Earnings Call Transcript - F Q3 2022

Operator, Operator

Good day, ladies and gentlemen. My name is Gary, and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company Third Quarter 2022 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. Please note, this event is being recorded. At this time, I would like to turn the call over to Lynn Antipas Tyson, Executive Director of Investor Relations.

Lynn Antipas Tyson, Executive Director of Investor Relations

Thanks, Gary. Welcome to Ford Motor Company’s third quarter 2022 earnings call. With me today are Jim Farley, our President and CEO; and John Lawler, our Chief Financial Officer. Also joining us for Q&A are Marion Harris, CEO of Ford Credit; and Doug Field, Chief Advanced Product Development and Technology Officer for Ford Model e. Today’s discussions include some non-GAAP references. These are reconciled to the most comparable U.S. 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. Today’s 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, and product mix is volume weighted. Looking at our IR calendar, we have two upcoming engagements. Tomorrow, Bank of America will host a fireside chat with John Lawler and Lisa Drake, our VP of EV Industrialization and Manufacturing Engineering for Ford Model e. On November 7th, tech analyst, Toni Sacconaghi, will host a fireside chat with Doug Field at the AllianceBernstein’s Electric Revolution Conference in London. Now, I’ll turn the call over to Jim Farley.

Jim Farley, President and CEO

Thank you, Lynn. Hi, everyone. We really appreciate you being with us today. We introduced the Ford+ Plan for growth and value creation two years ago, and the investment thesis had three drivers: leveraging our iconic vehicles, our strengths, both geographically and with nameplates; number two, add integrated hardware, software, and connectivity into those vehicles; and then expand the total addressable market and unlocking value with Conquest EVs, new commercial vehicles, connected services, and physical services as well as mobility. So today, I’d like to share a progress report on Ford’s transformation, of course, update you on our autonomy strategy and our announcement and, of course, recap the quarter. Our ambition to be the leader in EV is already taking shape. In our home market, Ford Model e has had an incredibly successful launch of three products. They are now in scaling F-150 Lightning, Mach-E, and E-Transit, and each is attracting, interesting for us, almost all new customers. So, this is growth. We’re now the number two electric brand in the U.S., and we’re just beginning with our scaling. Our decision to create Blue for both ICE and hybrid vehicles has focused and energized our team to leverage what we do best at Ford. We have launched a string of hits that our customers not only love but have lined up to buy, and we have so many more exciting products to come. We have made tough capital allocation and restructuring decisions like the one today, particularly in South America and our international market groups like India. Our results and cash flow have improved dramatically. Our balance sheet remains strong. We ended the quarter with nearly $50 billion in liquidity, even as we accelerate investments in connectivity and electrification. And perhaps the biggest untold story at Ford is that we’ve successfully recruited a roster of incredible talent from some of the world’s best technology companies who are here to ship products and are supercharging our ability to design software-defined vehicles and the software and services needed for the future. At the same time, we still have so much work ahead. Clearly, we need to continue to improve our competitiveness, not just on quality but on cost and supply chain management. Our performance in China and Europe is not nearly as healthy as we’d like it to be. I can’t overstate the sense of urgency we have to address these critical operating areas. I look forward to updating you on future calls. Now, I’d like to share an important strategic shift in our autonomous vehicle strategy. Five years ago, we committed to invest $1 billion in Argo AI to develop autonomous Level 4 technology. In 2020, we completed the transaction that resulted in Ford and VW both owning the majority of Argo at equal levels. We still believe in Level 4 autonomy that it will have a big impact on our business of moving people. However, we have learned in our partnership with Argo and after our own internal investments, that we will have a very long road ahead. It’s estimated that more than $100 billion has been invested in the promise of Level 4 autonomy, and yet no one has defined a profitable business model at scale. Based on the change in outlook and our increasing promise and focus on Level 2+ and Level 3 autonomy, we’ve decided to wind down the Argo business and impair the investment. We’re working closely with Argo and VW on all the details. But here’s what I want to focus on. Advancing Level 2 hardware and software beyond what BlueCruise can do today and ultimately enabling our customers to travel in very large operating domains with their eyes off the road will give them back the single most valuable commodity in our modern lives, time. This has become mission-critical for us at Ford. We’ve deployed BlueCruise on many vehicles across hundreds of thousands of blue zone miles. We have strong technology partners working alongside us. And now, we’re going to bring in several hundred people from Argo, a brilliant collection of minds, who have done wonderful work in the Level 4 space, but their mission now is to help us create a differentiated Level 2+ BlueCruise system. The addressable market is huge, with significant potential for highly accretive new revenue streams tied to Level 3, but at the end of the day, this is about giving millions of people that time and eliminating the monotony of highway miles and stop-and-go traffic. As for true Level 4 autonomy, we don’t expect there to be a sudden aha moment like we used to. Deploying Level 4 broadly, perhaps the toughest technical problem of our time, will require significant breakthroughs in many areas: reliable and low-cost sensing, algorithms that can operate on limited compute resources without constraining the operating domain of an electric vehicle, and breakthroughs in neural networks that can learn to operate a car more safely than a human, even in complex urban environments. The muscles we have built with our new talent in broadly deploying a transformative Blue Cruise Level 3 system will ultimately be essential for the future of accessible driverless vehicles in everyday life. What’s exciting for me is that we are on the cusp of a transformational moment for Ford. We will introduce a lineup of not first but second cycle EVs that are fully software updatable and constantly improving, generating an 8% margin, an amazing array of software-enabled services, not just BlueCruise Level 3, but many others, including video services for safety and security. We are already shipping a broad range of Ford Pro productivity tools and 100% uptime services for our commercial customers. That is a transformation for us. Let me now switch to the quarter. With Ford Model e, we’re on track to reach our annual production rate of 600,000 EVs by the end of next year and 2 million by 2026. I’ll say that carefully. There is no change to our target. We’re adding shifts to the Mustang Mach-E and F-150 Lightings as we speak, and we’re scaling production of E-Transit. In Europe, our all-new EV manufacturing center in Cologne will be complete midway through next year. Our Ford Otosan JV in Turkey is scaling the 2-ton E-Transit and launching a brand-new product, a 1-ton E-Transit custom electric while also breaking ground on a new battery plant that will supply those transits. In September, we started constructing Blue Oval City in Tennessee, where we will build a new generation EV truck and batteries. At the same time, we’ve broken ground on the new BlueOval SK battery plants in Kentucky. We are also further strengthening Model e’s EV supply chain. Our team is making great progress in securing raw materials, especially their processing, and the battery capacity that we need. We expect the U.S. Inflation Reduction Act to positively impact both our customers and Ford. What’s not yet clear is how much the IRA will drive customer demand versus offset our EV investments in growth. Let me touch on some potential benefits of the IRA. The first opportunity is our largest, the battery production tax credit of about $45 per kilowatt hour. From ‘23 to ‘26, we estimate that the total available tax credit for Ford and our battery partners could exceed $7 billion, with a large step-up in annual credits in ‘27 as our JV battery plants ramp up to full production. The second benefit, which is often overlooked, is the commercial EV credit. Ford is the number one commercial vehicle brand in the U.S., and our commercial customers can claim a $7,500 credit per EV they purchase with no restrictions on battery sourcing or manufacturing. Our preliminary estimate is that between 55% and 65% of all our commercial vehicle customers will qualify. The third opportunity is retail. Ford EVs and our PHEVs remain eligible for the $7,500 tax credit until guidance is issued at the end of this year. Next year, we believe we’ll meet the critical materials credit requirement on certain Mustang Mach-E and F-150 Lightning models. In ‘24, the rules will further restrict this credit. For now, we believe there’s a fairly level playing field for all OEMs as our supply chains for critical material extraction and processing in the U.S. develop. The fourth benefit concerns funding growth in our investments, including geothermal energy credit critical for Blue Oval City, and the Department of Energy loans and grants to convert our domestic facilities to produce electric vehicles, battery plants, and other EV components. We’re exploring all these capabilities and possibilities. Last month, we shared new electric customer standards with all North America dealers. This means a single e-commerce platform, ultra-low vehicle-finished inventory, non-negotiated pricing, and fast charges at all dealerships. Early responses from dealers have been very favorable. Many are poised to invest to meet these new standards for electric vehicle customers, while others will opt to specialize in Ford Blue Oval or Ford Pro. There are real rewards for going first. Turning to Ford Blue, we view this business as growth. Last month, we unveiled the seventh generation Mustang and showed the all-new Super Duty in Churchill Downs in Kentucky. These are all well-executed products with incredible technology and upgraded electrical architectures. Our design studio is filled with new products and derivatives that will expand our hit franchises like F-150, Bronco, Mustang, the new Maverick, Explorer, and Ranger, segments where we lead. I can’t wait to show you these new derivatives based on ICE and hybrid powertrains. Finally, let’s talk about Pro. In the U.S., customers trust us with more than 40% of the market for full-sized commercial trucks and vans. In Europe, we’re also the number one commercial vehicle brand, for seven years now, soon to be eight. Businesses of all sizes use Ford Pro’s vehicles and suite of services to lower costs and improve productivity. This includes multi-mix fleets, those that are a mix of ICE and EVs. Ford Pro has the opportunity to grow service and parts sales by offering better experiences like mobile service. We expect to have over 1,200 mobile service units in operation globally by year-end, driving significant dealer parts and service revenue — more than $10,000 per service unit monthly. The real game changer for us in the Pro business, in parts and service growth, is software—software centered on productivity, telematics, security, and predictive failure of all components. In the third quarter, we saw our paid telematics for Pro grow by over 40% sequentially for the third straight quarter. Our suite of Ford Pro software solutions keeps getting stronger as we launch new offerings like Ford Pro fleet and the VIIZR field service management software. But before I hand it over to John, I want to emphasize that we have many challenges as a company, and we’re tackling them head-on. That’s clear from our third quarter results. At the same time, I’m excited about the future we’re creating with Ford+. We’re building new businesses with the best of Ford talent alongside amazing new talent across Model e, Ford Blue, and Ford Pro. We’re strengthening our product portfolio across the board, building on what we think is the strongest portfolio we’ve ever had. We’re tracking towards a global run rate of 2 million EVs a year by 2026, and we’re investing in growth. Taken together, this work statement is nothing short of refounding one of the world’s most iconic companies to compete and win in a new era. There’s no holding back. There’s no looking back. There’s no slowing down. In fact, we’re accelerating our transformation. John?

John Lawler, Chief Financial Officer

Thanks, Jim. When I look at the quarter and our performance year-to-date, I see some real promise. First, our strategic actions to segment and define three distinct businesses—Ford Model e, Ford Blue, and Ford Pro—are truly transformational and already changing how we manage the business. It’s about more than just accelerating profitable growth; it’s also about how we are going to do that by orienting everything around our different types of customers. The separation of these businesses reveals how deeply rooted complexity is in our legacy business and how this disadvantages us in quality, innovation, customer satisfaction, and ultimately, cost and efficiency. We understand the magnitude of opportunity and leverage this will provide across the entire business. Now, we just need to deliver. Second, our product portfolio has never been stronger. Starting with our top-selling first-generation EVs like Mustang Mach-E, F-150 Lightning, and E-Transit to our new category-leading vehicles like Mustang and Super Duty, and popular derivatives like Raptor and Tremor. These are all products that our customers adore. Finally, our capital allocation choices are really paying off. Our sustainable free cash flow generation from our automotive business is improving significantly, even as we accelerate investments in electrification and connectivity. This improvement reflects the tough choices we have made to focus on our strengths, refine our footprint and product portfolio, especially outside North America. Now, let me share our financial results for the quarter. We delivered $1.8 billion in adjusted EBIT, above the guidance range of $1.4 billion to $1.7 billion we provided last month. In automotive, wholesales were up 7% year-over-year; however, EBIT was weighed down by the rich mix of 40,000 vehicles on wheels we had in inventory at the end of the quarter and about $1 billion in lump-sum supplier settlements. The settlements offset costs incurred by our suppliers, partially due to inflationary impacts on labor, freight, and commodities as well as higher costs resulting from our inconsistent production schedule, which has disrupted our partners. Providing greater certainty and schedule stability to our supply base is just one example of the many opportunities we have in front of us as we transform our global supply chain. We’re grateful for our suppliers’ ongoing support and the collaborative approach they are taking to address production shortfalls, while also focusing on improving the quality of the parts they ship to us. In the quarter, we delivered $3.6 billion in free cash flow with strong cash generation by our automotive business, despite the adverse effects of the 40,000 vehicles on wheels. We expect the negative working capital impact of those units to reverse in the fourth quarter when the vehicles are completed and shipped to dealers. Our balance sheet continues to be very healthy. We ended the quarter with strong cash and liquidity of $32 billion and $49 billion, respectively. These numbers include our remaining stake in Rivian, valued at less than $1 billion at the end of the quarter. Now, I’ll touch on the performance of our business units. North America delivered $1.3 billion in EBIT and a margin of 5%. Both measures were driven down year-over-year by higher commodity costs, inflationary pressures, and a diverse mix reflecting the buildup of vehicles on wheels. Our brand strength and order banks remain very strong, and we expect the North American margin to return to double digits in the fourth quarter. South America continues to benefit from our global redesign efforts, delivering strong margins in its fifth consecutive profitable quarter. In Europe, we posted a profit of $200 million. Supply chain constraints began to ease, resulting in sequential wholesale growth of 23%. Our commercial vehicle business continues to fortify its leadership position, ending the quarter with a 15.2% share year-to-date. In China, we posted a loss of $200 million, driven by the investments we are making in electric vehicles. Lincoln continues to be a bright spot for the region, with share improving again sequentially. Our International Markets Group remains solidly profitable, with EBIT margins over 8%, driven by the launch of our all-new Ranger. Finally, Ford Credit delivered another strong quarter with EBT of $600 million, reflecting a more normalized run rate for this business. The anticipated sequential profit decline was driven by the non-operating release of credit loss reserves and higher borrowing costs. Let me now walk you through our impairment of Argo. As Jim highlighted, it’s become clear that the technology required to achieve profitable commercialization of Level 4 autonomy at scale is going to take much longer than we previously expected. Level 2+ and Level 3 driver assist technologies have a larger addressable customer base, allowing them to scale more quickly and profitably, providing accretive annuity-like revenue streams. During the third quarter, we made the strategic decision to shift our capital spending from the Level 4 technology being developed by Argo to internally develop Level 2+/Level 3 technology. As a result, we recorded a $2.7 billion noncash pretax impairment as a special item. Now, let me share our current outlook. For the year, we expect to earn about $11.5 billion in adjusted EBIT, up about 15% from 2021, with a 10% increase in wholesales. We project adjusted free cash flow of $9.5 billion to $10 billion. Our year-over-year basis for our 2022 adjusted EBIT target assumes significantly higher earnings in North America, aggregate profitability in the rest of the world, Ford Credit EBT at about $2.7 billion, continuous strong pent-up demand for Ford’s newest products, strength in pricing, higher commodity costs of about $9 billion, and no further deterioration in supply chain. So finally, before we address your questions, let me provide a quick update on our new financial reporting. We will host a teach-in event early next year to prepare you for the transition to a new strategic organization ahead of our first quarter 2023 reporting. We’ve fixed the date for March. At the teach-in, we will share revised results for 2021 and 2022, reflecting our new segmentation, which we will start using for reporting purposes in Q1 of 2023. This is far more than an accounting exercise; we will reiterate and illustrate the business rationale for the change and furnish you with a full toolkit to help transition your models. So, that wraps up our prepared remarks. We’ll use the balance of the time to address what’s on your minds. Thank you.

Operator, Operator

Our first question today is from John Murphy with Bank of America. Please go ahead.

John Murphy, Analyst

Good evening, guys. Thanks for all the detail. There are a lot of questions. I’ll try to keep it to one here. On the pivot from AV to ADAS or semi-autonomous, Jim, there are a lot of moving pieces here. But some believe they have a solution that’s close to working. I think some of us thought that Argo might be not that far behind. So, I’m curious what changed. And if you think those folks may be misguided in their assumption that they actually have a solution. The corollary to that is, are you going to take this capital, and it sounds like you are, to accelerate your EV and connectivity efforts that will generate profits much more quickly in the near term? How much profit opportunity is there, or is there, around these connected vehicles that you’re seeing with Pro that might spill over into the consumer side?

Jim Farley, President and CEO

Thank you, John. The decision we made to reallocate our capital is strategic. It’s a combination of the margins we’re starting to see on our software, like Ford Pro, which is really the first large shippable software, the usage patterns we’re seeing in BlueCruise, how much people use it and how passionate they are, the confidence we now have in delivering Level 2 and Level 3 capabilities, and the access to public markets for Level 4 funding. The biggest factor is our growing confidence in our talent, both the Argo talent and the team at Ford that Doug is building. It’s that combination, more than whether we are behind or ahead, that informed us of this decision. I think it’s one of the bigger moments for us as a leadership team. We are excited about the software we can ship to our vehicles. We see that in BlueCruise now, in Ford Pro, and other software that we’re in the midst of. Another key enabler is our growing confidence in landing a fully software-updatable vehicle as we launch our second cycle EVs. John, maybe you can speak to the reallocation of capital.

John Lawler, Chief Financial Officer

Yes. First off, we’re not capital constrained. We’re investing our $50 billion, and more, in connectivity and software. We ended the quarter with $32 billion of cash and $49 billion of liquidity. It’s a matter of taking that investment and putting it towards a business we believe will have sizable near-term returns compared to one with a longer arc. That’s the business decision behind it. We will invest in Level 2 and Level 3 technologies, and some of the savings we realize will go into that.

John Murphy, Analyst

If I could just follow up. There must be a high level of confidence that you’re not going to be left behind as autonomy develops over time. Some might say you’re throwing in the towel and can’t keep up. An optimist would argue you have confidence that you can keep up and perhaps surpass the competition over time. How would you position it in that range?

Jim Farley, President and CEO

It’s best for us to hear from Doug. Before we do that, I want to emphasize that a winning Level 4 business focuses on the go-to-market aspects of a consumer-facing service, mapping, fleets, and all the constraints like weather. The investment needed outside of technology is a big factor in our thinking. Doug, how do you see it from a technological standpoint?

Doug Field, Chief Advanced Product Development and Technology Officer

Sure, Jim. As you mentioned, this problem is challenging. It’s the toughest problem of our generation. I don’t view it as capital constraints so much as talent constraints. The constraint becomes how many of the world’s best people can you get on a problem. In many ways, that decision drives what we’re doing here at Argo. We are passionate about the Level 3 mission. We have ideas about how it can work and how customers will interact with it. This is the way we want to use that talent and make a meaningful impact.

Operator, Operator

Next question is from Colin Langan with Wells Fargo. Please go ahead.

Colin Langan, Analyst

Just a follow up on the Argo business. Did you look for potential acquirers rather than take a big impairment? What's your timeline for Level 4? Do you think this is 20 years out? I assume you had some assessment before making the decision.

Jim Farley, President and CEO

Absolutely, we looked at many variables, including access to public markets. The Argo journey included that, but we feel it’s a lot more challenged now. Yes, we explored possible partnerships and funding, but that was among many factors we considered. John, could you discuss our timeframe as a leadership team?

John Lawler, Chief Financial Officer

Yes, Colin. We saw that it would take five-plus years to achieve profitable commercialization at scale for Level 4 autonomy. We see a bigger opportunity to impact more customers immediately with Level 2 and Level 3 technology and positively affect our business in the near-term timeframe.

Colin Langan, Analyst

Got it. If I have a quick follow-up—looking at your guidance, you lowered it at the midpoint by $500 million, but raw materials look like a $2 billion headwind. Can you provide more color on offsets to the headwinds?

John Lawler, Chief Financial Officer

The decline is primarily due to vehicle line mix and currency exposure from the significant presence we have in the UK. The team has been reviewing almost 300 suppliers. We’ve found many non-chip suppliers are struggling to ramp production as the chip crisis eases, which has impacted us in the fourth quarter.

Colin Langan, Analyst

How does that $2 billion relate to pricing and possible vehicle mix?

Jim Farley, President and CEO

Yes, pricing continues to remain strong.

Operator, Operator

The next question is from Ryan Brinkman with JP Morgan. Please go ahead.

Ryan Brinkman, Analyst

Can you dimension for us how much of the $1 billion of higher-than-expected costs actually relate to in-period expenses versus a catch-up of prior period costs? It would help understand what portion should be modeled as a continuing headwind into 2023 vs. onetime in nature?

Jim Farley, President and CEO

We are doing lump-sum settlements so they aren’t baked into piece price. What we provided earlier estimated $9 billion, up from $7 billion last quarter. The $1 billion in Q3 includes settlements for the first half, reflecting several factors. We’ve achieved better clarity around our schedule and stability, and supplier performance suffered from labor shortages and operational complexities.

Ryan Brinkman, Analyst

With the decline in spot prices, are you more confident that commodities will be a tailwind next year compared to non-commodity supply chain costs?

Jim Farley, President and CEO

We are seeing some easing in commodity spot prices, but it’s not meaningful enough to impact Mother. We are analyzing the macroeconomic environment and trying to establish how far things might slow down and whether that will ease commodity prices or logistics chains. We’ll hold off before making any calls on 2023 until next quarter.

Operator, Operator

The next question is from Rod Lache with Wolfe Research. Please go ahead.

Rod Lache, Analyst

Jim, can you discuss vehicle pricing trends? Average transaction prices are up, interest rates are rising, and trade-in values are softening. What are your thoughts on affordability and how these factors interplay with price and volume? Any insights on how much normalization we might see over the next couple of years?

Jim Farley, President and CEO

Early signs indicate demand for commercial and EVs remains strong, with order banks continuing to grow. We don’t see changes in EV or commercial vehicle demand. On the retail side, there’s a slight uptick in long-term financing options. We’re monitoring turn rates, especially for our F-150. Pricing continues to be strong, but I anticipate we will see shifts in mix within profitable segments.

Marion Harris, CEO of Ford Credit

We’ve seen some customers extending financing terms for affordability, adjusting to higher transaction prices and rising interest rates. Customers are trending towards longer-term financing options. Payment trends are starting to affect the market. Some deals are not going through due to changes in payment qualifications.

Rod Lache, Analyst

Regarding your guidance for Ford Credit, it seems the full year's profit has decreased. Where do you expect to end the year in terms of loss reserves?

Marion Harris, CEO of Ford Credit

Our balance sheet is much smaller than in prior years. We’re no longer releasing COVID-related reserves and have returned to normal levels. Lease depreciation benefits are mostly gone, used car values are falling, and borrowing costs are rising, which we haven’t fully passed on to customers yet.

Operator, Operator

Your next question is from Mark Delaney with Goldman Sachs. Please go ahead.

Mark Delaney, Analyst

Could you share more on the timing of bringing Level 3 products to market? Will Ford develop this in-house? Will you leverage any supplier capabilities or input?

Jim Farley, President and CEO

It would be best for Doug to answer this. We anticipate the Level 3 arrival will align with our second cycle of EVs and fully updatable electrical architectures from ‘23 to ‘25. Over this timeframe, Ford will refresh its global EV lineup and develop in-house software for controlling vehicles. We’ve seen great success with over 5 million updates so far to improve our Level 2+ and Level 3 systems. Doug?

Doug Field, Chief Advanced Product Development and Technology Officer

We will leverage capabilities from suppliers for components but will have a core team that integrates systems and understands performance at a system level. We will emphasize owning the software and connection to these vehicles. Level 3 is a connected technology, so we must own the pipeline that collects data and continually improves the system. Creating a unique customer experience in autonomous operation is a major opportunity.

Jim Farley, President and CEO

We’re excited about the Argo team supporting our internal efforts.

Mark Delaney, Analyst

One last question about EVs. You mentioned the benefits of the IRA. Do you think, over the next decade, it will change your gross investment into EVs and how quickly you shift towards EVs?

Jim Farley, President and CEO

It only accelerates our plans. Being a 40% player in the U.S. and the top brand in Europe for commercial vehicles puts us in a unique position. The EV tax credit for commercial vehicles will heavily influence adoption. This will boost our ability to bring new commercial EVs to market at a faster pace. We can’t wait to showcase our second-generation EVs. We expect significant demand stimulation, but operationally, we have to manage how many vehicles we produce for both commercial and retail segments.

John Lawler, Chief Financial Officer

Not about the negotiations, thanks, Jim.

Jim Farley, President and CEO

We’re adapting to new information and circumstances as needed, and we have a solid strategy in place concerning geopolitics and supplier relationships. The ongoing dynamics will require us to consider localizing LFP production in North America, and we have an advantageous tariff structure right now, which should aid us moving forward.

Operator, Operator

This concludes the Ford Motor Company third quarter 2022 earnings conference call. Thank you for your participation. You may now disconnect.