Good day, everyone. My name is Gary, and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. Please note this event is being recorded. At this time, I would like to turn the call over to Lynn Antipas Tyson, Executive Director of Investor Relations. Please go ahead.

Thanks, Gary. Welcome to Ford Motor Company's first quarter 2024 earnings call. With me today are Jim Farley, President and CEO, and John Lawler, Chief Financial Officer. Also joining us for Q&A is Cathy O'Callaghan, CEO of Ford Credit. Today's discussion includes some non-GAAP references. These are reconciled to the most comparable US GAAP measures in the appendix of our earnings deck. You can find the deck, along with the rest of our earnings materials and other important content at shareholder.ford.com. Our discussion also includes forward-looking statements about our expectations. Actual results may differ from those stated. The most significant factors that could cause actual results to differ are included on Page 19. Unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS, and free cash flow are on an adjusted basis. Lastly, I want to call out a few of our near-term IR engagements. May 30, Jim Farley will participate in a fireside chat in New York with Toni Sacconaghi and Daniel Roeska at the Bernstein Annual Strategic Decisions Conference. And June 11, John Lawler will participate in a fireside chat in New York with Emmanuel Rosner at Deutsche Bank's Auto Summit. Jim?

Thank you, Lynn. Hi, everyone, and thank you for joining us. The cornerstone of Ford+ is pretty straightforward, a more resilient business model, higher growth, higher margin, and more capital efficiency. And I would say, quarter one had a lot of great green shoots in that plan. It sets us up for a very strong 2024 and beyond. Before John goes through the quarter, I wanted to highlight four key strategic areas, how our growth drivers are changing, our progress in quality, the resilient Ford Pro business, and what we're learning on the electrification journey in quarter one. On growth, the portfolio changes we made and the restructuring we've done in our geographic footprint have really paid off for Ford. A few years ago, we normally would be reducing our volume and our mix while having good news on pricing. What's changed in the last year, especially in Q1, you could see, is our top line and bottom line profitability are increasing, driven by improved volumes and mix. We are actually seeing pricing headwinds. That new portfolio and geographic footprint is really tremendous to see at Ford. There is no better example for this than the changes we've made in our truck and van business. Ford is the number one best-selling pickup manufacturer in the world. And our Ford Transit Cargo Van is the best-selling in the world. It's now our second best-selling nameplate at Ford. Our midsize Ranger, though not our most affordable pickup, is our third best-selling vehicle at Ford. Together with the Everest, it makes up our profits outside of China, North America, and Europe. These changes in our portfolio, at all different sizes and price points in the truck and van business, have played to Ford's strength. And it doesn't stop there. Our growth drivers are diversifying. We now have a vibrant software business and physical services business led by Ford Pro. You don't need to look very far beyond our mobile services. An example, Ford now has over 3,500 remote service vehicles in our fleet globally, and last year, we completed 2.4 million remote service experiences, both remote service and pickup and delivery. 40% of that was for Pro and 60% was for our retail business. Ford now has more than 700,000 paid subscribers for software, up 47% year-over-year. It's capital efficient, and the gross margins are more than 50%. Our quality is making real progress. Kumar and the team have focused on key areas. Our '23 model year, three months in service, initial quality is 10% better than the previous model year. We're seeing our current model year that we're selling for several months show another 10% improvement. That should put us in the middle of the pack, with many of our vehicles starting to lead their segments in initial quality. To bend the curve on warranty costs and customer recalls, we're focusing on our launches. We are past the Super Duty launch now and well into the F-150 launch, and we've made many changes to improve and bend that curve. On the F-150 and others, we've delayed the OK2Buy by three to six weeks, and we took on a lot of new testing regimens. We ended the quarter with 60,000 units in our plant stock, which hurt our first quarter but will benefit as we're shipping those now in our second quarter for all those quality processes. What we're seeing so far is that we avoided about 12 recalls on the F-150, and we are experiencing the best performance on 3 MIS after a launch in a long time. I'd like to highlight that normally, after a launch, we've seen about a 70% spike in defects in the last five years, with the industry average being about 20%. The Super Duty and Mustang launches were about that industry average of a 20% spike. With the F-150, we are even seeing better performance at the industry average. We have a lot of launches in the second half to demonstrate this new launch process. In the long term, we expect fewer recalls and lower warranty costs because of this new process. I'm really proud of the team's progress on quality, and we have much more to do. I'd like to talk quickly about Ford Pro. Look at quarter one; we made $3 billion. That's how much we made the whole year in Pro two years ago. We're growing revenues, EBIT, EBIT margin, and our volume. Our attach rates for high margin software and physical services are improving. When you ask yourself why is this different? Why would this business be more resilient than our retail business? It comes down to three things. First is the diversity of our customer base. About a third of our Pro customers are small businesses, another third are large companies, and about 20% are governments, all different kinds. The diversity of those customers, all three groups, is driving white-hot demand for our vehicles and services right now, from infrastructure build-out, roadworks, 5G, onshore manufacturing, and re-fleeting for key government fleets. One out of four of those fleets are all Ford, and they trust our company. More importantly, it's the breadth and freshness of our new lineup at Pro that's driving our profitability. We have the freshest lineup we've had in 20 years in Pro. We have an all-new Super Duty, an all-new Transit from top to bottom, and we have an all-new Ranger with over five plants around the world. These new products are really attractive to customers. We also have the most diverse Class 1 to 7 lineup in North America, our key market. The adjacency sales are important because customers buy different kinds of vehicles from us in the same fleet. Beyond that, in those fresh nameplates, we offer the best choices. We have cabin chassis and cutaway versions of our vans, different wheelbases and heights, and the same for our pickup trucks. We also have the most choice in terms of upfitters, with 500 different upfitters across Western Europe and the US that prefer to work with Ford because of our experience with them. We've designed all of our commercial vehicles with a multi-energy platform, allowing customers to choose electric, partial electric, diesel, petrol, whatever powertrain they need to best meet their cost of ownership. No one has this complete lineup in our business globally. The third key area is the diversification and completeness of our software and physical services experiences for our customers. Now, 13% of Ford Pro's profits in the last 12 years have come from these attached services, which is a significant change for us. What really drives that is our advantage in physical service. We have the largest repair network out of any brand, and we're widening that gap. We've added 700 commercial service bays in the last year and more than 11 very large service lead centers with between 50 and 200 repair bays that are open 24/7 for our customers. None of our competitors offer this extensive repair network. We also have over 2,000 remote trucks and vans providing remote service for our Pro customers that no brand can match. We now have over 560,000 active software subscriptions for our Pro customers, up 40%. This Pro Intelligence business took many years to build, requiring advanced electric architecture—a really hard moat to copy. In summary, Ford Pro is set for great performance over the coming years. What have we learned about electric so far? We are the number two player in our home market for electric sales over the last couple of years, and boy, have we learned a lot. Since the Capital Markets event last year, we've continued to adapt and evolve our spending and investment ramp for battery plants and assembly capacity for our EVs to match customer demand, and more importantly, to align with price expectations. We are retiming our launches and capital spending. In fact, this year, we expected to spend about $10 billion as a company. We've now guided to $8 billion to $9 billion, likely landing at the low end of that range. We are committed to maintaining profitability discipline, expecting every one of our EVs to generate profit in the first 12 months. That's a very disciplined process. For instance, we delayed the launch of our three-row crossover, which is a great product, by two years, not only to match slower growth in EVs but more importantly, to take advantage of new battery chemistry and formats to significantly reduce battery costs for that vehicle. We’ll do everything it takes to ensure our vehicles are profitable within the first year. What's our key bet as a company? It's simple: we will bet on commercial work vehicles, where we excel, where we understand our customers, and where we can innovate, like Pro Power Onboard with both partial and fully electric vehicles. Increasingly, we’re betting on our new small, affordable platform developed by our team on the West Coast. Why is affordability crucial? When analyzing connected car data from our EV customers, we notice that suburban and urban customers tend to drive shorter distances. These more affordable vehicles are more approachable, and we believe that’s where EV adoption will accelerate the fastest. We've learned a lot from the Mach-E; when we dropped the price by 17% in February, our volume increased by 141%. This indicates that the more affordable we can make great products, the more attractive they become to mainstream EV adopters. Lastly, we recognize the importance of choice. Our growth in hybrids in the first quarter exemplifies that, as we grew by 36%, and we expect 40% growth for the full year, approaching 400,000 units in hybrid volume. We're now the number three player in hybrids in the US, which is a significant advantage after being in the business for more than 20 years. Excitingly, for the first time, some of our contribution margins on hybrids are equal to or even exceed those of pure internal combustion engine margins. With that, I'll turn it over to John.

Thanks, Jim. Our team around the globe is becoming more focused and adept at applying the Ford+ strategy, and we really did deliver a solid quarter. We are transforming Ford into a higher-growth, higher-margin, more capital-efficient, and more resilient business. We are progressively shedding behaviors that have weighed down performance and valuation for legacy auto companies throughout the industry's history. Our strong global product lineup is differentiated, offering customers freedom of powertrain choice, driving first quarter revenue of $43 billion, up 3%. Our revenue has grown in each of the last three years, and we expect 2024 to be no different. Wholesales were down 1%, more than explained by the late quarter launch timing of the new F-150. We delivered $2.8 billion in adjusted EBIT with a margin of 6.5%, reflecting continued strength in Ford Pro. Costs were up $1.2 billion, but if you look closer, you'll see that $1.1 billion of that was investments in growth by Ford Pro, including new products. Ford Blue and Ford Model e costs remained roughly flat, and we're on track to deliver $2 billion of cost efficiencies for the full year. Adjusted free cash flow showed a use of $500 million, primarily due to vehicles in inventory, and this impact will reverse in the second quarter. Our balance sheet remains strong with $25 billion in cash and nearly $43 billion in liquidity. Earlier this week, we also completed the renewal of our $18 billion corporate credit facilities, extending maturities by an additional year. Overall, our strong liquidity provides significant flexibility for us to invest in profitable growth. Consistent with our commitment to return 40% to 50% of adjusted free cash flow to shareholders, we also declared a regular second quarter dividend of $0.15 per share payable on June 3 to shareholders of record on May 8. I'll spend a few minutes summarizing the financial performance of our customer-focused segments, where evidence in every one of them shows how Ford+ is making our business stronger. Ford Pro delivered a 36% revenue increase on a 21% increase in wholesales. The segment has consistently delivered year-over-year revenue growth each quarter since we re-segmented our business. EBIT more than doubled to $3 billion, with a margin of 16.7%, reflecting increased Super Duty and Transit production, a richer Super Duty mix, and higher net pricing. Over the past 12 months, roughly 13% of Ford Pro's EBIT has come from software and physical services, on a glide path to reach 20% in a few years. This crucial revenue stream generates sticky and recurring gross margins in the 40% to 50% range. Given the breadth and depth of Ford Pro's competitive moats, investments in growth drive tremendous operating leverage. The segment's results this quarter demonstrate the consistency, predictability, and earnings power inherent in this growth business. Ford Model e generated a loss of $1.3 billion as significant industry pricing pressure outweighed flat costs with a 20% decline in wholesales. Hence, we took action during the quarter to reduce inventory levels. After having a price premium to competition in 2023, we lowered pricing on Mustang Mach-E in the US by 17%, aligning us with the two-row crossover segment. As Jim mentioned earlier, we saw elasticity with an improved mix of higher trends. In the US, retail sales surged 77% compared to the total EV segment, which increased by roughly 2.6%. Our total EV market share grew by 3.4 points to 7.5%, with Mach-E becoming the second best-selling e-SUV, only behind Tesla's Model Y. The bottom line is that we are becoming more competitive and healthy in the marketplace. We've significantly reduced our stock levels, and the pace of sales has accelerated. In Ford Blue, while revenue, wholesales, and EBIT declined, all were impacted by the F-150 production ramp and vehicles in inventory. EBIT margin was 4.2%, and our international operations remain consistently profitable. Ford Blue's global product portfolio continues to be strong, with hybrid sales up 36% in the quarter as we reap the benefits of hybrid products planned years in advance. Our global hybrid mix currently stands at 7%, up 2 points year-over-year, with more products on the way. Additionally, China exports increased by 33%, including Lincoln Nautilus, aligning with our strategy to better leverage that asset-light footprint. Ford Credit generated EBT of $326 million. In the quarter, financing margin improved, and credit loss performance continued to normalize and remains below our historical average. Importantly, we continue to maintain a high-quality book based on strong FICO scores that exceed 750. As expected, auction values have dipped by roughly 10% as lease return rates continue to normalize. We're beginning to unlock significant potential for customers and all our stakeholders with the freedom of choice made possible by Ford+. There's much work ahead to fulfill that potential. However, the progress we've made so far is undeniable. We are generating growth and profitability, refining capital efficiency, and fortifying the resilience of our business. Accordingly, looking at our outlook, we continue to expect full year company adjusted EBIT of $10 billion to $12 billion, tracking toward the high end of this range, which would be a record for Ford. We are raising our adjusted free cash flow guidance to $6.5 billion to $7.5 billion, supported by the underlying strength of the business and lower-than-planned CapEx. Our adjusted free cash flow guidance aligns with our cash flow conversion target of 50% to 60%. We are tightening our CapEx range to $8 billion to $9 billion as the team adapts to the dynamic EV landscape. We are scrutinizing every dollar and driving efficiencies that could lead us to the lower end of this revised CapEx range. Our outlook for 2024 assumes a flat to slightly higher SAAR in both the US and Europe, with a planning assumption of 16 million to 16.5 million units in the US. We anticipate a full year of customer demand for the all-new Super Duty contributing to better market factors for Ford Pro, alongside industry supply-demand normalization. From a planning perspective, we are assuming lower industry pricing of roughly 2%, due to higher incentive spending as we progress through the year. We expect this to be partially offset by top line growth from the launch of new products. There is no change to our segment outlook, which anticipates continued strength in Ford Pro, leading to EBIT of $8 billion to $9 billion, driven by continued growth and favorable mix, partially offset by moderated pricing. As expected, a loss in the range of $5 billion for Model e, driven by continued pricing pressure and investments in new vehicles, and for Ford Blue, EBIT of $7 billion to $7.5 billion, reflecting a balanced market equation and cost efficiencies offsetting higher labor and product costs. We expect Ford Credit's EBT to be about $1.5 billion, up slightly year-over-year. Our performance this quarter continues to attest to the positive momentum of Ford+. Capital discipline is shaping the right global footprint, product portfolio, and consistent cash generation. We continue to identify growth opportunities and remain focused on enhancing both quality and cost. That concludes our prepared remarks, and we'll use the balance of the time to address your questions. Thank you, and operator, please open up the line for questions.

We will now begin the question-and-answer session. The first question is from Adam Jonas with Morgan Stanley. Please go ahead.

Hey, everybody. I have one question for John and one for Jim. John, you were just on Bloomberg saying EVs are needed to meet compliance regulations. Now it's my understanding that Ford does not disclose penalties or ZEV credit purchases for Ford on Clean Air Regulation. Can you confirm that? That's not disclosed, right?

Let me clarify a few things, Adam. It's not optional for us to not be compliant. If you don't comply with your ZEV or your greenhouse gas emissions requirements, you can't pay fines. What happens is, you can't sell, and that's consistent across the industry. This applies to all OEMs. So there are three levers we have: we can sell EVs and hybrids, sell fewer ICE vehicles, or contract to buy credits from another OEM. When we contract to buy credits, we disclose that, as we did in our 10-K at the end of the year. We are definitely optimizing across those three levers to drive the highest profitability and cash flow for the company. To continue selling ICE vehicles, we will need to sell EVs, and we're focused on making sure our EV business is profitable and delivering returns on the capital we've invested. This is what we're emphasizing.

Okay. But do you disclose? What was the purchase commitment?

Yes, we disclosed last year in the 10-K that we had purchase commitments of $700 million.

Will that increase this year?

In the first quarter, there wasn't anything material, and as we go through the year, if it's the right lever to pull, we will report that.

I appreciate that, John. Just my follow-up for Jim. Ford Pro is kicking butt, okay. At 10 times EBIT, that business can be worth like double Ford's entire market cap. The market is implying the rest of the business will be valued at negative tens of billions. Jim, your stock is even ranked 491 out of 500 on PE multiple in the S&P 500. Can you explain why does the market value your company one of the lowest multiples in the world? Address that problem.

Thank you, Adam. First, I appreciate your report on Pro. We need to make tremendous progress on Model e, which is a huge drag on Ford and our whole industry, even for pure-play EV players. We're committed to transparency. If we had an unprofitable regional business and we rolled it up without transparency for investors, we would never do that. We're not going to do that with EVs. I believe investors should understand that we will build a sustainably profitable EV business with terminal value that returns the cost of capital on its own. The real turning point is our flat costs in Model e this year, but most importantly, profitability in the next cycle of products. I believe that this is the main drag on the company right now. Blue is in a strong position, though I wonder if the market fully understands Pro's resilience over time. We're very profitable now, and we believe this business will be sustainable and profitable for many years.

Thanks, Jim.

Good afternoon, guys. Freedom of Choice is a great marketing tool, and I think it should be very effective. Jim, as the market shifts towards hybrids in the near term, what capacity do you have to ramp up significantly in hybrids if demand arises? With the competitive threat from Toyota, are you at risk of losing market share? Can you handle this demand?

Hi, John. We made many capacity decisions several years ago on hybrid, and I'm thankful we did. We radically increased F-150 capacity for hybrid to 25%. It takes time for suppliers to ramp up capacity; it's not the assembly capacity that’s constrained. That 400,000 is almost double what we achieved a couple of years ago. We've publicly committed that we will offer hybrid across all our vehicles. As you mentioned, our hybrid capacity is mainly in trucks, where most of our hybrid sales occur in North America, and we don't face much competition here. pricing premiums today are paramount because the hybrid contribution margin is now covering the incremental material costs, which is a meaningful development. I believe we're in a good position. We are number three in the US, while the top two are Toyota and Honda. Our hybrid market position might differ from others, but we have significant scale for our suppliers, making us prepared for demand.

I have a follow-up on Pro. There’s a lot of pent-up demand on the fleet side. Can you comment on what's available from a unit basis and service basis? What opportunity remains for Pro?

The demand for Pro is fundamentally different from retail. Customers aren't re-fleeting, or doing roadworks and builds. These are all fundamental drivers. The average ambulance in the US is 15 years old; they've been waiting for Transits for a long time. We’re increasing our capacity as we go. Right now, we have a 2:1 oversubscription for the new Super Duty. Finding that balance for our capacity is our biggest challenge, but we have fresh products that look good.

Hi, thanks for taking my question. I'd love to get more thoughts on capital allocation. With CapEx down and free cash flow rising, there's more available to return, but you want to retain some cash on hand. What drives this conservatism?

We have our stated policy to return 40% to 50% of free cash flow. Our balance sheet is strong, with cash position at $25 billion this quarter. Given this transition for the industry, we would prefer to invest in accretive growth opportunities. If those opportunities do not come to fruition, we can revisit additional allocation decisions. Currently, we're comfortable focusing on our business and transitioning.

Hi, everyone. I wanted to ask about Model e. I understand reaching breakeven depends on the next-gen vehicle launches, but in the intermediate term, how’s the trajectory for losses looking? Can you work down the structural costs associated with this business?

We are laser-focused on all costs around Model e. In previous years, we’ve reduced vehicle costs significantly while still ensuring the revenue drop was less than we've managed to cut from costs. We're thoughtful about structural costs, and if pricing stabilizes, we could see some of the savings flow to the bottom line.

It sounds like you're optimistic about pickup demand, but reports show weak pricing in Q1 and high inventories. Are there any risks, and where do you see pricing heading?

In the US, we built stock at the end of last year for the launch of the new models, driving up inventories of '23 models as we sold those first. Thus, higher incentives affected top-line pricing. However, for '24 models, we crafted an approach that positions average transaction prices higher and brings down incentive spends.

Regarding pricing, we have a unique set of offerings in our lineup. Yes, the market does have its risks, but we are uniquely positioned as we possess strong products that buyers trust.

Great, thanks for taking my questions.

I have two questions. For Pro, can you talk about the $3 billion outcome in Q1 and the full year outlook? Should we expect to hit the high end of the range? Regarding Model e, the rallying pricing press release suggests EV costs will improve yet face pressures on the top line. What pricing assumptions do you have?

We aren’t projecting where we expect costs to decline for the year. Pricing for Model e dropped over 20%, more than anticipated. We're targeting to cut costs while driving towards contribution margin positivity. That's definitely our goal in this space.

Thanks. Jim, with the F-150 and Super Duty launches, can we expect a slower ramp-up for new launches later this year?

We are benefiting from taking a more cautious approach to launches. This, combined with tight testing and quality checks, results in fewer issues post-launch. We'll continue to be careful and patient as we have several big launches upcoming, and quality is pivotal.

Jim, there are reports considering EV prices likely dropping, how confident are you that you could reduce EV losses in this environment?

It's clear demand will normalize out of the early adoption period. Consumers now look at value. EV pricing is likely to stabilize, but pricing needs to be equal across propulsion choices so that demand doesn't waver. We believe prices will adjust, given market conditions.

We are confident that our new affordable platform can achieve profitability at price points between $25,000 and $30,000, hitting the gap needs of mainstream consumers, aiming to produce competitive vehicles for them without sacrificing quality.

Thanks, Jim. I'm encouraged about the projections.

Hi everyone. Back to Joe's question about this year’s model launches. Jim, we know there's a focus on improved launch quality, but is there a risk to Ford Blue's guide from potentially lower launch volumes? Is this already considered in projection, or is it expected we will not experience any material slowdown?

It's all factored into our guidance already.

This concludes the Ford Motor Company first quarter 2024 earnings conference call. Thank you for your participation. You may now disconnect.