, I didn't think was ever going to happen. And it's going to take us being from an old smoke stack industrial, grinded out capital-intensive industry to one that's dynamic and has opportunities to grow and have better margins and capital efficiencies. That's what we need to make happen. And I think we're well along the path with the connected vehicle and what we're doing, starting with Pro and the integrated services that we're building out. And it's not just software, it is the physical services. You're right. I think we capture about 37% of the physical services that are available to us. And every point of share is worth $30 million of EBIT. Now our goal is to get to 50% by 2026, but is 50% enough. No. It should be more than that. Why are we not capturing 85% or 100%. But now we're developing a relationship with the customers. We have the data coming off the vehicle, we can create value. We can get to the point, and we're working to get to the point of guaranteed uptime. And so all of those things are going to allow us to have a different relationship with the customer to create value, and that's going to allow us to grow we think, especially in Pro, our penetration, right, our share of wallet and then the ability to drive significant benefit for our commercial customers. But we can't do that on our own. We have to do that with the dealers. And we have some very, very good commercial dealers out there that understand the commercial business. And so they're working with us to do mobile vans, right? We're growing that at over 30% a year, I believe. And those mobile vans allow customers to get their vehicle serviced on the job site. We can do 80% of all service needed for a customer with one of those mobile service units. So we can go to their place of business where they're working. They don't have to get -- stop their work and we can service their vehicle. We have commercial service centers, which are unique centers because they have special abilities to work on these big vehicles with cherry pickers or large attachments like those that clean out sewers and things like that. You need a special physical location to do service on those types of vehicles, certain service on those types of vehicles. We have roughly 32 of those today. We're moving to 100 and those are our deal with partners. We can't do that on our own. So we can't do mobile fleets on our own. We can't do the commercial service centers on our own. They've established very good relationships. And then we're working to build out the soft floor side of it through fleet management and telematics, and that's coming in very well, right? We have over 650,000 subscriptions and a lot of those are telematics fleet management that have a good ARPU, and that's growing as well. And we need to do that in conjunction with those great dealers like the Penskes and others around the world, around the country that are going to help us and then how do we bring that globally for Pro. So yes, it's a big unlock for the industry. It's a big unlock for Ford, and I think we're positioned better than anybody else in the space to take advantage of it, and we're continuing to build that out. And that is a huge focus for the leadership team and a huge focus for Jim.

So maybe winding up a little bit more on this. As you look at this, I mean we look at peak to troughs and trough to peaks of 5 to 10 years. So if you can get into a 10-year realization of revenue off a vehicle or operate in the used market to some extent with the help of the dealers, you take a lot of -- you potentially take a lot of cyclicality out of the earnings stream. But when you do this in Pro, you're learning a lot that hopefully you can apply to Blue and E. So how far along is that? I mean you get into one of these wild things where if you're dealing with the second and third customer and the vehicles being serviced at your dealerships, vehicle gets captured at that dealership, you then have this opportunity to understand what's going on with the vehicle, understand the residual value. And if you understand what's going on with the residual value in supporting it, that has big impacts on your new vehicle pricing. And this whole becomes this very amazing ecosystem that has not been -- it's kind of been known but not levered that well at all by Ford and your dealers or as much as it should be. I mean, you recognize this stuff. So you mean where are we on the retail side of being able to do that? And when you think about sort of there's the revenue and profit opportunity kind of directly, but indirectly, the benefit to the business is massive because you pick up a couple of points on pricing, your drop in trades of bottom line, and it can be tremendous.

Yes. And the margins in both service and software are much higher exactly as we pick that up. So we are more advanced and further ahead when it comes to commercial, but we're learning from that. BlueCruise, right, and ADAS, that's being applied across both. So that's one online for the retail side of the business, both E and Blue. And then you look at things like secure. Safety and security is really important to commercial customers, but it's important to retail customers as well, and we're building out that business line. Not only is it while driving and having security there, but while the vehicle is parked and how do you leverage the vehicle, to provide additional security, protect what's in the vehicle and other things. We're looking at not only does it matter around the commercial customer to have uptime and predictive failure, but that's just as important for the retail customer as well, right? When we take this data and we build this out, we need to get to the point where a customer can be confident they will never have an incident other than, let's say, something happening with a tire or an accident, we're there on the side of the road because we're going to be out in front of things. And then you've got the trade cycle management. If we understand the vehicle, how it's used, where it's operated and we understand when the trade cycle should happen for optimization, for that individual and then we can leverage that through the used vehicle market, we're starting to capture a much bigger part of the TAM that we've never played in. And so this opens up this whole aperture of things that we need to be working through. So we're starting on the Pro side. We're leveraging what we're learning. We're bringing that back to the retail side, and we're just scratching the surface at the unlock. It's really not showing up yet in the numbers, but that's what we need to figure out how to do. So again, I keep coming back to it. I think we've positioned ourselves really well. Now we need to start bringing this home and bringing it to the bottom line.

Yes. It's kind of a while because it's out there. It exists. They're not recreating new revenue or creating revenue or subscriptions necessarily. There's a massive, once again $1.2 trillion that you can get after and make a lot more money with the help of the dealers and partners.

Yes. Exactly.

Maybe if we get flip back to Model E for a second, and we'll go through each of the 3 segments pretty quickly here. There's a lot of change in there's the tariff noise, but then there's the other stuff that's going on from CAR-based EC2, it's an EPA potentially relaxing fuel economy and emissions regulations. As you think about that, I mean -- and I applaud you guys for canceling, I don't love it when you cancel programs because it messes up our coverage analysis. But it was a good decision to cancel that 3-row EV. I agree with you all day long. I think that was a very smart decision. But given what's potentially changing from the regulatory standpoint for car-based EC2 or car altogether, and it's an EPA easing their standards. How do you think about the investment in EVs? Because obviously, this is your biggest, most important market. China is a little bit of an opportunity, Rest of the World is a bit of an opportunity. But this is your home market where your bread and butter is. Is there the opportunity to potentially pull back a little bit further or change strategy? Or how do you think about that business at this point?

Yes. It's not a matter of if, it's when, and it's the rate of change. One of the things we did is we never stopped investing in multi-energy, right? We were hybrids, plug-in hybrids. There's other technologies coming EREVs. And we think that's going to be a really good bridge into electrification. But we still need to be moving forward on electrification, and we like where we're positioned with the California team and what we're developing there. And we've already pulled back on some of the investments. We've been clear about that. So we're going to find the right balance. And one of the things that we're thinking about very deeply as a company is, I think this industry for the 35 years that I've been involved in it, has really run as operators, not investors. And so we're thinking about the business as both an operator because it's such a tough business to operate. You have -- I think that's one of the biggest unlocks for us is our cost structure because we slipped a little bit from that operating standpoint. We're getting that back in line, right? And then it's the fact that we have to be investors. So whatever we invest in has to give us a return on that capital above our cost of capital. And as we've talked about in the past, we have a different hurdle rate for each of the businesses based on their risk profiles, and that's how we're thinking about the business. And so, yes, there's an opportunity to pull back. There's opportunities to partner, there's opportunities to leverage what others have done. So we're not doing everything on our own. And that's what we're working through and we're developing. I don't have any specifics to announce right now, but it's at the front of our minds on how we're going to do that with electrification because this tail of ICE is going to be longer, multi-energy is going to be in there and electrification is going to be in there. And things are changing dramatically here in the U.S., but they're not necessarily changing around the rest of the world. And so we have to think about it. That's the other huge tsunami that's hitting the industry is before tariffs, it was becoming much more regionalized because of the pace change of electrification adoption as well as the taste of the consumers are diverging more than I've seen in the past. So you've got regionalization on top of it. And so we have to be able to satisfy our customers in every one of the regions where we operate. And that's important for us because with the shifts that are happening in the industry, we believe we need to be a global player because the competitive nature of where the Chinese are heading, they're looking to dominate around the world. And if we get pushed back into just operating here in the United States and being a U.S. automaker large profit. But where does that put us as a company in 10 to 15 years? We have to compete, and we have to learn to compete globally against the best that are out there, and that's what we're doing.

Maybe if we could talk about that tail on ICE. I mean you got a great truck portfolio. I mean based on our analysis, I mean, your product portfolio and the pipeline for the next 4 years is great. You got a lot of trucks coming out. Rumors, the F-150 might be pushed out a year, but that's -- I mean you get that product right, that's small potatoes and getting everything right. How much more time and how much more profit do you feel like you can squeeze this business? And I think this gets into our -- probably seen our core to future theory, if you need to leverage your core. How much longer do you have? And how much more money do you think you can make out of this portfolio ex the slightly favored position you are in what might be going on with tariffs or not, just really in this core extension of ICE and it could be the kind of thing where you have another 5 -- we'll see what you say or when you think about, but you might have an extra 5 years of printing very high profits on these vehicles or maybe even longer than that to help generate the capital, which is what you need to do in this business to fund the future. I mean how do you think about that longer tail, the reinvestment in that product and powertrain on the ICE side and how that's kind of shifted or maybe not.

That tail is going to be very long, I think, I don't think it's years I don't think it's 10 years. I think it's plus. So think about the technology that's required, these trucks that we have, there's a big part of it that's retail. And there's multi-energy options on that retail side. We're one of the leaders when it comes to hybrid pickup trucks and electric pickup trucks. So there's going to be a niche for that. Hybrids is less than a niche, but electric pickup trucks. But those that actually use the truck as a tool, which is the majority of our customers, there isn't a solution that's going to work for them that is electrified. There isn't a battery technology that we know that's emerging that's going to allow those to be efficient and cost-effective. And so it's going to continue to move into multi-energy. So there may be alternatives. We're going to need to continue to develop better emissions platforms for those vehicles, but I see those the tail on that being quite long because there isn't a solution that fixes that. One might say hydrogen, but where's the infrastructure for that? And where is that in development, right? So I think those large vehicles that are used for commercial purposes and for work, there's a long tail to that, a long tail. And until we have a breakthrough in technology, the larger form factors, battery electric vehicles just aren't going to work because we talked about that from the standpoint of that cost per kilowatt hour, those batteries are huge. And that's the most expense piece of commodity in an electric vehicle. And until there's a breakthrough there, it's just not going to have the adoption because of the pricing and the structure of it is just not going to work. So I think there's a long tail and that's why it's important that we have to invest. And coming back to what I said earlier, we have to invest in multi-energy and hybrid technology. We have to invest in EVs. We have to invest in driver safe technologies. We have to address in advanced electrical architectures. We have to invest in the software-defined vehicle. That's capital and talent and doing that all on your own for every OEM isn't containable across the industry.

Okay. I want to see some time for cap allocation, but really quickly on Pro. Great business on commercial vehicles in Europe, right? I mean we've talked about kind of more than the context of the U.S. Maybe you can just talk about that positioning of Pro over the commercial vehicle business in Europe because that's another great pillar of a company that often gets over looked.

Now the business in Europe is very profitable. We're a leader -- segment leader in vans. It's growing. It's a little bit of a different business. We don't see the uptake as much on the software in Europe as we do in the United States. So it's a little bit of a different approach with the customers there, but it's a great business for us. And what we're figuring out, similar to what we're doing here in Europe, it's not only the form factor, it's the choice that we give our customers between multi-energy, full ICE and electrification options, but a service is important, the uptime is important as well as how we're approaching with them the life cycle. So many of the things that we have here in the U.S. that we've talked about, they apply in Europe. It's a growth business for us. We have the lowest cost footprint with our joint venture in Turkey where we produce demands. And so it's a sweet spot for us, and we're going to continue to build that out. And then if you look at the success we have on Pro in the U.S. and we have in Europe, how do we bring that and think about that in more of the emerging markets with affordable commercial vehicles and the know-how that we have and the customers at a different stage, but how do we bring them along and leverage the learnings we have both in the U.S. and Europe. That's how we're thinking about it.

Well, we got 4 minutes left. So we'll go quick on cap allocation here. Two big players, being the Chinese at large and Tesla have a cost of capital advantage. How do you think about the capital allocation in the context of having that cost of capital disadvantage you have to generate organically, you're doing a great job, I think, of doing that versus -- and you think about sort of that somewhat disadvantage right from those folks who get low cost of capital. But also, how do you think about that sort of in the context of how you invest in product powertrains, but then also returning value to shareholders, whether it be in dividends or buybacks, I would applaud as a shareholder -- well, I'm not a shareholder, but representing shareholders as an equity analyst kind of which it was. That allocation of capital.

Yes. So we've been pretty clear about the return to shareholders, 40% to 50% of free cash flow. We've been at the higher end of that at 50% over the last few years. So at that point, 50% of our free cash flow is going into our balance sheet right now, we have a good cash position. And that's to invest in organic growth areas or inorganic, depending on how they come along, where we believe what's going to advantage us and we're going to get a higher return on that capital. Over the last few years, as I've sat in the seat with many analysts, there's been a lot of pressure around how come we're not doing share buybacks. And we've been very consistent that we believe that the most appropriate use of that capital is for investing in the business so that we have accretive growth opportunities. And we've said that we will continue to do that, and that's how we're thinking about things. And eventually, over time, if we don't have those opportunities, then we would look at how we distribute that back to shareholders. But we're not at that point. We believe 40% to 50% is the right allocation right now and with the opportunities we talked about at the beginning of this conversation, the tectonic shifts in the industry, the fact that the capital that's going to be required for all of these developments, no OEM can do all of that on their own, and every OEM can't develop that themselves, then how are we going to leverage the position that we have put ourselves in, which is, I think, a very good position to figure out how to pull and knit all of this together with partnerships, joint ventures, potentially rolling things up, et cetera, around the industry. So we're advantaged and capital is going to be a tool that we have because of the strength of our balance sheet to be able to do these things and continue to invest in the business. So that in 15 years and 10 years, we are a global player that is going to be a force to be reckoned with. Because remember, we have an advantage. We have the ability to look long term, given our ownership structure and the family. And they think about that, and that's a gift that we have that we can leverage to really position ourselves for success in the future. We got things to fix today. We're working on it, right? We're working on it, but I think we're positioned for the future.

I think there was ever a time in a place to have what some people might view as excess cash on the balance sheet now is right to create the optionality to operate the way you need to in the future. One last question, which was not on the dock, and I might get trouble for asking this. But John, what car you're driving or truck you're driving right now and you can tell us what you like about it?

Oh, that's easy. I drive Mach-E every day. I love it. Just once you get into an electric vehicle and handling, the feel and everything, it's amazing. But again, like most customers out there if you want to go on a trip above 300 miles, you've got to figure out how to charge. So that infrastructure, range anxiety, that's there. But I also have an F-150, and so I'd love to drive that. But if I can get my wife out of it because she loves it and a Bronco. So I'd like to go off on the trails and Michigan is great because we have lots of trails and off-road opportunities. And so those are the 3 vehicles that I drive the most. And that's what I love about our lineup. If there's anything I want to do and then if I feel like a hot rod around Mustang GT and drive that and Blah-blah-blah. So we just have a great lineup that -- how could you not want to work at Ford? I mean, look at the products we have. Every time you're at a party or with folks and they find out you work at Ford, they want to talk about the vehicles. It's much better than working at a soap company. I don't know how they talk about shampoo.

I don't really have too many. John, thank you for the time today. Thank you for all the time over the years. We really appreciate the partnership. So thank you so much for spending time with us today here.

Thank you.