Earnings Call Transcript - F Q1 2026

Operator, Operator

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's First Quarter 2026 Earnings Conference Call. At this time, I would like to turn the call over to Lynn Antipas Tyson, Chief Investor Relations Officer.

Lynn Tyson, Chief Investor Relations Officer

Thank you, Leila, and welcome to Ford Motor Company's First Quarter 2026 Earnings Call. With me today are Jim Farley, President and CEO; and Sherry House, CFO. Joining us for Q&A is Andrew Frick, President of Ford Blue and Model e, Alicia Boler-Davis, President of Ford Pro; Kumar Galhotra, Chief Operating Officer; and Cathy O'Callaghan, CEO of Ford Credit. Jim will give a high-level overview of the business, and Sherry will provide added texture on the financials and guidance. We'll be referring to non-GAAP measures today. These are reconciled to the most comparable U.S. GAAP measures in the appendix of our earnings deck. You can find the deck at shareholder.ford.com. Our discussion also includes forward-looking statements. Our actual results may differ. The most significant risk factors are included on Page 19 of our deck. Unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS and free cash flow are on an adjusted basis. Upcoming IR engagements include Navin Kumar, CFO of Ford Pro at the Deutsche Bank Global Auto Industry Conference in New York on May 19. And now I'll turn the call over to Mr. Farley.

James Farley, President and CEO

Thank you, Lynn, and thanks to all of you for joining us. I wanted to thank the Ford team, all of our dealers and our partners for a strong start to this year. Our results this quarter, $43.3 billion in revenue, $3.5 billion in adjusted EBIT, reflect a sharp execution and the momentum we are building for our Ford+ plan. Accordingly, we're raising our full year adjusted EBIT guidance to between $8.5 billion and $10.5 billion. These results are encouraging, but the bigger story is the modern Ford that's now taking shape. For 5 years, we have relentlessly built the foundation of Ford+. We strengthened our industrial system, made real progress on quality, cost and advanced our software capability and customer experience. Earlier this month, we took the next step in that evolution by establishing an end-to-end organization, product creation and industrialization. We unified our advanced technology, digital and design teams with our global industrial system. This change aligns with the most intensive product and software rollout in our history. By 2030, almost all of our global volume will feature next-generation electric architectures and in-house software. This applies to every propulsion type as we deliver and scale high-quality software-defined vehicles. This new organization allows for faster decision-making and reduces complexity. This is the moment we integrate the digital soul of the vehicle, the software or the silicon and the user experience with our world-class industrial execution. Among other things, this alignment will support our high-margin software and physical services revenue, which was over $15 billion last year. And we expect to grow that $15 billion nearly 8% annually through the end of the decade. This service growth is driven by offering customers indispensable digital experiences and investing in aftermarket sales with a focus on customer uptime, expanding our parts catalog and enhancing our service network. We're also leaning into the Skunk Works model to improve all of Ford. They've done an incredible job creating the UEV platform, which represents a step change in efficiency and cost, especially for the EV market. But at Ford, we're now integrating these Skunk Works breakthroughs back into our mainstream products and processes. We're applying their advanced tools and physics-based cost modeling to the highest volume internal combustion and hybrid lines. This, of course, will reduce our costs and improve quality across the board. Our product pipeline is aggressive. Between now and '29, we will refresh 80% of our North America portfolio and 70% of our global portfolio by volume. This includes the next-generation F-150 and Super Duty, among many others. It also includes the launch of our universal EV platform in 2027 from our Louisville assembly plant in Kentucky. We are scaling that plant for significant volume to accommodate a variety of vehicles off that single platform. And speaking of electrification, our strategy remains focused on powertrain choice, not nameplate complexity. By the end of the decade, 90% of our global nameplates will offer electrified powertrains, including advanced hybrids, extended range electric vehicles and full EVs. Our financial health is driven by a leaner, more effective industrial system. We're on track to deliver another over $1 billion in material and warranty cost improvements this year, and we will never stop. Our focus on quality is paying off. J.D. Power has recently ranked Ford #4 in the 2026 U.S. Customer Service Index, our best performance in 30 years. Finally, we remain resilient in the face of global uncertainty regarding the conflict in the Middle East. Of course, our priority is our team and the safety of them. We're monitoring the situation and working to minimize risk and find opportunities in much the same way we have navigated the pandemic, the semiconductor shortage, tariff headwinds and others. We have the muscle memory to find cost offsets, adjust our product mix quickly and proactively manage our supply chain in times of stress and crisis. My main message today is this, Ford is a fundamentally stronger, more modern company. We have a foundation built on industrial fitness. We have the technology, and we now have the unified organization to not just deliver but to compete to win. Ford is focused on execution, quality and thrilling our customers. Over to you, Sherry.

Sherry House, CFO

Thank you, Jim, and hello, everyone. Before I walk you through the details of our performance this quarter, let me start with a few items I know are top of mind for you. First, in Q1, we recognized a $1.3 billion benefit related to IEEPA tariffs. This one-time adjustment largely benefits Ford Blue and Ford Pro at about $700 million and $500 million, respectively. They are related to IEEPA tariffs paid between March 2025 and February 2026. Second, our Novelis recovery is progressing as expected. We still expect a $1 billion improvement in EBIT year-over-year weighted towards the second half. This is net of $1.5 billion to $2 billion of one-time incremental costs to secure alternatively sourced aluminum until the Novelis facility is operating at full throughput later this year. Third, relative to U.S. inventory, we expect to remain within our target of 55 to 65 retail days supply for the year. F-Series sales remain healthy as inventory recovers from the Novelis supply disruption. America's best-selling truck delivered year-over-year retail share improvement of 30 basis points in March, and we are carrying that momentum into Q2. Our team is effectively managing tight retail day supply by helping dealers fill inventory gaps while ensuring high demand trim levels are in ample supply. We are also producing a richer mix of product as we continue to ramp Novelis. And importantly, on average, we are spending less on incentives than our competitors. In fact, for the quarter, F-150 had the highest retail share, highest average transaction price and the lowest incentive spend per unit versus our key competition. Now turning to the quarter. We delivered adjusted EBIT of $3.5 billion or $2.2 billion, excluding the impact of the IEEPA. The strength in the quarter versus our original guidance was primarily supported by a change in calendarization of cost improvements and timing of investments, growth in software and physical services and higher net pricing. Our global revenue grew by over 6% despite a nearly 4% decline in volume, which was expected as we exited low-margin products like Escape in North America and Focus in Europe. In the U.S., we had our highest Q1 share of revenue in 5 years, led by large utilities and trucks. Adjusted free cash flow was a use of $1.9 billion in the quarter, more than explained by unfavorable timing differences, higher net spending and changes in working capital. On a full year basis, we expect timing differences and working capital to be favorable. Our balance sheet is strong with $22 billion in cash and over $43 billion in liquidity, and we remain committed to our investment-grade rating. We repaid our convertible debt without refinancing it and also relaunched our anti-dilutive share repurchase program, which we completed in the quarter. And earlier this month, we successfully renewed our $18 billion corporate credit facilities for another year. Our strong liquidity position provides us with the flexibility to manage in this dynamic environment and invest in higher return growth opportunities like Ford Energy. It also allows us to pay consistent shareholder distributions. In fact, yesterday, we announced the declaration of our second quarter regular dividend of $0.15 per share payable on June 1 to shareholders of record on May 12. Now turning to segment highlights. Ford Pro achieved EBIT of $1.7 billion against the backdrop of Novelis-related production disruptions. Ford Pro continues to deliver higher margins through a powerful ecosystem of vehicles, software and physical services. We are scaling rapidly and increasing recurring revenue, which bolsters resiliency. In fact, paid software subscriptions grew to 879,000, a 30% year-over-year increase. By integrating innovations like Ford Pro AI, we can help commercial fleet managers instantly identify maintenance needs, leverage large data models on fuel usage to lower costs and optimize routes amongst other features, all designed to provide better predictability, productivity and profitability, which our customers require. As we look ahead, the 2027 model year order books are just starting to open, and we are seeing positive early indicators. Ford Blue delivered $1.9 billion in EBIT, supported by the sustained sales performance of F-Series and go-to-market discipline, evidenced by Q1 incentive spend below industry average. Additionally, our off-road performance trims now account for nearly 1/4 of U.S. sales and Maverick and F-150 continue as the best-selling hybrids in their segments. Importantly, Ford Blue's Q1 performance highlights the strength of the underlying business and excluding IEEPA, is representative of its ongoing run rate. For Ford Model e, EBIT was a loss of $777 million as we now start to benefit from the portfolio changes announced in December. In addition to investing in a leaner, more profitable portfolio, we are actively matching supply with demand globally to optimize profitability. And in the quarter, we benefited from a nearly 35% improvement in our Gen 1 losses. We also continue to step up our incremental $1 billion investment in UEV platform and Ford Energy as we progress throughout the year ahead of their launches in 2027. As a result, we expect first quarter to be the strongest quarter for Model e this year. Ford Credit delivered a solid quarter with EBT of $783 million, up $200 million, reflecting improvements in financing margin and enabled by a high-quality book of business. Results also benefited from favorable performance on our derivatives. Our portfolio performance is strong, and we maintain a highly disciplined approach to capital reserve and risk management practices. So let me turn to our 2026 outlook. For the full year, we now expect company adjusted EBIT of $8.5 billion to $10.5 billion, adjusted free cash flow of $5 billion to $6 billion and capital expenditures of $9.5 billion to $10.5 billion, which reflects our shift toward higher return growth opportunities, including $1.5 billion for Ford Energy this year. Our guidance does not include the potential impacts of a sustained conflict in the Middle East or a significant downturn in the U.S. economy, which could have a material impact on industry demand. Our full year segment outlook stays steady with Ford Pro EBIT of $6.5 billion to $7.5 billion, Model e losses of $4 billion to $4.5 billion, Ford Credit EBT of about $2.5 billion. And for Ford Blue, we have increased our guidance by $500 million to $4.5 billion to $5 billion, driven by a stronger underlying business. Our guidance continues to assume a U.S. SAAR of 16 million to 16.5 million units and flat industry pricing. Now some context and important puts and takes for the year. We have the $1.3 billion one-time IEEPA tariff benefit, but we now expect commodity headwinds of just above $2 billion, about $1 billion higher than our previous estimate, largely due to higher aluminum pricing driven by global supply constraints. Note, though, this excludes Novelis-related aluminum costs. The impact of ongoing tariffs is unchanged at about $1 billion and is now a part of our run rate costs. This excludes the IEEPA benefit and Novelis temporary costs. As Jim mentioned, we're on track for $1 billion improvement in material costs and warranty reductions on top of the $1.5 billion of cost reductions we delivered in 2025. We continue to expect a net $1 billion improvement from the Novelis recovery. And as I mentioned earlier, about $1 billion of incremental investment in Model e to support the ramp of UEV platform and Ford Energy. Our Q1 performance highlights the benefits of our Ford+ priorities, rigorously optimizing revenue across every segment through leading products and high-growth services, improving operating leverage and exercising smart, accretive capital allocation decisions. The increase in our full year adjusted EBIT guidance underscores these benefits. Thank you. And I'll now turn it over to the operator so we can take your questions.

Operator, Operator

Your first question will come from Joseph Spak with UBS.

Joseph Spak, Analyst, UBS

Sherry, maybe just to pick up right up on the commodity increase. You mentioned about $1 billion. I'm just trying to contextualize what you're assuming here because I think in the past, you talked about, call it, an $8 billion steel aluminum buy, I think 40% of that is aluminum. There's been some hedging, and this is really only 9 months. So I know prices have really gone up, but it looks like a pretty big number. So I just want you to help understand what you're thinking for the balance of the year? And then how you would advise investors to sort of think about that rate heading into '27.

Sherry House, CFO

Sure. Well, it's going to be a bit hard to be able to predict 2027 at this point given the volatility that we've seen in the commodities. But let me just tell you in the near term, what I'm seeing. So with respect to steel and aluminum, in particular, even before the Middle East situation started, we were already seeing global industry shortages, and that was first. Then you had the Middle East. And then you have to remember that Ford also has the aluminum supply shortage with respect to our primary aluminum supplier, which is Novelis. These costs are not related to Novelis. We package those separately. We talk about those separately. And when I talk about a $1 billion year-over-year improvement due to Novelis, that includes all the tariff costs. But this is related to the exposures that we have in aluminum and steel predominantly.

Joseph Spak, Analyst, UBS

Okay. And then I guess just a second question, maybe is there any update you could provide us on the Novelis timeline? I mean, I think there was some preliminary thought it could come online in the summer. Are we sort of on track there? And if that happens, how are you thinking about that headwind you mentioned? I'm just trying to sort of figure out the phasing timing because I guess my prior assumption was that most of that Novelis headwind would have been more in the first half if it was expected to ramp through the year. But I'm not quite certain that's still the case. So maybe you could just help us with some of that cost phasing timing.

Kumar Galhotra, Chief Operating Officer

Yes. Joe, this is Kumar. Your assumption is correct. We are still expecting the hot mill to restart in May. There are two aspects to bringing any mill back online. There's the restart itself and then there's the ramp-up. So all the enablers for both of these aspects are on track. In the event the relaunch doesn't go according to plan, we do have contingency plans in place. That means we have additional aluminum supply to ensure our plant production schedules aren't interrupted. So the mill should be back online. And if we have any hiccups, we have contingency plans for the rest of the year.

James Farley, President and CEO

And Joe, as you would expect, it's Jim. We have several grades tracked by step in the process. We track it every day and know exactly the situation we have and the float we have. We have also learned how to back up the aluminum supply, as Kumar said, in case the mill ramps more slowly or the actual start date is later.

Operator, Operator

Your next question will come from Dan Levy with Barclays.

Dan Levy, Analyst, Barclays

We know that within the guidance the IEEPA refund is effectively being offset by raw materials. So the net improvement in the guidance is coming from improved operations. Maybe you can just speak to the improved operations beyond the warranty material, which looks consistent. How much runway do you have on this, and can this offset any increases in raw materials you might see in 2027 given the staggering of costs that are going to be hitting?

Sherry House, CFO

Yes. So as we look at what's basically the basis of our $1 billion raise versus guidance, software and physical services are some of the biggest components. The Ford Pro business continues to have very high paid subscribers; we are now at 879,000, up 30% year over year, as noted in our prepared remarks. The enterprise is also performing well across physical services and software. Another big item in Q1 was net pricing, with the share of revenue at its highest level in five years, driven mainly by full-size utilities and trucks. We also had timing differences in costs—some items hit in Q1 that we had expected in Q2, which was favorable. Taking all of that underlying performance into account, we felt $0.5 billion was the amount we could pull through for the full year, and that's why our guidance reflects that.

Operator, Operator

Your next question will come from Andrew Percoco with Morgan Stanley.

Andrew Percoco, Analyst, Morgan Stanley

I did want to come back to the guidance here, and maybe I'm missing some of the moving pieces. But if I just look at your first quarter performance, $3.5 billion of adjusted EBIT. I think you had been essentially signaling sequentially flat, which would have been like $1.1 billion for the first quarter. So you essentially beat by $2.5 billion in the first quarter, of which a little bit over $1 billion is from IEEPA. But that would imply like even though that's offset by some incremental cost headwinds on the commodity side, it would imply downside or some incremental costs elsewhere if your guide is only increasing by $500 million. So can you maybe just help us break down some of those moving pieces in case I'm kind of missing anything in that bridge?

Sherry House, CFO

Yes, I don't think you're missing anything in the bridge. It's just as I said, we had the three components that were really driving this performance, and we're pulling through the amount of it that is sustainable. Some of it was timing differences. So we didn't want to put timing differences into a guidance raise.

Andrew Percoco, Analyst, Morgan Stanley

Okay. Got it. And then, Jim, maybe one for you. There's been a lot of headlines recently around some potential partnerships between Ford and some of the Chinese OEMs. And even outside of Ford, there's just a lot of focus in the marketplace around some of these vehicles coming out of China eventually potentially making their way into the U.S. Can you just give us your updated thoughts on what that could look like and maybe any involvement that you might be interested in doing there?

James Farley, President and CEO

Sure. I'm glad there is a lot of focus on it. As America's largest auto producer, we are fully dedicated to a thriving U.S. auto industry and to safeguarding our country's industrial base. That's not just economic vitality; it's also national security. Countries like China, Japan and South Korea have really prioritized their domestic auto industries and manufacturing for those same reasons. To answer your question, we leverage global partnerships and even share intellectual property, including with Chinese OEMs, to grow our business around the world. But we are fully committed to a level playing field here in the U.S. and to protecting our home market because of the importance of the auto industry and our industrial base. Ford continues to be a global company; we want the right to win around the globe, and we need IP and partnerships outside the U.S. to do that. When it comes to the U.S. industry itself, we are extremely protective, as we should be, like China, South Korea and Japan are. What that means in specific policies will play out in our company strategy. But as America's number one auto producer, you can understand our perspective.

Operator, Operator

Your next question will come from Alex Perry with Bank of America.

Alexander Perry, Analyst, Bank of America

In the materials, I thought it was interesting. I think you said the off-road performance trims account for 25% of the overall sales mix. Can you give us a little bit more on the strategy here and a little more color on how this has trended historically? Is the strategy to prioritize some of these higher-margin trims while production remains constrained? And maybe just remind us on the profitability of some of these off-road trims versus company average.

Andrew Frick, President, Ford Blue and Model e

Yes. Thanks. This is Andrew. Thanks for the question. Yes, that is part of our strategy. It's a big piece of why our Blue business is doing well overall. In fact, if you look at our wholesales this past quarter and the first quarter, they were relatively flat, but we had an improved mix of Explorer and Expedition. We phased out Escape; we're in the sell-down of that, and our F-Series remains strong. And we actually grew our share in the off-road space, which accounts for 25% of our volume, but our share actually grew by 0.7 points, which was really important. That's because we're able to lean into multiple vehicles now, series like Tremor and Raptor, and really drive those mixes. So it is relatively more profitable, and it all plays back to our overall strategy of leaning into our profit pillars and winning with passion products.

James Farley, President and CEO

No boring products.

Alexander Perry, Analyst, Bank of America

Perfect. Really helpful. And just a follow-up on commodities. Can you just remind us how you're sort of hedged across the various commodities? And with the $2 billion commodity headwind, does this assume that prices sort of stay where they are today? So if they were to come down, this would provide a little bit of cushion in the guide?

Sherry House, CFO

Yes. The forward forecast that we gave you does. The guidance we gave you assumes that they stay where they are, which, as you would know, the forward curves are up. We have a large number of contract types that we use. In some cases we have fixed-price contracts; other contracts are multiyear. We have a lot of contracts that are based on indices and the impact is a quarter lagging. So you're going to have a range there. We also look at natural hedges that we have in our business as well. So when we look to hedge, we're taking the entire portfolio into consideration. And we feel that we've got a pretty good handle to be able to provide you what we did in terms of commodities for the balance of the year. If they go up substantially from here, we obviously will be back sharing that with you. But you're right, if they go down, that will be a net positive to the business.

Operator, Operator

Your next question will come from Mark Delaney with Goldman Sachs.

Mark Delaney, Analyst, Goldman Sachs

I was hoping to start with the comments the company made in its prepared remarks on software and physical services. I think you said you expect the $15 billion of revenue coming from those areas to grow at a nearly 8% rate annually through the end of the decade, which is a pretty good outlook over several years. Can you help investors better understand what's driving that degree of revenue growth over the coming years? And more importantly, what does that mean for EBIT?

James Farley, President and CEO

Sure. This has been a critical part of our path to 8%. And we've been planning for many years. As you can imagine, before I answer your question directly, we've had to invest a lot in our advanced electric architectures, and our dealers have had to invest a lot in dealer capacity for the service. Really, our focus is on two key areas. We have a lot more focus than these two, but these are the ones driving our business. The first is our aftersales parts business. This is a really key focus for the Ford team. We see growth in Pro. Our dealers are massively investing in capacity for Pro, but we are also becoming a lot more successful in wholesaling parts from our dealers to third-party repair shops throughout the U.S. As I mentioned, we're going to expand our parts catalog in terms of price and diversity, and we're going to start to focus on not just Ford parts, but multi-make parts. And I think the other key distinguishing element for Ford is that we have started to really get good at remote service. Almost 20% of all Ford's repair now is done outside the dealership at our customers' location. And for our Pro customers, they're especially excited about this because they don't have to come in the dealership. And this has really expanded our revenue on aftersales. Inside the company, we're very focused on improving our repair order duration that gives our dealers more capacity, so to speak, without having to build any more capacity. I think you know our growth in ADAS, our growth in Pro Intelligence that Sherry mentioned are both signature parts of our integrated services that seem to be growing about 30% to 40% a quarter with very high margins. When you look at the margins of the part business and the software business, this $15 billion that will be growing at 8% a year is highly profitable for the company. It also has a different revenue risk than our vehicle business. It's more of an annuity and a lot of it tends to be anticyclical. That means that when the car business goes down, people tend to repair their vehicles. So this fitness we're developing on the parts side will help us on the anticyclical side. That gives you, I think, some window. And hopefully, we'll be giving you more and more insights as to our ADAS strategy and Pro Intelligence product rollout in the coming years.

Mark Delaney, Analyst, Goldman Sachs

That's very helpful. My other question was on the pickup market. And Ford obviously has a very strong franchise in that segment with the F-Series, but you've also spoken to adding more product with the UEV-based pickup model coming in and then also the ICE truck you've talked about coming out of the Tennessee factory. We've also seen competitors lean into that segment more. So as you think about all the new models coming into the pickup space, maybe talk more on how much of the market you think pickups can make up in the future? And then as you think about more supply coming into pickups, what are implications for profit margins in that important category?

Andrew Frick, President, Ford Blue and Model e

Yes. Thank you for the question, Mark. This is Andrew. I think it's important when you talk about the truck business to look at it through the lens of both retail and commercial because they're both really important parts of both customer groups. On the retail side, the truck business has historically been full-size pickup and medium pickup. But we've been able to expand the pickup segments themselves. Maverick has created a whole new segment, and we've been able to take advantage of that. In fact, if you look at market trends, you've seen a lot of car buyers move into trucks and even utilities move into trucks. We think that trend will continue, especially with the type of packaging we're going to be able to provide. It worked on Maverick, and we are really excited about the UEV pickup and the packaging that has to appeal not just to truck buyers but to draw from SUV buyers as well. So we see the pickup market growing, and it's really growing across segments and price points on the retail side. And Alicia, maybe on the commercial side.

Alicia Boler-Davis, President, Ford Pro

On the commercial side, I'll comment similarly to what Andrew said. We have commercial buyers that purchase pickup trucks ranging from Maverick up to our F-750, and we offer products in those segments. We also have diverse powertrains and expect that to continue to grow. We have strong orders for 2026 from fleet customers, and we just opened our 2027 model year order books and are seeing some early indicators. Demand is strong, and we want to ensure we have offerings from the very beginning, from Maverick all the way to the larger pickup trucks.

James Farley, President and CEO

How we like to think about it is that we want to future-proof our truck business. To do that, we want to offer customers more choice on the powertrain side and tie the powertrains to other benefits that a truck customer would want like a hybrid for Pro power on board. And part of protecting is not just having an affordable electric pickup or hybrid throughout our lineup, but it's also having a flow of customers that move through our lineup over time. On the Pro side, it helps us with adjacency sales. But on the retail side, those Maverick, those UEV sales, they are a juggernaut for loading our whole pickup business and the strength over time because we haven't seen our competitors invest like we have. I think the other thing that gets maybe overlooked about Ford's pickup strategy is our global strategy. Ford is really #1 or #2 in most markets around the globe. There are large pickup markets in Thailand, Africa, the Middle East and South America. And Ranger is #1 or #2 in every one of those segments, and we are future-proofing those lineups now as we speak with different powertrains and even more affordable options. And this is critical because we're seeing new competition in those markets from the Chinese. And so our pickup strategy is a global strategy. We're trying to learn from the past where we're trying to future-proof it in a way from oil shocks or movement of powertrain to actually price points.

Operator, Operator

Your next question will come from Emmanuel Rosner with Wolfe Research.

Emmanuel Rosner, Analyst, Wolfe Research

Could you give us a sense of expected cadence of earnings over the rest of the year? And in particular, maybe drivers of the much lower pace of earnings over the rest of it. With having done $3.5 billion in the first quarter, that means you're guiding at midpoint for $6 billion combined over the next 3, which is quite low, I guess, by historical standard. I understand that commodities is obviously going to get sequentially quite a bit worse, but then I would have thought the Novelis cost would also start going away in the second half. So maybe some of the puts and takes and the cadence, please?

Sherry House, CFO

Yes. As you move into the second half, one of the big factors is you won't have the repeat of IEEPA, which was $1.3 billion. That's a positive. We also expect benefits from Novelis as we start to gain more volume, but commodities will hit us more toward the end of the year, as I mentioned earlier. We are also investing more in our launches now, including BESS, our battery electric stationary storage business, the UEV platform, and Oakville in Canada. Those investments will ramp as we exit the year, and they include cash spend, not just capital expenditure. So the main negatives are commodities and the non-repeat of IEEPA, while the positive is Novelis.

Emmanuel Rosner, Analyst, Wolfe Research

Okay. And cadence-wise, sorry. I have another follow-up question: is the degradation mostly in the second half, or is the second quarter excluding IEEPA also quite a bit lower?

Sherry House, CFO

Fairly consistent, I would say, it's Q2, Q3 and Q4.

Operator, Operator

Our next question will come from Edison Yu with Deutsche Bank Research.

Xin Yu, Analyst, Deutsche Bank Research

I wanted to come back to something that, as you mentioned earlier about the U.S. industrial base. How sensible or how realistic is it for Ford to play a bigger role in the kind of defense complex in terms of supplying the Pentagon?

James Farley, President and CEO

Well, thank you for your question. As a very American company, Ford has always answered the call to support our country. It was ventilators during COVID and, of course, the arsenal of democracy. We work closely with the government; as you know, we are very successful with government sales and our business in Pro, so we have strong relationships on the vehicle side. What I can say at this point is two things. First, we are in early discussions with the U.S. government on some defense-related projects, but we're not going to go into details today. Equally important is Ford's role as an anchor customer in onshoring critical minerals and addressing many other supply chain vulnerabilities in our country. You should expect Ford to play an outsized role in manufacture-grade semiconductors and critical minerals like batteries and rare earths. Our supply chain is heavily engaged not only with our government but with new companies that are starting to emerge here to onshore some of this capability. In the short term, I think that's the biggest role Ford can play in helping our country.

Xin Yu, Analyst, Deutsche Bank Research

Understood. Understood. And then a separate topic, just coming back to autonomy. It seems in robotaxi, there's a lot more appetite now for some of these tech companies like Uber and NVIDIA sort of quasi-subsidize the OEMs. Has your kind of thinking about robotaxi maybe evolved over the last 3 or 4 months?

James Farley, President and CEO

I would say yes, not just over the last three or four months. It's something we've been frankly watching carefully as it evolves because we were involved in Argo and are very aware of both managing the fleet and the SDS system itself and the progress. We knew from Argo what to look for as robotaxis and the SDS became more proficient, and we're starting to see that now. You should think about Ford's approach as being completely focused on having the most efficient EVs and the lowest cost of ownership in North America. And because of our Pro business, we have the strongest fit, repair, and fleet management capability for new fleets — for all fleets. That capability can be applied to many different kinds of fleets. That's how we think about the market as it emerges, and that's all we're prepared to say at this point.

Operator, Operator

Your next question will come from Ryan Brinkman with JPMorgan.

Ryan Brinkman, Analyst, JPMorgan

Is there an update you might be able to provide on the relatively recently announced Ford Energy business? Has there been maybe proactive outreach to Ford from companies that you have existing B2B relationships with on the Pro side of the business? How would you characterize that interest? And maybe just remind on potential timing there.

James Farley, President and CEO

Thank you, Ryan. Well, as you know, we are committed to over 20 gigawatt hours of capacity starting in the fourth quarter of next year. That will be mostly Kentucky 1 and a little bit of Marshall. Marshall will be really focused on UEV, but has some capacity for our energy business. So that's the timing starting fourth quarter next year. The plants are coming online. We are on track in the industrial manufacturing capability of doing DC block. It's not just the batteries themselves, it's the containers, it's the management of the battery. That's all coming together as we expected. We are very active in contracting customers as we speak. We've had a lot of inbounds and a lot of interest in Ford because they understand that we have the best tech. We have a lot of advantages financially, and we have a great service and sales capability. And of course, the company has deep relationships with a lot of these as vehicle customers. So they know us. They know through Pro that we're a reliable company. And all I would say, Ryan, is that the energy business is a key element of our bridge to 8% margin.

Ryan Brinkman, Analyst, JPMorgan

Great. And then just as my follow-up, around the same time that Ford Energy was announced, you also broke news of the new strategic partnership with Renault. So I was just wondering if there might be any kind of update you can provide there, too, given that the first vehicles that were announced were electric vehicles, and I think that's an important piece of solving the puzzle in Europe, but I met with Hans Schep during the quarter. He is super energized about Renault on the commercial vehicle side in Europe. What do you think the broader potential for collaboration there might be?

James Farley, President and CEO

Thank you, Ryan, for your question. It's very pertinent. At this point, all we would say is that we believe that on the passenger car side, Renault has fully cost competitive platforms. And we intend to take advantage of that as Europe continues to electrify amidst the Chinese competition on passenger cars. On commercial, we have a very successful relationship, as you know, with Volkswagen, both on the pickup and the van side. And we have nothing to announce today, but certainly, John, myself and the whole team are very focused on taking advantage of the Renault relationship across all of our businesses. And our commercial business at this point is still very profitable in Europe. We see it as the core of our profitability in the future on the vehicle side. And so we will do everything we need to, to maximize our scale and our cost advantage on commercial in Europe.

Operator, Operator

Our next question will come from Colin Langan with Wells Fargo.

Colin Langan, Analyst, Wells Fargo

Just if I'm looking at Slide 10, there's a $900 million of other. It's kind of unusual to have such a large item. Any color on what that is? And then also looking on that slide, cost is only $700 million positive and includes the IEEPA. I think the target is that you're supposed to get $1 billion of cost benefit for the year, which would mean underlying cost is actually worse year-over-year in Q1. So what is driving the weaker Q1 cost?

Sherry House, CFO

Well, first off, let me just hit on your question on other. That's really related to services, both physical and software. So that's where that's showing up.

Colin Langan, Analyst, Wells Fargo

So you had $900 million of software EBIT?

Sherry House, CFO

So we also had compliance benefits, services, physical and software credit as well.

Colin Langan, Analyst, Wells Fargo

Okay. And then the cost piece, is that just the cost savings pick up in the second half of the year?

Sherry House, CFO

This cost savings, if you're looking at Slide 10, was related to the Q1 bridge going from $1.3 billion in Ford Pro to $1.7 billion?

Colin Langan, Analyst, Wells Fargo

Yes. Well, I was just saying in the bridge, it's $700 million positive, but that includes $1.3 billion of IEEPA for the year.

Sherry House, CFO

That's right.

Colin Langan, Analyst, Wells Fargo

So that mean ex-IEEPA, it was negative. So I'm just wondering why it's negative if the target for the year is $1 billion positive.

Sherry House, CFO

You have Novelis in there as well.

Colin Langan, Analyst, Wells Fargo

Okay. And then just lastly, if I go to Slide 18 and I add up all the items, it does seem like it's a little short of some good news. It seems like about $900 million short of all the items listed on that slide. What is that? Is that volume? You didn't mention regulatory savings, just other cost savings that we're kind of missing in the walk?

Sherry House, CFO

I would say yes, it's a variety of other savings throughout the company as well. So we thought that, really, its cost is fairly flat on a year‑over‑year basis. We're presenting very close to what we presented in the past. The big changes as we've gone into this guide are that we have the $1.3 billion resulting from the IEEPA Supreme Court ruling, and then we had an increase in commodities, which is offsetting. So when you look at all of that together, you're really looking at a pretty flat picture year over year because we already had a number of items that were offsetting.

Operator, Operator

Your next question will come from James Picariello with BNP Paribas. We can hear you, please go ahead.

James Picariello, Analyst, BNP Paribas

So I first want to ask about what's the level of confidence behind the 150,000 Novelis recovery units based on what you've seen in your own production through the first quarter? Just where are we at on that? And then as we think about the raw materials, right, the $2 billion now in core commodities plus the $1.75 billion in alternative aluminum sourcing, what was captured in the first quarter on that combined bucket for raw mats? And just how should we think about the cadencing for the rest of the year?

Kumar Galhotra, Chief Operating Officer

So on the Novelis recovery and the rebuild of the mill, I would say the confidence is high. As Jim and I stated earlier, the restart date is on track. All the enablers for the ramp-up are on track. And belt and suspenders, if anything does go off, we have contingency plans, which means we have additional aluminum supply to ensure production. So we feel good about the second half aluminum supply.

James Farley, President and CEO

And not only from our supply perspective, but also, as Andrew said in the speech, we are in a really good stock position too. So we are very confident we are going to need those units.

Alicia Boler-Davis, President, Ford Pro

And I can just comment as well from a Pro perspective, we still have very strong '26 model year orders. We just opened up '27. Those are we're seeing positive indicators. And when you think about the Novelis impacts, we really postponed fleet orders, and they're going to be required and needed in the second half, and we haven't lost a customer. So we are very confident in the demand in the second half of the year.

Sherry House, CFO

Yes. And I guess I would just say that... (interruption) ...we continue with respect to Novelis to expect a total cost of between $1.5 billion to $2 billion. We're tracking on target with respect to that. I think you had a specific question in Q1 related to temporary cost to source aluminum. It's about $300 million. So that would include tariffs, expedited freight and warehousing as well. These things aren't straight line, and there's just a lot of factors that are involved.

James Picariello, Analyst, BNP Paribas

Got it. That's helpful. And then just as we think about the $1 billion in the UEV platform and the Marshall plant, is that more second half weighted or pretty ratable through the year in terms of just the investment, and that's still tracking towards the $1 billion, right?

Sherry House, CFO

So it's going to be the UEV investments. We're already making some of those and we'll continue to make them through Q2, Q3 and Q4. They will go up a bit as you get to Q3 and Q4. As I said, we've got BESS in there as well, and we also have the Oakville launch during that period of time. So three major items are increasing in terms of investment.

Operator, Operator

Your next question will come from Itay Michaeli with TD Cowen.

Itay Michaeli, Analyst, TD Cowen

Just a couple of questions on the UEV platform. I'm just curious sort of what's left to do here as you prepare for next year's launch? And maybe thinking even out to 2029 towards your breakeven or profitability objective for Model e, how should we think about roughly the number of top hats that you're planning to launch on that platform? And maybe just lastly, if I can sneak it in. In the past, you've mentioned using some new suppliers for UEV. Any more updates you can share on how that's going?

Kumar Galhotra, Chief Operating Officer

So Itay, this is Kumar. Answering your first question on the industrial launch of the product, there are four major pieces to it. First is the hardware, with key new parts like mega castings. Second is UEV's software platform, including development and testing. Third is the readiness of our suppliers and the parts coming from them. And fourth is equipment installation at our plant. We're in the middle of all four of these right now and all enablers and early indicators for these work streams are on track, so we feel good about it. Your second question was about the number of top hats. As we've mentioned, it is a platform and we plan to have high volume at Louisville. But we don't want to give away our plan to the competition by saying how many top hats or which ones; it would be too early to do that.

James Farley, President and CEO

The launch is bigger than the industrial launch. So we want to give you a little bit of insight into the demand creation because that's critical for us.

Andrew Frick, President, Ford Blue and Model e

Yes. This is Andrew. We're confident on our launch plan. In fact, we're right on track to share our plans with dealers and take customer orders later this year. And what we're really excited about is some of the EV market trends that we're seeing and the EV volume really heading towards the affordable space, which really favors this affordable UEV platform, positioning us right in the heart of the market. So we're really pleased with that.

Kumar Galhotra, Chief Operating Officer

Yes. I would say that the UEV team took a very interesting approach. We did the toughest and the most complex commodities. We designed them in-house. This gives us a lot of control over those commodities, and it gives us the ability to source those commodities at the highest quality and the best cost price points from new suppliers. And these new suppliers have been great partners, and we are working towards using that capability, both the process as well as the new supply base in the rest of our portfolio.

James Farley, President and CEO

What's exciting for me is seeing the team's pollination of the UEV process: new suppliers, a new way of developing a vehicle, and new IT tools the development team uses. It's really starting to spread across the company, and that's very encouraging because the greatest gift from UEV will likely be what it gives our other models and our team as a whole.

Operator, Operator

This concludes the Ford Motor Company First Quarter 2026 Earnings Conference Call. Thank you for your participation. You may now disconnect.