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

Thank you. Welcome to Ford Motor Company's fourth quarter '24 earnings call. With me today are Jim Farley, President and Chief Executive Officer; and Sherry House, our new CFO effective tomorrow, February 6. Joining us for Q&A will be John Lawler, Vice Chair and Current CFO; and Cathy O'Callaghan, CEO of Ford Credit. Today's discussions include 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 23. Unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS and free cash flow are on an adjusted basis. Lastly, I'd like to call out a near-term IR engagement. On February 11th, Jim Farley and Sherry House will participate in a fireside chat in New York with Emmanuel Rosner at the Wolfe Global Auto, Auto Tech, and Mobility Conference. Now, I'll turn the call over to Jim.

Thank you, Lynn, and hello, everyone. We appreciate that you're joining us. I want to start by welcoming Sherry House to our first earnings call as our incoming CFO, and I want to thank John Lawler as he transitions to our Vice Chair. Last year was a year of progress in key areas, building on our fundamentals at Ford. Our global revenue reached an all-time record at the company of $185 billion. This was our fourth consecutive year of top-line growth, driven by some of the strongest and most durable franchises in our industry. Ford is the undisputed leader of pickup trucks in our industry. The F-Series is once again America's best-selling pickup and the best-selling vehicle of any kind. The Ranger has grown into a strong global franchise for us. It's key to our profitability in many markets around the world at Ford. And by the way, Ranger won North America Truck of the Year, that's the fifth time in a row Ford has won that award. Hybrid trucks are a key growth area for us. It's not what you think about when you think of hybrids, but this non-traditional channel is allowing us to capture the lion's share of revenue and command pricing power within the pickup truck market with unique features like Pro Power Onboard. Vans are another stronghold globally for us with our best-selling Transit family. And the story is no different for Pro as a whole. Our commercial business is focused on unit sales and series mix to maximize revenue. Last year, we really saw that, a sizable growth in mix of profitable high-series Super Duties and Transit wagon. But at the same time, Pro is building something new, reoccurring revenue streams through our software and physical services business. Pro software subscriptions rose 27% to nearly 650,000 subscriptions last year. Telematics software grew 100%, mobile service units increased 57%. And the stickiness of that ecosystem of services is increasing. The second half of last year, 25% of all our brand new Telematics customers in North America purchased additional software, including dash cams and fleet management software. And with BlueCruise, equipped units now in operation have more than doubled in the last year to just under 700,000 vehicles. Since launch, our customers have now driven over 300 million miles hands-free. You can see our relationship with our customers no longer ends at the point of sale or financing. We're starting to build lasting relationships and creating new avenues for reoccurring growth at Ford. Last year, Ford had the highest share of revenue among all brands in our home market, the US. The key for us is matching this revenue growth with improved execution and discipline on cost and quality. We're working differently and it's starting to show. We've upgraded talent throughout our industrial system. We brought in industry’s best third-party experts to inspect and validate our findings. We're identifying best practices to attack our operational issues. We're quantifying the upside, and most importantly, we're bringing home the savings. We're changing our culture to be more focused on quality with accountable measures for all of our engineering teams and leadership. These changes produce green shoots, delivering about $500 million of net cost reductions in last year's second half. But this is frankly a small down payment on the work to be done at Ford. We're focused on closing our competitive cost gap over the next few years. Lastly, we continue to monitor and adapt to the changing market conditions, which last year unfolded about what we thought. The EV market, we continue to see new models launch, increased competition with increased pricing pressure. On hybrids, we continue to see the market grow aggressively, but now in diverse markets like truck customers who are learning that a hybrid can also mean uncompromised towing and torque and payload, as well as performance advantages including fuel economy. In the ICE market, the industry's inventories and pricing have normalized. We also see the Chinese OEMs continue to expand and be a major force in our industry. Their operational fitness is incredible. Their supply chains are now expanding globally and they're increasing their exports around the world. So, let's talk about this year. We expect the company's adjusted EBIT of $7 billion to $8.5 billion range. Sherry is going to get into the details. We want to be clear though that our guidance has not factored in impacts from changes in policy by the current administration. That said, from an operational standpoint, we believe a few weeks of tariffs are manageable given the rate and flow of our products. As everyone is aware, we're already seeing changes in trade policy and we expect changes in tax policy like the IRA and emissions policy CO2 that could be very consequential for our industry. At this early point, I want to emphasize a few things. There's no question that tariffs at a 25% level from Canada, Mexico, if they're protracted, would have a huge impact on our industry, with billions of dollars of industry profits wiped out and adverse effects on US jobs as well as the entire value system in our industry. Tariffs would also mean higher prices for customers. We said that, we believe based on our conversations in D.C. with the administration and congressional leaders that they are committed to strengthening, not weakening our nation's auto industry. That is certainly our expectation. We look forward to working with our leaders to make sure that that becomes a reality. They understand and appreciate how vital our industry is to jobs, the economy, our national security, and the communities across our country. As America's leading auto producer and the leading exporter of automobiles, we applaud the administration for their agreement announced with Mexico and Canada on Monday, and we are closely monitoring the situation in China. There is a fundamental transformation happening in the backdrop of these policy changes in our industry globally. The overall tariff and trade situation, the growing importance of digital vehicles, the Chinese OEMs growing to become a global reality, these dynamics will all play out for some time to come, but Ford controls its future. While we are certainly operating in interesting times, at the end of the day, we control our destiny. Our products and services are compelling and get even stronger this year with great new launches like the Expedition, the Navigator, the all-new electric Puma, as well as Ford Pro's service offerings. We will match that potent revenue power with real progress on cost. To realize this multi-billion dollar upside opportunity on cost, we will stay focused on the following areas: faster identification of defects and issues in the field; deploying dedicated teams into our supply base to help them improve key manufacturing disciplines to improve their part quality to us; holding suppliers accountable when they send us defects; reducing complexity; eliminating waste; and dramatically increasing our OTA capability; we performed 9 million over-the-air updates in the fourth quarter alone, 80% of those were focused on addressing customer concerns and warranty; we're enhancing our software development process, for example, more upfront expertise reviewing coding, not just ours, but our suppliers to catch potential issues early; and we're continuing to integrate AI, data analytics and other tools and processes to further improve our manufacturing efficiency. Early input metrics provide us confidence in our 2025 cost reduction target. We already have over $1 billion of product design cost reduction ideas to be implemented this year. We have fewer lost units during our launches. The improvement in the number of days from warranty defect and field fixes is an encouraging sign for us in warranty. We're seeing an 18% improvement in the quality of our vehicles leaving our facilities for the '25 model year launches. We're increasing the number of supplier technical assistant site visits for critical suppliers. I want to touch on our EV strategy since it's so critical for any car company. We're on course. We're deep in the development of our next generation of vehicles that we believe will be affordable, high-volume, and great for our business. On the US retail side, the sweet spot that has emerged is small and medium-sized trucks and utilities. These vehicles' use case fits perfectly for EVs, daily commuters, well-suited as the second vehicle in the household. They require smaller, much lower-cost batteries. These vehicles can be offered at lower prices to help adoption of EVs for customers who really appreciate the lower operating cost. For larger retail electric utilities, the economics are unresolvable. These customers have very demanding use cases for an electric vehicle. They tow, they go off-road, they take long road trips. These vehicles have worse aerodynamics and they're very heavy, which means very large and expensive batteries. Retail customers have shown that they will not pay any premium for these large EVs, making them a really tough business case. For Ford, our commercial customers do show potential for large EVs. They're willing to pay a premium over ICE because they can really measure the TCO advantages of EV, and they can live with depot charging. They don't have the same range anxiety that retail customers have. Profitability for these larger family haulers that take long trips will be more frequently achieved through partial electric options. Yes, PHEV, but especially hybrids and EREVs, which can get over 700 miles of range on one tank of gas while still driving most miles all electric. Ford will be developing flexible body-on-frame and unibody platforms, designed for these multi-energy powertrains needed given the realities of customer affordability and range requirements. We are in the heart of our transformation at Ford. My optimism comes from our improved execution and our commitment to delivering on Ford+, creating a more dynamic, capital-efficient, and higher-margin company. Now, I'd like to hand it over to Sherry to walk you through last year's operating performance and an outlook for this year.

Great. Thank you very much, Jim, and greetings to everyone on the call with us today. We really appreciate you taking the time to get a current update on the business. Before I get started, I want to personally thank John Lawler, Jim, and the entire Ford team for their incredible support over the last several months as I ramped up in this new role. I'm very excited for the opportunity and I'm especially excited for the future of Ford. 2024 was another important year for us as we continued to execute against the Ford+ plan. We finished the year with global wholesales up 1% to 4.5 million units, supported by growth in Ford Pro. Revenue increased 5% to $185 billion, and we delivered 11 consecutive quarters of top-line growth. Our strategic decision to offer retail and commercial customers freedom of choice through a compelling portfolio of products continues to pay off. We delivered $10.2 billion in adjusted EBIT with a margin of 5.5%. Adjusted free cash flow was $6.7 billion, and our cash conversion rate was 65%, above our target range of 50% to 60%. Our balance sheet is strong with more than $28 billion in cash and close to $47 billion in liquidity. We believe it's prudent to have extra cash on hand during this dynamic time in the industry, marked by evolving customer needs, regulations in a fluid macro environment. Excess cash also provides us the opportunity to strategically pursue adjacencies in signature partnerships that would be accretive to our growth and ROIC. We hold ourselves accountable to strong capital discipline as we continue to efficiently invest in our future with plans to consistently reward our shareholders with 40% to 50% of free cash flow. Over the past three years, we've paid out over $10 billion to our shareholders. And today, I'm pleased to announce that we declared our first quarter regular dividend of $0.15 per share plus a supplemental dividend of $0.15 per share, payable on March 3rd to shareholders of record on February 18. Now, let us take a closer look at our segment performance. Strong demand in Super Duty chassis cabs and Transit wagons helped to lift Ford Pro's revenue by 15% to $67 billion, while wholesales were up 9%. Full year EBIT was $9 billion, with a margin of 13.5%. Software and physical services represented 13% of Pro's EBIT. Ford Pro Intelligence continues to drive recurring high-margin, non-cyclical revenue. Paid subscriptions, attachment rate and monthly average revenue per unit were all up strongly in 2024. The Model e team, where I've been spending a lot of my time, did a tremendous job delivering $1.4 billion in cost reductions last year, net of a $100 million increase in spend to launch our new battery plants in next-gen EVs. This cost performance was particularly important given industry pricing pressure, which resulted in year-over-year reductions in revenue and wholesales of 35% and 9%, respectively. Model e remains focused on continuous improvements in gross margins and disciplined capital allocation that will drive profitable growth in the future. Ford Blue's full year revenue was flat due to positive net pricing, which offset a 2% decline in wholesales, driven by the discontinuation of low-margin products. EBIT was $5.3 billion, with a margin of 5.2%, and includes a positive impact of building stock in our home market. In 2024, our Blue investment strategy mirrored customer demand with significant investments targeted at the next generation of our most iconic brands such as F-Series and Explorer, and is also focused on bringing multi-energy solutions, particularly hybrid powertrains across a broader part of our product portfolio. Ford Credit generated earnings before taxes of $1.7 billion for the year. So, let's turn to our 2025 outlook. For the full year, we expect company adjusted EBIT of $7 billion to $8.5 billion, adjusted free cash flow of $3.5 billion to $4.5 billion, and capital expenditures of $8 billion to $9 billion. Relative to tariffs, the precise impacts of new tariffs would depend on a number of secondary and tertiary effects, such as price elasticities, how our Tier-1 and Tier-2 suppliers react, substitution effects, possible duty drawbacks and so on. Other potential changes in policies such as changes to the consumer tax credit, or CTC, commercial and production tax credits, or PTC, would also be harmful. However, the impacts of such changes are much smaller for Ford in 2025 than later years. For example, PTC will become a more meaningful benefit for us later this year with the launch of our BOSK battery factory. For the longer term '27 and beyond, changes to these programs would be very material. Hence, we continue to stay in close contact with the administration to support a strong auto sector into the future. Our full year outlook assumes headwinds related to market factors. We're planning for lower industry pricing of roughly 2%, driven by higher incentive spending throughout the year. For Ford, we expect this will be partially offset by top-line growth from upcoming launches. We expect these headwinds to be partially offset by about $1 billion of net cost reductions, primarily coming from lower warranty expense and material costs. Our team is aggressively working to deliver more than $1 billion, which would likely lift us to the higher end of our guidance range. We expect the majority of these savings to occur in the second half of the year. From a calendarization perspective, we expect our first quarter adjusted EBIT to be roughly breakeven. This sequential decline in EBIT versus the fourth quarter of 2024 is more than explained by a reduction in wholesales and unfavorable mix, including the impact of launch activity at major US assembly plants, including Kentucky Truck and Michigan Assembly Plants. Our plans to utilize Oakville for our next major truck launch will help us better optimize production stability during major launch periods, a benefit we highlighted to you when we announced the repurposing of that manufacturing facility. We expect a more normalized adjusted EBIT in the second quarter with a plan to hit our underlying EBIT level in the second half as cost improvements tied to lower material costs start to accrue to the bottom-line. To help you better understand this calendarization and the levers for each quarter, we have included a full year 2025 bridge for you in our earnings deck. Our segment outlook anticipates another strong year at Ford Pro, with EBIT of $7.5 billion to $8 billion at target margins. The fundamentals of Pro's business are strong, especially Super Duty chassis cabs and Transit wagons in North America and the Transit family in Europe. We continue to grow our mix of profitability coming from software and physical services globally. We expect a loss of $5 billion to $5.5 billion for Ford Model e, holding losses stable year-over-year. While continued industry pricing pressure remains, we plan to materially increase our global volume, driven by the full year impact of European launches, and we significantly increased investment in our battery facilities and next-generation products, which are just two years away. The team started the year with a strong pipeline of cost savings ideas, which together with the launch of our BOSK battery JV later in 2025 enables meaningful savings through eligibility of the production tax credit. For Ford Blue, we expect EBIT of $3.5 billion to $4 billion, reflecting lower volume and unfavorable mix, driven by the non-repeat of last year's stock build and anticipated adverse exchange, partially offset by several cost reductions initiatives that are already underway. Cost remains our largest value unlock to achieve Blue's margin target. Lastly, Ford Credit's EBT will be about $2 billion. Our performance in 2024 demonstrates the positive progress in our Ford+ plan, capital discipline, the right product portfolio and consistent cash generation to reward our shareholders, customers and employees. Importantly, I see us working differently as a company, evidenced by our second-half cost progress, we are carrying forward that higher level of discipline and execution into 2025, commensurate with our goal to deliver at least $1 billion of net cost reductions this year. We're relentlessly working to make our business better and we remain highly focused on improving both quality and cost. That concludes our prepared remarks, and I'd now like to open it up to your questions.

We will now move to our question-and-answer session. Our first question comes from the line of Dan Levy with Barclays. Please go ahead.

Hi, good evening. Thank you for taking the questions. Wanted to double-click on your commentary first on the calendarization of earnings throughout the year. In the first quarter, you have to assume, I think, something like a 25% volume decline to get to breakeven. If you could just talk through that, what's the confidence of recovery in subsequent quarters? Is it volume? And then, should we expect inventory to be fully rightsized by the end of the first quarter?

Okay. So, as I talked about for the year-over-year, you're really seeing the pricing come in and also the net cost improvements year-over-year. But when you go for just the first quarter, what you're seeing is largely the impact of wholesales that are coming down in the non-recurrence of a stock build that's happening. We also see adverse exchange, primarily in Argentina, Brazil, and Turkey. So, that's really what's happening in that particular quarter.

Dan, quarter-over-quarter, our wholesales are down to almost 20%, okay? So, it's really clear what's going on, our launches. The question is where are we on days' supply for our growth stock? We're in good shape. We'll be in good shape after the first quarter, even actually gets leaner after the second quarter. I think we finished...

That's right. So, we finished the year at about 620,000 gross units and that came down about 5% in January. And we expect that with this activity that's happening in the factories where it's impacting Super Duty, Navigator, Expedition, that may come down a bit more as well.

Like 40,000 units. So...

Right.

It's a very large reduction in the first quarter and we're planning another reduction in Q2 again. So, we'll be right where we want. Our dealer days' supply for our sales will be right in that mid-50,000 range, which is exactly where we want to be as a company.

Great. Thank you. As a follow-up, Jim, you frequently talked about the critical nature of EVs. You actually gave a very long blog post on this over the summer. But I think we also know that your strategy is in part driven by compliance. So, we've heard President Trump talk about pulling back the, so to speak, EV mandate. How should we think about your EV plans and resource allocation in this environment? And to what extent would you maybe revisit timing of Skunkworks or the next-gen Lightning, which I believe are planned for 2H '27 given the changing environment?

Well, we're really confident in our EV strategy because believe it or not, most things that are happening are kind of playing to our strengths. We believe that if the EPA or the California waivers are pulled, if there's some change to the CO2 regime in the US starting from '27, by the way, the next two years, nothing happens, so it'll be '27 and beyond, we believe that that will still be some kind of modest CO2 improvement required. More importantly, EVs are 8% of the US industry. They're growing. The satisfaction with the vehicles is higher than combustion vehicles, and people who buy these vehicles don't go back to combustion for the large part. This is a very vibrant market. It's also a global capability for Ford. Given what's happening around the globe, this is not just happening in the US, it's happening everywhere. This capability of making money in high-volume EVs, getting new customers is going to be a global capability. That's why it's strategically important for us. Actually, in this kind of environment, the Skunkworks platform becomes more important. It's more affordable for customers. Let's say that CTC goes away, in that environment, without a leasing advantage, for example, more affordability on the actual cost of the vehicle becomes more important, not less. Our bet a couple of years ago to build that platform, I think winds up being, well, we'll see, but winds up being a good move. We have to make some decisions on the three-row and others, and we will continue to make adjustments. We're not shy about our lower capital ambition as a team. We're going to make sure that the EVs we produce are not me-too products that they play to our strengths. We know commercial EV customers are out there. We know that they like these vehicles. So, those are our two big bets. We can make changes to our lineup. We don't see that at this point in time, but we, as we said, we're not shy about making those adjustments we need to, Dan. Does that make sense?

Yes. Thank you. That's really helpful color.

Your next question will come from the line of Daniel Roeska with AllianceBernstein. Your line is open. Please go ahead.

Hey, good evening. Thanks for taking the questions. And Sherry, welcome. Welcome again.

Thank you.

Jim, let me start with a quite strategic question. It seems like the business is facing a level of uncertainty not seen before. Maybe that's, I hope, that's fair, both from the strategic challenges you mentioned, but also kind of from the policy and the rapid change in domestic policy. As you guide forward through this choppy water, what are some of the convictions or guiding principles that still hold true in this environment? And what are some of the principles or convictions where you and the Board had to go back and kind of say, well, we'll have to take a look at that or that's become a little bit more uncertain? So, trying to understand how your thinking is making decisions in this environment, what you can rely on, and where you need to exercise extra caution.

Thank you. First of all, the cost journey that Ford is on is essential and entirely under our control. We want everyone to recognize how serious we are about reducing business costs while also improving quality, even though those two objectives can sometimes conflict. This principle is fundamental to Ford Motor Company and we aim to uphold it indefinitely. Additionally, customers, regulators, and global leaders expect our industry to lower prices and prioritize affordability for car companies. Thus, another key principle is our commitment to investing in affordable vehicles, but we must do this profitably, which will require transformation at Ford. You can observe the transformation we've implemented on the EV platform with Skunkworks. We will apply a similar approach to body-on-frame and unibody multi-energy platforms, which is why I mentioned it. We want to ensure we have a variety of powertrains. This is another crucial principle for us. We learned from past experiences that investing in hybrids was a wise decision, even when it wasn't widely accepted. We aim to embrace EREVs and other new powertrains to align with customer preferences. Lastly, in my 40 years of experience, I've never had the opportunity for recurring revenue where the company isn't affected by economic cycles or gas prices, and we can achieve this with Ford Pro. I believe Ford Pro is at the forefront of this industry by providing large-scale services, with nearly 1 million software subscriptions that are becoming increasingly valuable, allowing us to see progress in Pro as we focus on vehicle repairs. These two aspects connect us to our traditional vehicles, which I've been eager to achieve for 40 years as a company leader. It's ironic that this is happening not in the retail sector but in the Pro B2B space. These principles are significant for our company. The most important for me is having the best talent and culture because none of our goals will be realized without the right people in place. We continue to strengthen our industrial and technology teams while fostering a sustainable culture where quality and cost are always prioritized. We have much work ahead to execute on these principles, but these are our key guiding principles.

Okay, thanks. And then maybe more tactical for Sherry on the guide for Model e in '25. Volumes in Europe are higher, PTCs coming in, lithium prices are coming down, you're doubling down on cost efforts, yet the guide is flat. Could you kind of help us close that bridge? Where do you see the weakness in Model e this year to offset those gains and improvements you're making?

Yeah. We're making improvements, so the Gen-1 products are still not profitable. What's interesting about this though is that we're able to hold flat while you're increasing the volumes significantly. The other thing going in there is the $1 billion of additional costs related to our BOSK battery factory and our Gen-2 products. That $1 billion is about half engineering and about half in the BOSK area as well. One of the questions you asked about was just what's kind of going counter to that? That would be some of the downward pressure that you continue to see that's on the pricing potentially in Europe, potentially in North America. What's great is that Model e as it landed Q4 last year, the Mach-E, we had a fantastic selling over 30% increase quarter-over-quarter and we stayed above the average transaction prices. So, while we're seeing the pressure, we have been continuing to do well even with our Gen-1 products in our sales pace.

Your next question comes from the line of Adam Jonas with Morgan Stanley. Your line is open. Please go ahead.

Thanks, everybody. So, hey, Jim, we've heard that you really, really like the Xiaomi SU7.

Yes.

Which, as you know, is their first car. So, when a country like the United States imposes a 100% import tariff on another country that isn't even selling vehicles here yet, that's quite significant. Do you think US tariff policies will effectively keep Chinese electric vehicles out of the US market in the long run? I'm curious about your perspective, especially considering your background with an Asian automaker. We've seen similar scenarios play out in the '70s and '80s. Do you really believe that the Chinese will enter our market, or do you think we'll manage to keep them out? Is that beneficial?

Thanks, Adam. Tom Freeman wrote an interesting piece on this topic that is relevant for us. Ultimately, the subsidies these companies receive in China are significant, and these are digital vehicles that are deeply integrated into people's digital lives. We need to establish appropriate privacy policies and national security measures, as these vehicles are not like the traditional cars; they are data collection machines. Regarding subsidies, we need to address this as a country because they are part of the competitive landscape, and the advantages these companies have are extensive. It's essential to resolve this. After 40 years in this industry, I've learned that the company must be able to compete directly based on the costs and appeal of their products. We should collaborate with government partners to create a level playing field as much as we can. However, ultimately, it is management's responsibility to compete effectively in the market.

Thank you, Jim. Just to follow up, I noticed that autonomy wasn't really mentioned in your prepared remarks, which is interesting considering the focus on AI lately. Generative AI has significantly changed the timeline for autonomous vehicles. In retrospect, it seems wise to have paused and restructured the Argo initiative. Ford has a substantial presence in the US, with around 40 million vehicles on the road driving approximately 1 billion miles a day. The data generated from that is extraordinary. I understand the emphasis on service bays in Ford Pro and the physical services, but what is the actual strategy regarding AI and autonomy? Many people believe that if you're a traditional industrial company like Ford, you either have a solid AI strategy or risk being left behind. I wonder if you share that view, and how confident you feel about Ford's position in autonomy. What could impact that? Will Sherry need to develop an in-house solution, or is now the right time to consider partnerships? Thank you, everyone.

I believe we are at a crucial point of decision. Level 3 technology is approaching, and BlueCruise has now surpassed 300 million miles, with customers still investing in it. We have reduced the price, which has led to some commoditization, but it remains a significant opportunity. Our company's capabilities are expanding. The team from Argo, which joined us from Ford, is working on an impressive Level 2 and Level 3 system that we expect will excel in performance. We may not be the first to market, but BlueCruise continues to receive top consumer awards for its Level 2 operating system. Level 2+ is on the horizon, and we see Level 3 as a major advancement for highway travel with eyes-off driving. I feel confident in our internal capabilities. However, we are also realistic about our abilities and are open to evaluating other systems, including developments in Level 4 personal autonomy, which are progressing significantly elsewhere. This global focus is why we made the announcements today; we need a strong strategy team to determine whether to partner or continue advancing our own Level 4 personal autonomy. We will approach this thoughtfully and practically, avoiding attachment to market size and making decisions that position us well. I have great confidence in Sammy and Doug's technical expertise; they understand the FSD system and the evolving Level 4 systems from competitors like Waymo. I believe we will arrive at a sound decision, and Adam, I think we are nearing that partnership decision at Ford.

Thanks, Jim.

Your next question comes from the line of Emmanuel Rosner with Wolfe Research. Please unmute, and ask your question.

Thank you. My first question is regarding your plans for cost savings this year, specifically the $1 billion improvement. Can you provide more details about the main factors driving that? How can we feel assured that this will be the year when we see a clear net cost improvement at Ford? It appears that in the second half of this year, you're projecting earnings growth despite significant cyclical challenges. This raises the stakes for effective cost management. What is your outlook on the ability to achieve this execution?

Yeah, thanks for the question. The confidence going into this year is the approach that we took to building the business plan was very granular. We went through all areas of our business and we're targeting efficiencies across all areas of our business. But there are two in particular that we're extra focused on. In Jim's prepared remarks, he also talked about the fact that we're zoning in on material costs and warranty. In fact, we're even getting outside third-party support to look at benchmarks, what is best-in-class, and what are all the different ways to make that even stronger. It's because of those detailed plans that sit behind those items that we have more confidence. The other thing is that on the design costs, we are entering this year with about 90% of our pipeline filled. As we think about the cost savings that we want to make from a product design perspective, we have already identified those and we've characterized when in which quarter those are going to be introduced into new products. That gives us a lot of visibility as to when we would expect to see those cost savings be realized.

Is this why this is back-end loaded?

That's why it's back-end loaded.

Exactly. It takes time to execute. But boy, do we have a stronger plan.

All right. Thank you. My second question is around pricing. So, you're assuming 2% price moderation for the industry, Ford doing a little bit better. Both halves, in terms of outlook, you're highlighting pricing as a moderation as a headwind. Now, when we look at pickup inventories, there's almost 100 days' supply on dealer lots across not just Ford, but GM and Rivian as well. There are signs of pricing pressure and mix erosion. How should we think about the risk of something that is more than just price moderation here?

The risk is something more than price moderation. And I think...

Then, just a little bit of moderation, yeah, something that a larger price war in pickups when you have so many trucks sitting on the lots, across essentially all offerings.

One of the things we are considering is that as we completed the fourth quarter, we only had 13% of model year '25 accounted for. As we progress through the first quarter, we anticipate that approximately 50% of our transactions will reflect model year '25. There is a natural increase we expect in transaction pricing in relation to the model year, which will counteract some effects. Additionally, we have upcoming product launches for Navigator, Expedition, and F-150. These are some of the factors influencing our outlook. However, we are observing pricing pressure particularly in the Pro segment, especially in the fleet environment, including daily rentals, where the pricing pressure is more pronounced compared to the rest of our portfolio.

I noticed that one of our competitors is implementing a dealer cash program for pickup trucks, which is a significant change. We will monitor this closely. As a management team, we recognize that maintaining inventory discipline is crucial as we move forward. Sherry mentioned that we will always safeguard our brands in key segments and protect our pricing capabilities. The cost journey we're on will take several years and could be beneficial, but we risk losing everything if we do not maintain our pricing discipline, which is closely linked to our inventory levels. I am optimistic about our plan for the first half, aiming to reduce our dealer supply inventories to below 60 days. This is a substantial effort by the company that will provide us with some flexibility. As you pointed out, we cannot predict how our competitors will respond, so we felt it was wise to set a realistic guidance range for this year.

Great. Thanks for the color.

Your next question comes from the line of Mark Delaney with Goldman Sachs. Please unmute, and ask your question.

Yes, good afternoon. Thanks very much for taking the questions. First on Pro, the company has had a view that Pro profits will be resilient in part as you increase your mix of software and services. You just spoke a bit around some of the headwinds you're seeing, especially tied to the daily rental piece of Pro. Can you speak a bit more on the puts and takes to that business segment for 2025? What's your confidence that you can perhaps sustain or even grow Pro EBIT beyond this year as you think about adding some of the Super Duty capacity in 2026 and further increasing software and services mix toward that 20% of Pro EBIT target?

Sure. As you said, I talked a little bit about some softening in pricing around the environment for fleets, including daily rentals. We'd say volume and mix right now, we think are about neutral, maybe a little higher in North America, offset by some market weakness in Europe. The other thing coming into play there is you're starting to introduce more EVs into the Pro business. That does temper profitability slightly. I wouldn't say it's a large percentage of the mix yet, but that is growing. Our ability to continue to bring costs down, commensurate with the introduction of the EVs coming in, is one of the areas where we're really focused for this year. Costs we think are going to be largely neutral, maybe slightly better. We're expecting material cost efficiencies and some lower product costs and potentially lower warranty costs due to some of the initiatives I mentioned earlier.

To give you some context about the changing revenue mix for Pro, in the fourth quarter, we got actually up to about 13% of our Pro business profitability was from services. We want to grow that to 20%. As you implied in your question, the vehicle side is always going to be super important and the pricing within that is going to be a super important driver for our profitability. What gives us optimism about the Pro business on the vehicle side is the freshness of our product. We have a brand-new F-Series, a brand-new Super Duty, and a brand-new 1-ton Transit in Europe. We have the freshest lineup in vehicles that we have ever had. The competitors may react to that, and we'll see how that plays out in the market. What we're also really focused on is getting that 13% higher. Those margins on the vehicle repair side of 35%, on the software side, they're up to like 50%, 60%. So, that's really our opportunity to derisk the company's profile.

Thanks for that. My other question was on tariffs and you spoke a bit about this in your prepared remarks, and I know it's a really challenging thing to try and forecast. To the extent there are 25% tariffs put into place that actually come into effect next month. I know you spoke about a few weeks of your ability to absorb it, but if tariffs are sustained, maybe just talk a little bit more around what kind of cost impact that may have to Ford to the extent you can size it, and how much of that you could potentially offset via actions such as pricing?

I think Sherry and I both said it first, in the kind of weak scenario, we're in good shape if it was a number of weeks. I think changing our stock level of our components, both ourselves and our suppliers and changing our manufacturing patterns in both Mexico, especially, and the US, we can make sure nothing crosses the border for a couple of weeks. We have a good stock situation in our dealers right now. But longer-term, more than 80% of our vehicles are made in the US, 100% of our transmissions, more than half of our engines. You look at our competitors, and they're like a country mile away from that. Our US plants are busy; we do not have upside. We have some plans for Tennessee and Kentucky and some expansion plans for our new EVs. But our teams in the US are flat out already. We'd have to make some major strategy shifts in the US, build new plants, et cetera. If this persists, obviously, it's a devastating impact. What doesn't make sense to me is why are we having this conversation while Hyundai Kia is importing 600,000 units into the US with no incremental tariff, and why is Toyota able to import 0.5 million vehicles in the US with no incremental tariffs? There are millions of vehicles coming into our country that are not being applied to these. If we're going to have a tariff policy that lasts for a month or whatever it's going to be years, it better be comprehensive for our industry. We can't just cherry-pick one place or the other because this is a bonanza for our import competitors.

Thank you.

Your next question comes from the line of Joseph Spak with UBS. Please unmute, and ask your question.

Thanks. Good evening. Sherry, just maybe to start on the free cash flow guidance on a dollar basis, it looks to be down, I'd say, roughly in line with the lower EBIT year-over-year. But given that you're talking about some destocking, I'd imagine there'd be some working capital and timing headwinds. Can you just help us understand some of the drivers that maybe get that higher and also maybe what type of distribution from Ford Credit is assumed in the guidance?

Yeah. The free cash flow that we are guiding for this year is going to be right in line with the 50% to 60%, which is our target. We have been running higher than that. As I mentioned in our prepared remarks, part of that's due to timing differences, most notably related to warranty and marketing incentive items, which is causing timing differences. As we go into next year, we expect that the reduction you see is going to be due to the reduction in EBIT as you pointed out, there will be an increase in working capital and we do expect some timing differences to continue into this next period as well. Those would be some of the major items. We're not guiding on Credit's distribution at this time, but I think it's fair to say that we're expecting equal or greater than what we've had in the past.

Thank you.

In the past year.

Thank you for that, Jim. I want to revisit the discussion about the multi-platform and multi-powertrain strategy. You mentioned EREVs on the call and in other discussions. I was wondering if you could elaborate on how you plan to position and market that as a value proposition. As regulatory perspectives and policies evolve, it may not be as crucial, which means it will depend more on consumer demand. How do you plan to persuade buyers, and what lessons have you learned from the BEV experience? There seems to be some over-enthusiasm regarding consumer reactions to that initially.

Thank you. When you spend time with Li Auto, one of the top EREV companies and their customers, it's interesting to see that these customers regard their vehicles as electric vehicles, rather than hybrids or plug-ins. They utilize electric power for 95% of their mileage and charge them every night, resulting in higher satisfaction due to affordability. The smaller batteries with a 150-mile range stand in contrast to larger batteries found in three-row crossovers that offer 300 to 350 miles, which can be tens of thousands of dollars more expensive. Customers can purchase an electric vehicle that is competitively priced with an internal combustion engine vehicle. The additional cost of integrating a combustion engine is minimal because there are no transmissions, gears, drivelines, or duplicate axles. Generally, Americans have a preference for larger vehicles like trucks, but there are those who desire rapid acceleration and the convenience of bypassing gas stations while enjoying the electric experience. Unfortunately, the high price of 30,000 to 40,000 dollars for larger vehicles is a barrier. This technology allows access to an electric experience without the fear of running out of charge. While it's not ideal for towing due to the need for larger batteries, and it's not a universal solution, we recognize that as the third-largest player in hybrids, we were surprised by the appeal of Pro Power Onboard. People appreciate hybrids for reasons beyond fuel efficiency. We observe increasing interest in hybrids and PHEVs as a solution for complete electric range extended vehicles for specific vehicle types, particularly heavy ones that don’t tow, in addition to affordable all-electric options for commercial uses. I hope this conveys what I hear from customers about their enthusiasm for these vehicles.

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