Ford Motor Company (F) Earnings Call Transcript & Summary

I'm pleased to welcome our next company, Ford Motor Company. And from Ford, we have Andrew Frick, President of Ford Blue and Model e. Andrew, thanks for joining us.

Thank you, Jonathan. Thanks for having us.

That's nice, cool to have you guys here. We do cover a couple of other suppliers in the auto space, Magna and Linamar, some of your suppliers.

Yes. I saw that on the agenda. Congratulations on that.

We keep you guys on great forums.

Yes, exactly.

Maybe just to start off, people may not be familiar with you and your role at Ford. So maybe you can give us some of your career background in an intro there.

Yes. Again, thanks. It's nice to see everyone. Good morning. Thanks for having us here, and congrats on your conference again. My name is Andrew Frick. I've been with Ford for just over 30 years now. And I've had a lot of different positions along the way through that journey, primarily in marketing, sales and service, where I worked on both our Ford and Lincoln brands in multiple places around the world. And in the last several years, I've been more in our general management roles and have the honor to work right now and lead our Ford Blue and Model e business units. I had the pleasure to work with dealers all around the world, directly with customers, get to know a lot of the different markets. And yes, I just feel very privileged to be in this role right now at an exciting time for Ford.

Perfect. Thanks for that. And maybe we can just start with the Q3 guidance tariffs. Maybe you can just walk us through the guidance, the different pieces around that, some of the latest commentary on tariffs. I'm sure that's a big topic that we can spend several hours with. And then I guess also on the emissions piece, too, what you're thinking there.

Yes. So as we reported in third quarter, it's very important to note the underlying strength of our business right now is really good. It's very strong in our run rate. In fact, what we reported was we were on pace to deliver $8.5 billion -- over $8 billion of EBIT for the year prior to the Novelis fire that obviously we've been dealing with. Within that are a lot of -- through the year, we see a lot of different things coming in and out. Tariffs being one of the big things that we saw this year. It was about a $2 billion headwind. We were able to offset $1 billion of that in different market factors, volume, mix throughout the year, pricing that really led to us offsetting a good piece of that. At the same time, we've improved the overall cost of our business as well, over $1 billion of -- in our industrial system, which is something we were really focused on doing this year. So the underlying strength of the business was really good. So that over $8 billion track we were on was on the high side of what we originally had provided as an outlook back in February, which was $7 billion to $8.5 billion. We did -- we are dealing with the Novelis fire at one of our suppliers that will have an impact on our fourth quarter. We did share and report that it would be about $1.5 billion to $2 billion negative for us in the fourth quarter. And obviously, we're focused on that recovery as we head into next year. So what we guided then was $6 billion to $6.5 billion net of that impact of Novelis.

Correct me if I'm wrong, but I think the shares reacted very positively the day you reported. Do you have a sense how much of that -- or I guess maybe the feedback you've gotten from investors was your ability to offset some of the impacts from the Novelis fire or perhaps it was the commentary around tariffs. And maybe you can just talk about, I guess, I don't know if there are anything, there's expectations anymore. But what tariffs were at the beginning of the year and kind of how that's evolved. I believe there were some new kind of carve-outs in Trump's policy on perhaps lower tariff rates for you guys or some credits in there. So how are we thinking about tariffs? And in terms of the quarter, what were people thinking about the positives, the puts and takes, whether it was your ability to offset impact from the fire, tariffs not as bad as feared, maybe some commentary around those factors.

Yes, I think overall, it was positive because, obviously, Ford is well positioned with majority of our manufacturing being done in the United States. We're in the best position relatively speaking to a lot of our competitors. And when some of the carve-outs happened in the -- around parts and everything else, that had a -- that was a positive. So what started at a much higher amount at the beginning of the year came down to about a $2 billion headwind for us for the year. And like I said, we were able to offset just over half of that with different market factor improvements. And I think that was -- the market reacted favorably to that. And then on Novelis specifically, our team and our supply chain team and all the way up to Jim Farley and Kumar Galhotra, who runs the industrial system, like any situation like that, the team was immediately on it. We've taken some action to help Novelis and obviously to help recover some of the lost F-Series production that we'll have in the fourth quarter. And as we look into next year, that's obviously our primary focus is recovery around Novelis. So we announced that we are adding a third crew to our Dearborn truck plant, which will help us recover some of the F-150 volume. We'll obviously max out our production at Kentucky Truck. The good news is the demand for our F-Series is so strong right now. Everything we can build, we'll be able to. And I think when the reaction to the quick action plan and the movement from the third party that we -- or the third crew into Dearborn truck was seen as a quick action.

Is it your expectation you can recover most of the lost volume next year?

We think we'll recover about half of it. We have line of sight right now to about 50,000 units. The initial impact we reported on was about 100,000 units. So it recovers a good piece of it for sure.

And maybe just circling back to the tariffs for a second. Could you give us the chronology of the year. It started at X, we moved to this, we moved to this. I don't even know where we are anymore.

Honestly, the way we're looking at it at this point, the chronology is probably -- it started a lot higher, but it's less important. Where we are and where we know it's going to settle in is about $2 billion. And as we look at '26 and the cost structure of that, we're just basically baking that to our business plan. We're not -- it's almost like a labor contract negotiation. That's just now a cost of doing business. And I think through a lot of this year, there was a lot of explanation around excluding and including. And next year, we're just going to bake it into our base businesses as a reality that we have to deal with.

So it's just an added cost, at least for the next 3 years.

It is an added cost. Yes. And our job is to overcome that like we were able to do this year in a lot of ways.

Is there plans to mitigate any more of the $2 billion or strategies around that? Or it's just -- I guess maybe the more important thing is we have some sort of certainty at least for the next days or months.

Yes, certainty certainly helps in a business where you have long-term planning, and you want to make the right calls. Of course, there's market adjustments that you make. The industry SAAR as a whole is really strong right now. Pricing remains really strong in most of our markets, and we feel very good about the actions that we're taking. There's other policy-related items. You mentioned compliance that you -- that we kind of look to say, okay, well, how do they all play with one another. And as we look at compliance, for us, the way we look at that is a potential benefit for the way we are able to build towards natural consumer demand. And we're expecting some changes in policy here at the end of the year in the United States. Obviously, we're a global company. So we have to look at regulatory environments in Canada, in Europe and other parts of the world. But at the same time, in the U.S. It will allow us to build ICE products, hybrid products and electric vehicles to the natural demand, and we feel good about that. It allows us to have a little more flexibility in our production in terms of what we're able to build. If you take a look at some of our off-road derivatives, F-150 Raptor or Bronco Sasquatch packages or Tremors on Expedition and Explorer. Those are high-margin series that we'll be able to build more of that we wouldn't have been able to in a more constrained regulatory environment. So it gives us some flexibility there to build what customers are looking for, and we offer all 3 powertrains. So that plays to our advantage, we think.

That's a good segue, I guess. You mentioned compliance, you mentioned regulatory, you mentioned different propulsion systems. Maybe spend a couple of minutes talking about the emissions landscape today. I mean obviously, a lot of policy going back and forth. But where do we sit today? And how do you think that evolves the emissions conversation?

Well, in terms of which part, from the...

I guess, around mandates, I mean, they seem pretty aggressive with the Biden administration in terms of emission caps and standards. Maybe those have been pulled back a bit with Trump?

Yes. They have definitely been pulled back or we're expecting them to be pulled back later this year. To us, it gives us the flexibility to build towards customer demand, natural customer demand and not trying to force the market. You can see what's happening in different markets. In Europe, there's a tight regulatory environment. And you've seen the pricing of different OEMs go in, whether they're pooling within credits or not. In the U.S., we had to expense credits last year to remain compliant. So as we look at how that impacts us, especially in the United States, we think it's going to be a good thing for us because, again, just always building the customer and focusing on the customer is the best thing we can do, and we have the portfolio and we have the powertrain lineup to be able to do that and remain compliant. And as we go into next year, we'd have less credits that we'd have to expense as well.

That was one of my follow-up questions was the pullback in EVs, positive or negative. And I guess we can come back to the question on electrification a bit later, but I did want to spend some time talking about, I guess, Ford's reputation and technological innovation, always been kind of standard leader there. Maybe you can spend some time talking about the Pro market dynamics and then I guess the software strategy surrounding that part of the business as well.

Great. Yes. Our Ford Pro business, which is our commercial business, is really important for the company. It's one of our strategic advantages. We have a huge competitive advantage in each of the markets that we play in. I guess maybe I'll talk about it in 3 ways. One, the vehicles and our offerings and our channels; two, the service and how we're really focusing on service; and then three, where you were going with the software and our Ford Pro Intelligence offering. So on our vehicles, we're in a really good position because we have the greatest breadth of commercial vehicles of any OEM out there, especially centered on our van and truck and Super Duty business. We compete very equally spread across the fleet channels. So we have about 1/3 of our business with large corporations that are across multiple industries, 1/3 of our business that is in small business and what we call, fleetail or smaller fleets that come in and buy retail, and then about 1/3 in the government and rental business. So very evenly spread, which is an advantage. And we've been able to, in both the U.S. -- actually, in all of North America, we've actually been able to grow our share this year across all 3 channels. We're the #1 selling brand. We outsell our 2 closest competitors 2:1. We double them or we actually outsell them combined. And in Europe, our Pro business is extremely strong. We're the #1 selling brand in Europe, and that we've also been able to grow our share a couple of points this year there as well. So vehicles are very strong. We've been able to maintain the breadth of our lineup, the pricing power within and it's equally spread across the channels, which gives us really good diversification. On the service side, so a couple of years ago, we really wanted to focus on the infrastructure of supporting the commercial customer and the fleet, the overall fleet customer. And we partnered with our dealers to do that. Our dealers have invested over $2 billion in focusing on customer uptime. For a fleet customer, customer uptime is everything. It's their revenue source. It's their business. It means so much to them. So our focus has been on customer uptime. And we've built -- we have now what we call -- we have 60, we're on pace to have 120, what we call Ford Pro Elite Centers in the United States. Those are specifically designed facilities and service capacity for commercial customers focused on them and their business. It's about -- we've added about 1,700 service stalls this year dedicated to Pro customers. We also have 750 to almost 800 what we call commercial vehicle centers across the country that, again, specialize in commercial business. So we built a really good infrastructure there. We also have, over the last few years, built the largest mobile fleet service. So we have almost 5,000 mobile fleet -- mobile service vans that go to the customer and provide service work, which is really important for fleet customers that can have hundreds of vehicles at a location, we can come and our dealers can service their fleets and again, work through oftentimes at night to keep their uptime and their productivity high. That's become a really big structural advantage for Ford Pro and for Ford, and it's really paid off for us a lot in terms of customer satisfaction. So we've installed a ton of service capacity for them. And when you combine that then with our software offerings, our Ford Pro Intelligence, Telematics, really focused on the total cost of ownership for our Pro customers. What happens is you start to see this flywheel of effect where strong products with strong service with intelligent vehicles and connected vehicles that actually help them be more productive with the way they run their fleets, it's incredibly powerful, and we're seeing a much higher loyalty rate coming out of those customers that are part of that flywheel. As an example, customers that use -- we're at 818,000 paid subscribers now. And of those customers that subscribe in our Ford Pro Intelligence, they have a -- their parts attach rate is 20 points higher than those that don't. So there's a really important connectivity to our overall service and parts that go with it. As a result, our services, as a percent of our total Ford Pro EBIT, has grown over the last several years, making it just a much more durable business and helping us if there's ever any cyclicality in the industry.

Pro is definitely a runway of success for you guys, especially over the years. I mean, I guess the questions people might ask is, how hard is it for your competitors to replicate this business? It does seem there's a loyalty component. There's obviously a capital investment component. And I guess how are you thinking about the runway for Pro, especially with the distinctions you made about attach rates on connected vehicles?

We see it as a long-term advantage for us, and that's why we continue and invest much greater than any other OEM. As the market leader, we don't only want to be the market leader in our market share where we're over 40%, but we also want to have a much higher percentage of service business, and we want to be a leader in the software side as well. So what that's been able to do and building that flywheel and why we've invested in that, it helps us with our multi-make fleets. We've been able to conquest a lot of multi-make companies. We've done some strategic partnerships lately. We just partnered with ServiceTitan back in August. ServiceTitan is a really impressive company that serves a lot of vocations, small, medium businesses, plumbers, electricians, HVACs, and they're a leader in providing business solutions, and we partner with them to provide fleet solutions. So we would embed our software solutions into their greater overall customer focus, and so not only can the customers focus on business solutions, but it helps them run their fleets as well, and we've integrated with them. So there's -- Pro has so many adjacent opportunities for us in the long run. And they're really kind of endless and that's why we do continue to invest in that business. And it may seem on the surface easy to replicate, but we've been at this for years. And like I said, our dealers alone have invested over $2 billion. That doesn't just happen overnight.

That's an interesting story. I guess moving to Ford Blue and the Blue portfolio, maybe just to level set everybody, can you just talk about the background of that program, how it fits within the overall Ford ecosystem?

Yes. Ford Blue is an exciting business for us. It's our ICE and our hybrid business. It's really based on passion products. If you look at the evolution of our Blue portfolio over the last several years, 10 years, we have really focused our allocation on not playing to play but playing to win. So if you look across our portfolio, I'd like to call it, we're on the podium in nearly every segment we compete in. We're either in the top of our segment, first, second or third. But if you look at vehicles like Bronco, of course, F-150, Explorer, these are all vehicles, Maverick that sit at the top of the segment. And they're important because they're passion products. There are so many derivatives that we have off of them like our, I mentioned earlier, our off-road derivatives like Raptor and Bronco Sasquatch, and we've introduced Maverick Lobo as a street truck, like it just helps the credibility of our truck, our performance vehicles and our off-road vehicles. So that's really the role in the portfolio for our Blue products, it's to really unleash those passion products around what we call, build, thrill and adventure and off-road. So what that's allowed us to do is focus on those areas that are -- those profit pillar vehicles. And if you look at our performance in the market, our share is up this year about 0.5 point. And that's without having edge in the market last year, which we had to overcome the volume loss that we had there. And we're still up, I think it's 0.4 point on a year-to-date basis. We've invested heavily in hybrid. We're the only brand that has a truck, ICE, hybrid and electric. And our -- the top 2 selling trucks, hybrid trucks in the industry are Maverick and F-150, which is just continuing to help our leadership position on trucks right now. And F-Series leadership, we've expanded our lead this year against our 2 main competitors. So we continue to be in a really good position as it relates to that. And that's in the U.S. And Canada, just here in your home, we are still the #1 brand. We've actually increased our share by over 1 point each of the last 2 years. So we can continue to grow here in Canada. And next year, we'll be 60 years of F-Series leadership. So in the U.S., we're going up, getting closer to 50. But here, we've had almost 60 years or so.

And at the outset, you did talk about kind of meeting the customer where they wanted to be, right, when we talked about emissions. So I guess, having the 3 different propulsion systems allows you to cater to the customers where they want to be.

It absolutely does. It's one of the reasons we invested in hybrid to begin with. A lot of companies went student body left and went all in on EV, and we took a more moderated approach with investment across the powertrains, and that's really put us in a good position to be able to adjust to the market demand. And we've seen our hybrid mix grow tremendously this year. And especially on F-Series, we've now doubled our mix of F-150 hybrid volume this year.

And can you spend a few minutes talking about the UEV platform within the Ford Pro -- Ford Blue.

No, yes, that's good. So our UEV platform is our universal electric vehicle platform that we're installing into Louisville, Kentucky next year. We're really excited about it. Internally, we've been talking about it as a Model T moment. And that means a lot for us as the company that came out with the Model T. It is not only a revolutionary platform that we believe is cost competitive to go up against the best in the world, including the Chinese, but what we're really -- and it's going to change the way we manufacture vehicles. But most importantly, from a customer perspective, it's going to allow us to have a family of affordable electric vehicles. We've announced the first one coming off as a small pickup, electric pickup that we're targeting to start at around $30,000. So we're really excited about that. It plays to our strength as a truck brand that has a ton of credibility there. But at the same sense, we know there's a market for this small truck, and we're really excited about it. From a manufacturing perspective, what the team has been able to do, and we have just great leaders working on our -- on this platform. We had a team out in California that was innovating around this space. And what they've been able to do from a manufacturing standpoint has changed the whole assembly process. So they now will have 3 subassembly lines that merge into one final assembly. There's a front and rear unit casting and a battery structure that all come together. And what it's allowed us to do is reduce -- it's really allowed us to focus on, a, safety, that's always the first and foremost when it comes to manufacturing at Ford, but quality and speed at the same time. So we'll have 20% less parts, 25% less fasteners. But at the end of the day, we'll be able to increase the line speed by 15%, which is a lot in the world of manufacturing, 15% increased speed versus what we currently have at Louisville Assembly. So we're excited about the manufacturing process. We're also very excited about the product that's going to be coming off of it in the form of the small electric truck.

How does the product line fit within the broader EV or electrification narrative? So obviously, we've seen EV adoption kind of level set a bit lower, right? Clearly, still a trend and you're positioned I think probably best to capture that given the different platforms. But if let's just say the pie is smaller in the near term, does the product lineup that you have, including the UEV platform, allow you to take a bigger piece of that pie?

We believe it will because we've learned a lot during the first generation of our electric vehicles. We led and we came out early on. What we've seen is this gravitation to more affordable EV products. We're really focused. We learned a lot around the customer and their use cases, how they use electric vehicles, including access to charging, where they live, how they use the vehicles themselves. And we think of this affordable space, which is why we're so excited about this platform and the vehicles coming off of it, really lend to what we've seen from customer usage. In addition, we also have, to your point, the flexibility of other vehicles in the portfolio and other hybrid vehicles and other ICE vehicles to be able to adapt to the changing landscape and the change in segmentation within the industry.

I guess with some of the time we have left, maybe we can move to an interesting topic. I mean they're all interesting topics, but this one, I'm from Montreal, so we do have the Grand Prix there. But your return to Formula 1, the Ford performance aspect of that. Maybe you can just give us the background of that and then we can go into a few more of the details. But it seems like an exciting development.

It's really exciting. Thank you. Yes, we're really excited about our return to F1. It's part of our Ford Motor Company heritage. Ford Racing is a really important piece of our background. What I love about the way we approach Ford Racing is whatever we invest in, it shows up in our road-ready vehicles, right? The vehicles customers drive every single day. So when we win King of the Hammers for off-road, our Bronco customers know that the engineering and the specifications that are designed to win that, they get to drive every day. No different from Mustang and NASCAR. And now with F1, that will really have a big impact on our electrification. So we're excited about it for a few reasons. One, just from an overall brand perspective and access to a whole new generation of race fans. I mean, F1 has attracted a whole bunch of new fans from older generations to younger generations that will get a whole different look at Ford Motor Company and our technology innovation. And we're really excited to partner with Red Bull and that announcement that we'll have in the beginning of the year. So there's the obvious kind of brand and excitement that's just fun. But what's really exciting for us is the access to talent that we've been able to get at Ford, the best and brightest minds in engineering and design. They want to work on F1. They want to be part of -- I mean, that's world-class engineering, right? And they want to be a part of that. So we've had -- we've been able to attract a lot of great talent to the company. And again, they all want to work on a winning team. They all want to work for Ford. And ultimately, what that's going to do is translate to the vehicles that our customers drive and scale every single day. So that's been really exciting to see that talent attraction, that excitement for the company. And really just that investment, not only in the brand and the marketing side of it, but the actual technical -- the technical aspects of delivering an amazing electrified vehicle.

And the debut season is?

What's that, I'm sorry?

The debut season.

Well, we're going to have a big launch event in the middle of January, actually in Michigan that we're really excited about. So please come down. But yes, we'll be able to take you through our whole race season, and there are so many great personalities and drivers out there. And what we get to do is -- what we've seen the effect of F1 is the generational pull to that has been because the -- even the show, Drive, and people have gotten to know the personality so well. And we want to be able to take advantage of that in the sense that tell our stories, tell our Ford Motor Company tech stories in a similar type way to really connect with the work that we're doing with F1.

We should have had a clip of Ford versus Ferrari.

Yes, there you go.

And I think that takes us to the end of time. Thanks for joining us.

Jonathan, thank you very much. Thank you for your attention.

Thank you very much.