Ford Motor Aktie

All right. Good morning, everyone. For those that don't know me, I'm Andrew Percoco. I cover Autos here at Morgan Stanley. Very excited for our next conversation with Mike Aragon, President of Integrated Services at Ford. So, thank you for joining us this morning.

Yes. Thanks so much for having us, and congrats on your conference. Appreciate it.

Before we just get started, just a quick disclosure here. So please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative. All right. So maybe just to kick us off, you're 18 months into the job at Ford, your career, you've been merging hardware and services and software across various other end markets. Maybe just discuss what you've learned and what you think the market might not be appreciating in terms of the opportunity at Ford when it comes to services and software.

Yes. When I came into Ford, there was -- as I was going through the interview process, especially somebody not from automotive, brand new, mostly from the tech space, one of the things that we didn't -- I didn't see a lot of chatter about was Ford Pro and the fact that we have incredible hardware through Super Dutys and Transit vans that our commercial customers love. But this growing software platform on top of it where we're getting a lot better at taking vehicle signals, prognostics and then closing the loop with physical service, which really adds a lot of value to our customers.

So that was one sort of area that I just felt was underappreciated. And what was exciting to me about that was that's a problem that travels pretty well to the retail side of the business. And so a lot of room to grow as we expand it from just mostly a commercial-focused initiative to more bringing that sort of same thinking and product development to the retail side of the business as well.

Makes sense. And what surprised you the most? Is it the opportunity for Ford on the Ford Pro side? Is it BlueCruise as it relates to autonomy? Like as you really dug into the weeds of everything Ford has built, like what surprised you the most as you really started to do your work over the last few months?

Honestly, the thing that surprised me the most, again, because I was an outsider coming in and a lot of my tech friends are like, "Oh, you're going to Auto," and there's a perception that as a 120-year-old company, where are these companies going, especially with all of the competitive threats and sort of the macroeconomic threats. The thing that surprised me, the pleasant surprise, was the focus and dedication on transforming our company.

We're a 120-year-old company. And so -- and it starts at the top with Jim. I'm sure you've got to know Jim a little bit, but what you see is what you get with him. He's all in on the transformation of Ford because he sees us as this is our ripe opportunity to set us up for the next 120 years. And so it was a pleasant surprise that the company at the top gets it and it permeates down into the leadership team, and so all of my peers on the leadership team completely bought in. So I would say a pleasant surprise just because I was hoping to do that, and that's the organization I wanted to be a part of. But we're doing it. And again, we're doing it with a pretty intense focus.

Yes, it's great. And when you think about executing the growth in this business, I think you guys have disclosed 1.6 million paid subscribers growing at a very healthy clip. How should we think about the true addressable market as it relates to adding these services, both on the Pro side of the business, but also on the retail side of the business? And how quickly can you actually increase that subscriber base? Is there hardware integration that needs to happen? Just maybe talk through the addressable market and what it takes it to get there.

So I want to start with that 1.6 million subscribers, because a lot of other OEMs look at it a little bit differently. That 1.6 million is just customers who choose to subscribe after they purchased the vehicle. There are other ways to look at it. You can look at included with duration as part of that. You can look at trials as part of that. I know some of our counterparts in this space look at it that way, nothing wrong with either option.

We just want to look at early signals in terms of product-market fit. And so we see that as a signal. If the customer has chosen to do this, it's not bundled, a pretty good sign of product market fit. So that's why it's an important metric for us. It's kind of a -- because we have so many products, it's a little bit of a tough question to answer, but I will give you a subset of that answer with a specific.

So with BlueCruise, we have 1.5 million vehicles that have -- that are part of the installed base. And of that, we have 530,000 customers who subscribe through us, and that's growing at about 40% year-over-year. Of that 530,000, 200,000 are part of that cohort I was just talking about, the people who subscribe after the fact, and that's growing at 170% year-over-year. And so what you're seeing and what we're happy about is that indicator, early leading indicators that product market fit is really starting to take on, especially as BlueCruise continues to get better with new features very regularly every year.

The way I think about the -- to answer your larger question, the broader opportunity, our job is to do a few things. One is to grow integrated services. And so you see that -- you'll see that number continue to grow. But if we do our jobs taking all the vehicle health signals, looking at our customer behavior, solving real problems for them on the parts and service side, you're going to see us pull in more of that aftermarket back to Ford, right? A lot of that escapes -- a lot of OEMs have this problem where a lot of that aftermarket escapes to individual shops or some of these larger companies out there that do that.

And so we want to pull that in. But then the third component is, if we do those first things really well, integrated services as indispensable and then pulling in more of the aftermarket, that next vehicle is going to be a Ford vehicle, and so we've earned their loyalty. And if we do those 3 things well, I think the total addressable market as from integrated services contribution, it's going to be a force multiplier for Ford.

And -- so it sounds like the attach rates are pretty healthy on some of these services today. I guess for the people that don't decide to, after the trial period, move to the subscription, whether it's BlueCruise or any of the other services that you offer, what's the reason? If you have any maybe view or insight into like the usage, are they just not using it during the trial period and therefore, they're electing not to buy it? Are they just mostly driving kind of commuting point A to point B where they're not really using it much?

It really depends. It depends on the cohort. General patterns of what we see, maybe you're really rural and you're just not near any BlueCruise zones. So there's just not a lot of opportunity. That's one cohort. And that makes sense for -- you got to -- we serve a lot of farms and sort of very remote locations.

So sometimes that's the case. Other times, yes, you're in cities and you've got short commutes. And so that -- you're not on the highways that often. So there's a variety of reasons. And then sometimes it's cost, especially given where the economy is for some segments of our customers. So it's a little bit of a mix of all of those reasons.

And when you think about -- I think the interesting thing about software is that as long as you have the hardware on the vehicle, maybe the consumer at some point down the road might decide, okay, the technology has gotten good enough.

Exactly.

I want to turn it on and really experience that. How do you think about democratizing the hardware across vehicles? There's an added cost associated with that. You can either say, okay, customer, a, you have to pay for that if you want it or you could say, we, Ford, will bear that cost upfront, knowing that we'll have an opportunity down the road to benefit from that as customers decide to turn on that subscription. So how do you think about that internally in terms of what the process is?

Right now, especially in this environment, it's really important for us to be -- meet our customers where they are in the journey. And we know a lot of -- there's a lot -- a larger cohort of our customers where affordability, that's the #1 factor. And so when we think about some of this hardware, especially the more expensive hardware, we need to keep it affordable on the lower-level trims. And so we don't try to standard -- we don't standardize. We don't try to push that because we want to meet them where they are in that journey.

On the middle and higher-level trims, we see a lot higher propensity or willingness to purchase. And so that's where we try to standardize our software, especially BlueCruise. We also do look at the vehicle trends. And so I have a good example. Ford Fathom is launching. It's a sub-$30,000 vehicle. It's considered affordable. But the cohort of customers that we're seeing that are going to be very tech forward, younger, that have a lot of expectations.

In addition, we are dealing where we have some competition who are a little bit more bare bones. And so we see ourselves in a really good advantage spot here where we are going to make that available to every single vehicle, one, because the customer seems like they're the ones that would want it; and two, because it distinguishes us against from products that are -- don't have quite the number of features that we believe are going to be able to pack into that Ford Fathom for under $30,000.

Yes. It's like a really interesting dynamic in terms of the strategies that OEMs are taking in terms of layering that hardware in versus making it more of a bundle package. And I guess when you think about it, you mentioned the Fathom as being a vehicle where it's going to be standardized. But as you think about the broader integrated services opportunity, whether it's an F-150 or a Mach-E, retail kind of focused vehicle, how do those services -- what's the opportunity? How does it differ across those vehicle types? Yes, If you could just maybe elaborate on that?

Yes, yes. So in the near term, the experience is going to be different between our EVs and our F-150s, and that's actually a good thing for the business. And the reason why is because with UEV, which is Fathom, launching next year, we're launching a couple of things that are homegrown. One is our electrical architecture that's homegrown. So traditionally, we had used multiple suppliers for components like IVI and ADAS and audio, and now we're going to consolidate that into our homegrown platform, single compute platform. So that's great.

And what's great for the customer, from their perspective, what they're going to get a lot more frequent OTAs, a lot more features in general because it's easier for us to do this instead of having to coordinate across a bunch of disparate organizations. And then it's going to feel a lot more cohesive because we're able to think about it as an ecosystem and tie those various components together a lot easier than it is if you have multiple partners doing it. So customer experience is going to be great.

But the thing for Ford and for customers is because we're building this in-house, margin is going to be a lot better. It's a lot more economical for both of us. And so the experience is going to feel -- the margins just improve on that one. I think one of the things I'm also excited about is this new electrical architecture will be on 90% of our vehicle fleet by 2030.

And you mentioned building that in-house versus outsourcing some of that technology. We're going to get into that in a little bit more detail shortly. But I want to ask a little bit about the BlueCruise functionality. I think there's -- at least from our perspective, a very big focus on personal autonomy right now.

Obviously, everything that Tesla has been doing as it relates to FSD. So when you think about the functionality as where it is today, how do you see that road map progressing over the next, call it, 2 or 3 years, whether it's point-to-point, eyes off? Like what are the key milestones that you've really tasked the team at hitting over the next few years?

Yes. To give you a -- to just establish a little bit of a baseline where we are today, even in the 1.5 years that I've been here, it's a product that I would characterize as have gone from good to great. Our recent upgrade is that the vehicles now do auto lane change, and so it's the vehicle making decisions for our customers and just making the ride even more seamless. We just announced this week that we're doing BlueCruise with towing in our F-150 lineup in 2027, so that's another additive feature that's important for especially that cohort of customers.

And so we're going to keep evolving this product based on the use cases of our customers. But one thing that will signal a little bit how we're thinking about this, and this goes back to our in-house ADAS and our in-house electrical architecture, but we recently did a partnership with Apple Maps. As you know, Apple Maps has spent a lot of time and resource making that product a lot better over the past couple of years, and they were really willing to work with us on integrating their maps more deeply into our ADAS systems.

And so from a customer's perspective, what they're going to be able -- they're going to feel is a mapping function that's more deeply integrated into ADAS. It's going to have a lot of better road visibility because you're not just relying on sensors that are looking right ahead of you. You've got now that the maps data that's going to be able to signal where are there chargers, where are there bends in the road, where are actually the off-ramps happening.

And so it's going to feel lot more integrated and seamless to the customer. And so that's -- I can't disclose everything that we're doing today because we are going to talk about a lot of this over the next year before Fathom comes out. But that experience is going to feel just a lot more cohesive and is one thing, especially as we think about those integration points with partners like Apple.

So when you think about the milestones or the progress in terms of increasing that functionality, how much of it needs to be done on a software-defined architecture like what you're doing with Fathom versus the existing architectures? I'm just curious if there's like a tech ceiling for the existing platforms, if it's not on UEV as it relates to autonomy and do you eventually have to transition everything?

Well, this specific example is going to be on 90% of our fleet, which includes gas, hybrid and then electrical vehicles. So the way we've architected, it will be flexible across multiple drivetrains.

Okay. That's an interesting approach because I feel like we do hear a lot of times that you -- it has to be EV native.

It depends on -- yes, there are some ways that you build it that have to be EV native. The way we've built this particular ADAS system, it will be able to be -- it will port to other drivetrains.

Super interesting. And as you think about the other offerings, like what's the most monetizable in the near term? I think we focus a lot on BlueCruise, but I know there's a lot of other things that you work on. So what are you most excited about from a monetization standpoint?

Yes. This goes back to one of the reasons why I was telling you I was excited about coming to Ford and just the whole hardware, software service loop with Pro. I think there's a huge opportunity for us to continue to build that and expand that capability. So if you think about we have hardware, we have my software platform, and now we have a whole distributed physical network where we can actually solve real problems, real physical problems for our customers. And so the way I would think about it is the example of Ford Pro Intelligence, where we're selling a $10 subscription for telematics.

That software is going to be able to tell us and our customers, "Hey, you've got a brake issue that's coming up," flag it to you, schedule that brakes and service part, make sure that, that part is available at the dealer and then fix it for them. And so what you've effectively done is you've taken a $10 ARPU product per month and turn it into hundreds of dollars of aftermarket sales and service opportunities.

And if you think about all the opportunities in different ways you can do that, again, this is another opportunity for us to really grow monetization. You won't see it necessarily in integrated services, but I actually don't care. What I care about is that the LTV of the Ford ecosystem gets better, and that's where you'll see those types of wins.

And you mentioned there a little bit the unit economics, obviously, quite powerful when you think about the total ecosystem. But maybe help us frame how the unit economics vary across offerings, whether it's BlueCruise, Ford Pro services and really what you see as like the pricing power of some of these offerings as they continue to improve in their functionality over time.

Yes. I can't give you, Andrew, too many details about the profiles of some of the unit economics. But what I can tell you is that our margins are very healthy. They are very much in line with what you would expect in a SaaS business. Contribution margins are over 50%, and our ARPU for both a blended Pro plus retail is $14 a month. And so our job is to keep those margins up and delivering products so that our customers are sticking with us, which then drives the LTV of the product over time. And so that's the sort of the playbook that we're operating under.

And when you think about the ARPU trends over time, like what have you -- what are customers willing to pay for? And what do you think is just becoming a more standardized just expectation when going and buying a vehicle? And how do you expect that to evolve over the next 3 to 5 years?

I think a really good example that's super crystal clear to all of us at Ford that customers are willing to buy if you're solving real problems. So as an example, our fleet management software for Ford Pro effectively helps our customers run their fleet, schedules their drivers, make sure that it's getting maintenance when it can, flagging pockets of vehicle health and solving those problems beforehand. And our customers are willing to pay for that clearly. So that's sort of an easy answer to that.

I would say on the retail side, it's a little bit more nuanced. The signals that we see on what customers are willing to pay for are when they use the service early and often, you see them use it for a lot longer. They're sticky. They end up using other parts of the ecosystem. And so for us, that activation moment and getting them to continuously use their products is a really important element for us. But that's how -- yes, that's the willingness. It kind of depends on the different cohorts, but it's solving real problems for our customers.

And when you think about the selling aspect of this business when it comes to informing dealers how to sell these products. It's obviously very new. You mentioned it's an industry that's been around for a long time and really haven't seen that much innovation on software and services. So how are you working with the dealer network to make sure that they know how to sell this product so that what you are building internally is appropriately getting advertised to the market.

I've never had a dealer network like -- I've never had a distribution path like this in any of my career point. So I actually saw it as a gift just because they're the ones that are shaking the customers' hand and have that relationship. But Ford has a culture where our partners, our dealer partners are extremely important to us. And so I spend a ton of time with them. I probably spend at least a couple of days a month with dealers, either speeches or Gembas or just being in the shop with them and learning from them.

But I would say that one of the ways that we think about education, to me, that dealer experience is so critical to us because it gets the customer activated. There's a trust that's been developed over that sales process. And so we spend a lot of time using technology to train our dealers because a lot of our products change regularly. So you have to scale communications. And we build tools so that as you're closing the deal and offboarding them into their vehicle that they go through and activate the services.

Because we know that when you activate early and often and they use early and often, they end up sticking around for a lot longer. It's just a concept that you see in a lot of digital products, no different for Ford. And so that's why we don't see them as just this distribution path. We see them as a critical activation partner and spend a lot of time making sure that they're compensated, that they've got the right tools to do it and that the customers leave the lot, knowing they've got a lot of great -- both physical and digital technology that's at their disposal.

Yes. It's an interesting dynamic because I even see it personally in my life where like people who haven't experienced this on the retail side, some of the offerings that are available on the market today when it comes to autonomy, even if it's just L2 today, as soon as you try it, you want to use it and you want to buy it. That's the moment.

And that's the thing that's not scalable going back to BlueCruise, that moment where you take your hands off the wheel to us, like we've used it, okay, we're sort of conditioned to it. But I've seen a lot of -- been in a lot of Gembas where the salesperson is telling, "Go ahead, take your hands off the wheel." And they're like, "I don't know," they're kind of gripping and they do it, and there's like an aha moment there. And so the best way to scale those aha moments, you can't do them on a YouTube video. You've got to do it in real life, and our dealers are best equipped to do that.

It's got to be something that you experience. I agree with you. You see a TV advertisement about it. It doesn't do it justice relative to actually experiencing it.

And we see that as well.

Yes. And I want to go back to something you mentioned in terms of build versus buy. How have you -- when you made the decision to build in-house versus buy something from a partner, what does that decision look like? And what ultimately do you want to own in terms of customer experience versus outsourcing from a capital efficiency standpoint to make sure that you're scaling this as capital efficient as you possibly can?

Well, what you just said at the end is the sort of the magic quote, which is we -- Ford will own the customer experience. That's first and foremost. And there are examples where we decided to build because we needed to own that customer experience better because we wanted to get features out to our customers faster. We want it to be simpler and for it to feel like not a bunch of disparate services, but for it to feel like an ecosystem, which is why we've decided to build our in-house electrical architecture.

So that's an example of a build internally to do that, plus it's more cost efficient. But we also look at where pockets of value are. And our Apple Maps partnership, a great example where they've spent a ton of time over the past couple of years making that product even better. And they were very willing to work with us as the first OEM that they partnered with to take that map data, integrate it into ADAS, integrate it into our IVI so that it does feel from a customer's experience, one experience and not 3 different experiences like it does on other platforms today.

And so that was an example where we wanted to take the best of the best with a great brand, do what we know best, which is build products for our customers and own that customer experience, and that's a partnership example. But the one thing that we won't ever compromise on is owning the customer experience. We want people to know that this is a Ford customer experience.

And I'm assuming that's especially important on the Pro side of the business as well.

Exactly.

The fleet uptime matters a lot and you want to own that experience. And I guess when it comes to that, you already, I think, emphasized the life cycle, how important it is to own that. But I'm curious if you have any data points that you can potentially share in terms of people that are using the Ford Pro software, Intelligence services, what the retention rates look like relative to someone who isn't using it. Any KPIs that you could potentially share in terms of the success rates that you're seeing once someone adopts that technology?

We are seeing very, very positive signals that the more you use Ford Pro Intelligence, you come back to us for parts, you end up being a stickier customer in the ecosystem. And we believe that, and we know that so much that Alicia Boler Davis, who runs Ford Pro, she and I both joined around the same time outside of Ford.

When -- to give you a little bit of history of how we went to market with this product, Ford Pro would sell the hardware and then my team, we have like a SaaS sales team. We would kind of come in over the top and say, "Hey, do you want to buy some software?" And Alicia and I, that got us to 900,000 subs, that's growing. But one of the things that was puzzling to Alicia and I is why are we battling out with other SaaS businesses, software-only companies?

We have a strength. We have Super Dutys that our customers love. We have the software platform, and we have a very well-connected physical service footprint that we can close that hardware-software service loop. And so instead of selling software, we said we need to sell solutions to the ecosystem, how can we lower your total cost of ownership. We're the only ones that can do that because we've got all 3 of those components. How do we guarantee uptime so that your vehicles or your assets aren't down, you can continue to make money.

And so we've shifted that conversation because of the stickiness, because of what we're able to offer. We just executed that reorg. So now my sales team is part of her. She owns go-to-market, and that's the right thing to do because they're coming to us for our hardware first. And it's early innings, but there's a lot of upside for us to make sure to come with a differentiated sales proposition that nobody is really doing today that only we can do.

Okay. We're looking forward to hearing more about that over time. Maybe shifting gears a little bit in terms of AI integration outside of the customer-facing software and services, how is Ford adopting AI inside the organization to either improve productivity. But also, I think the more interesting potential angle here is from a product innovation standpoint, I think there's a lot of eyes on how impressive China has been in terms of how quickly they've been able to innovate and bring products to market. So I'm curious how Ford is really bringing AI into the organization to potentially help improve that part of the business.

So about 4 months ago, Jim Farley asked me to co-lead our enterprise AI initiatives, not just what's in vehicle, but what's in the employee base. And one of the shifts that I've taken the company on in our strategy is let's focus on a bunch of scattered pilots and just experimentation with AI to really thinking about 2 layers. Layer #1 is our employees. We've got a large employee base. And so what we want to do is get them the right tools for the jobs that they're doing. And what we care about, we care about tokens and usage and all that.

That's -- those are important because obviously, there's economics involved with that. But what I'm trying to do is map where all of our employees are in the maturity curve and help them graduate up that maturity curve over time through training, better tools. And so as an example, we know that there's large cohorts of our customers don't use AI at all, all right? How do we get them to prompt? The early prompters, how do we get them to actually start to use some agentic AI capabilities that we've built in-house so that we can make their job easier.

And for those who are even higher on their maturity curve, how are you redefining your workflow so you can become more efficient? That's -- and then adding AI on top of that so that you can really be a force multiplier for your job. That's layer #1. But the layer that I spend most of my time on are our transformational bets. So these are big bets that Jim is very deeply involved in that we believe can help us bring products to market faster to reshape our factories so we can not only build vehicles but build even more complex physical products like batteries and share those learnings in real time.

How do we build a product like Ford Energy native, AI native from the ground up because we're unencumbered by legacy systems and thinking. We can actually literally act like a start-up out of San Francisco. And so those are the big bets that we're working on. And those are really meant to use AI as a tool, but to use that tool to help Ford transform the way we know we need to do business for the next 120 years.

And would you say there's reception inside the organization to adopt some of these tools? Where are you in terms of like implementation?

There is. So we've defined all of these big bets. We track them -- we track the employee usage every month, but we -- on the bigger bets, the ones that are going to transform Ford, it is Jim-led. I support him on this one because it needs to come from the top. But we're already moving on every single one of these initiatives, and we have a commitment that every single Board meeting, we report up to them what our progress is.

And our goal is every single meeting, every single week, there has to be a step change in how we redefine our data set, how we redefine processes and flows to take out all the inefficiencies now that you have -- AI is a polymathic tool, right? It is polymathic meaning it knows a lot of things very wide. It knows a lot of things very deep.

And so if you -- now that we have that tool, we have to redefine our processes to leverage that tool so that we can move towards outcomes that we care about like how do we get some of these really great concepts to customers way faster than we have in the past. And so that's how we're thinking about it.

That's great. And you brought up energy storage. Ford's energy storage business has garnered a lot of attention over the last few months. And I'm curious how you envision that side of the business and the services opportunity, both from a physical -- almost like a Ford Pro basis where you're monitoring the battery, making sure it's operating efficiently, but also from a pure software basis where whether it's at a data center, you have to manage load fluctuations. I'm just curious like how much of your time is being spent on that side of the business?

A lot of my time because it actually crosses over 2 of my jobs, Integrated Services and AI. So in Integrated Services, we've built years of knowledge and expertise in how do you remote monitor assets? How do you detect problems and then solve them through dispatch? And if you think about the physics of the problem, which is -- you have thermodynamic problems. You have vibration sensor problems. You have voltage monitoring. The problems arise. How do you dispatch the right people at the right time to make sure that these things don't become major problems?

Well, that problem travels extremely well, whether you're an Mach-E battery -- Lightning Mach-E with a battery or if you're an energy cell system. And so what I'm excited about is we're taking all of the learnings that we have and applying that to building that software layer on top of Ford Energy. And the way I see it is this solves real problems for our customers. A lot of them are entering into 20-year service agreements.

And so what it turns our business into -- from is a transactional business where we sell energy cells to now one where we sell effectively hopefully a 20-year annuity on services on top of that so that we can help our customers maintain that asset and make sure that they're getting the highest ROI out of what they purchase from us. And so early innings. The other cool thing about that is because this is a brand-new business.

We are taking a very AI-native approach. It's literally a small team of me and a few of my product leaders from that -- from Ford Pro Intelligence that are building out the product requirement documents and the architecture. We're seeing prototypes in literally hours and days. It's a lot of fun because I feel like we are working at Big Ford, but we also get to act like we're in somebody's garage in Santa Clara, California, building a start-up.

And so it's kind of a cool way to mix my old world with my new world and hopefully do something for Ford that -- and I hope a couple -- in a year or so, you guys can say, "Wow, these guys did this and they did this AI native and they did it super fast." And so I love being a part of something like that.

That's awesome. And I guess on that, if we're sitting here in 4 or 5 years from now and Integrated Services is a massive success, what do you want to be telling everyone in the room in terms of what you've been able to achieve and how that's fundamentally changed Ford's business?

Yes. I think for us, it would be that I look at always from the customer's perspective that they would see us as they don't see the seams of Ford anymore. They walk into a dealer, the dealer already knows who they are, the problem that they've got. They've already staged the vehicle part and the right technician to fix it. And what used to be a 3- or 4-day problem with a vehicle, it becomes a half hour problem because they already got it.

They diagnosed it. They know what they got to do. Bay's sitting, they're ready to go and the technician is ready to go. And so eliminating those seams is how we want this Ford experience to be. And not only that, but we want it to feel like it gets better over time because OTAs have gotten better. We're upgrading BlueCruise and all of our digital products. And so it feels like you own a Ford, we know who you are. You don't feel the seams of Ford. And I feel like this vehicle that I paid X amount for, it just gets better over time.

That's great. Well, looking forward to that discussion in a few years and wishing you the best, and thanks for coming.

Yes. Thanks, Andrew. Appreciate it.

Okay. Great. Thank you, everybody, for joining. My name is Mark Delaney, and I have the pleasure of covering Ford for Goldman Sachs. I'm very pleased to have with me again this year, Mike Aragon. He is the President of Integrated Services. Thanks for joining us.

Yes. Thanks for having us back. Appreciate it.

Well, as many of you know, Ford is one of the leading auto companies globally, about $190 billion of annual revenue. Ford's auto business reports in 3 segments: Ford Blue, which is the segment for consumer, ICE and hybrid vehicles; Ford Model e, which is Ford's consumer EV products business; and then Ford Pro, which is the company's business for commercial and government customers across powertrains.

Mike, of course, leads the Integrated Services effort. So I wanted to start there. And Mike, you've been in that role for about a year. How has the software and digital services strategy evolved over that time? And what have you learned that has shaped the strategy?

Yes. So I would say that there's two big shifts in terms of how we've been thinking about our digital products across Ford. And the first shift was really around moving from a collection of individual products to more of a connected system.

When I got to Ford, the way we had structured our go-to-market and our product teams is we all focused on specific products to go to market. BlueCruise had a team, FPI, Ford Pro Intelligence had a team. And that made a lot of sense at the time because these products are obviously very different from each other, and we wanted to build a ton of momentum to get there.

But there were a couple of things that I was pretty excited about when I got to Ford a year ago that just from -- coming from the consumer product side that were real tells for potential success. One was an installed base of active customers that was growing. That was great. An app that was gaining a lot of usage on a daily basis, not just for simple features, but customers were using it more and more as a daily habit, which is a benefit.

And then we were getting a lot better with vehicle health data and being able to take those learnings and apply it to help our customers' experiences get better over time. So I felt by not looking at it more as a cohesive system, we were leaving a lot of value on the table for our customers. And so that's the first step is connecting those dots for our customers so that the product feels like it's getting better for them over time, and then it feels like one cohesive thing.

The second shift is -- leans into one of Jim Farley's edict around no boring vehicles. For us, that means building no boring digital products as well. And the philosophy that we brought in when we think about this is we look at customer behaviors and how they use our products, and there are four main pillars of how our customers interact with the Ford ecosystem that would be hardware and software together. And that's build, thrill, adventure and elevate.

And just to give you a sense of what that means in plain English, a couple of months ago, I was out in the middle of nowhere. I was in Quartzsite, Arizona, doing a gemba, which is just being with our customers and learning about the processes and how they use our services. And I was there with F-150 Raptor enthusiasts and Bronco enthusiasts.

And the conversation wasn't around hardware or software specifically. It was around using our mapping application, onX, so that we can trail map and connect with friends and make sure that we are flagging potential issues in the trail. It was about the importance of connectivity, especially out in the middle of nowhere, for this adventure cohort that we were talking to. And then it's also about how we were using Pro Power Onboard and using it for all the equipment that we had with us on the site.

And so for us, it's not about generic products. It's really about building a software layer on top of the vehicles that our customers already love and that they do amazing things, and it's making that feel like it's one system.

Very interesting. Well, you talked about a recurring flywheel for this business. Can you talk more about Ford's flywheel for those that may not be familiar?

Yes. So for us, the flywheel is composed of four components. It's scale, activate, engage and monetize. And there's a lot of different definitions the company use for flywheels. For us, it just means a series of actions that you can take that should compound over time.

And so it starts with scale, and that's scaling the amazing hardware base of 14 million vehicles that are connected and customers are using on a daily basis. And so it's about making sure that we have the right hardware, digital hardware to enable digital solutions like BlueCruise or connectivity. And we're making sure that it's for the right customers at the right time.

The second piece of that is activation. One of the important elements that we've seen in our data is that you've got to leverage that opportunity when the customer is at the dealer to get them activated into the service, get them on the app because that app is becoming a much stronger conduit for us to be able to connect hardware, software and then the service platform through our dealers. It's about getting them the education that they need to know that they've got all of these great digital products and to use them because we know that early usage leads to a lot longer -- a lot higher engagement, which is the third part of the flywheel engagement.

And so the philosophy we have with that is we want to make sure that we are delivering indispensable experiences. We're upgrading a lot over time. OTA is becoming a much more important part of what we do and focus for us because we want the products to feel fresh to our customers and to engage them.

And we focus a lot on engagement because my team is focused mostly on leading metrics. And we see engagement as a leading metric into the future. If we just focused on subscriptions, that's more of a rearview looking thing. It's great because it generates revenue. But the mentality that we have is let's focus on leading metrics. And we focus on those right leading metrics, it's going to lead to the outputs like revenue and subscriptions that we want.

And so I think we talked a little bit about this last year, but you know that I spent a little bit of time at Amazon. I was at Twitch. We were an important part of the Amazon ecosystem. And the reason why I'm bringing that up is because at Amazon, we knew with mathematical certainty that if you were a shopper and your shopping started to taper off and you were using the 2-day shipping, that you were probably going to churn out. But if you were a shopper, you're using that entitlement, but you're also using your Twitch entitlement to get Fortnite loot for your kids or you're watching movies on Amazon Prime, that you tended to be a lot stickier. And then on top of that, you spend a lot more money, LTV went up.

And we're starting to see -- it's early innings, but we're starting to see a similar behavior and pattern at Ford. You don't use BlueCruise early on, high likelihood of churning out. Use it early and often, you don't. And if you start to use other parts of our ecosystem, you become more sticky. And so we've really focused on how do we make this feel engaging and driving that across our platform.

And then the last piece is monetization. The monetization piece is important for us. Obviously, the more we learn about our drivers' behaviors, the vehicle health data, maybe we can upsell you to digital products that you don't have. But another important element of this is from the Integrated Services perspective, the indirect revenue that we can drive as well. So if we can take a vehicle health alert, translate that to service, that's revenue for FCSD, our customer service division, which is great. But it's about driving that lifetime value for Ford and building the economics from there.

Anything in particular that you guys look at when you are trying to assess that early engagement? Is it usage of these features, app downloads?

Yes. We look at how quickly -- time to a specific action. So time to your first BlueCruise engagement, time to your first connectivity engagement. And what we're trying to do is figure out what are all the bottlenecks in that, what are all the complications, how much friction is in the process. Because, again, if we can get you to that thing as quickly as possible, then we know that we've at least got you engaged on the product that you've purchased. And then hopefully, that leads to longer-term engagement over time. But it's time to whatever product that you've subscribed to, and we're trying to always make it as seamless and take out as many unnecessary steps as possible.

You said when you were at Amazon, if people only use free shipping, they were at risk of dropping out. I mean, are there similarities...

If your shopping tapered off, yes.

Any similarities you're seeing with Ford? It's like, oh, if they're using two of the digital services, they're sticky?

Yes. You don't get engaged. So you've got BlueCruise, and we just didn't do a great job at the dealer side. People tend to forget about it. It's fresh. You've got all these other great bells and whistles in your vehicle. And it's just not there. It's not interesting to them. So we -- but we can see a correlation between really, really good training at the dealership side, early activation and usage, and then engagement that leads to a much stickier customer.

Okay. Traditional auto OEMs historically struggle to create large software and digital services businesses. Maybe help us understand why you think Ford's strategy will be effective?

Yes. I agree with the premise that we've struggled with that. And I think maybe one of the root causes, at least from my perspective, is that we have treated it like a separate add-on or an accessory rather than one ecosystem that should all work together more seamlessly. For us, the mindset that we bring into this is we have this, again, 14 million vehicle installed base that, if you're any other consumer product company with a customer that keeps this thing for a long time, uses it almost every day, that's a huge asset. So why aren't we building on top of that?

And the three things that we build on top of that are indispensable experiences. So BlueCruise has got to feel like it's continuously getting better. Since I've been there, we've moved up several -- had several upgrades to BlueCruise. That's gone from a good feature to now a really great feature with auto lane change. We spent a lot of time again on the app, which might not sound like the most exciting thing to do. But what the app has enabled us to do is connect that hardware experience with the software experience with the dealer experience to make it feel like one.

And then the last piece is let's lean in more in terms of all the great vehicle and driver behavior health data that we've got so that we can flag issues, anticipate issues and solve real problems for our customers. Because one of the strengths that we see, Mark, is if we can close that hardware/software service loop, that's going to drive a lot of benefit for us, but also for our customers.

Are there differences in your approach to building this business in the U.S. compared to internationally?

What I would -- yes, what I would say our general philosophy for product management, digital product management is we build for global, we want to scale for global, but we execute our go-to-market locally. And part of the reason why we do that is because in Europe and Asia, there's regulatory differences. The vehicle mix is very different, the driver usage behavior is very different. So you can't copy exact, the U.S. or North America strategy there. But we try to build our products to be as scalable and global as possible. That's number one. I would also say that, just to give you a sense of the business, because we are driven by installed base and our installed base is strong in North America, our business tends to gravitate towards that as well.

But what I can tell you is that our most mature business internationally is Ford Pro Intelligence. And the reason why is if you think about the customer problem, what are we trying to solve? We're trying to make sure that the fleets are -- there's uptime, right? We want to guarantee uptime. Total cost of ownership is really important. Our fleet customers want their drivers to be safe and the people around them to be safe. Those problems travel really well. It doesn't matter if you're here or if you're in Asia. Like those are problems that customers have across the board. And so that one has been the most, I would say, mature of the Integrated Services portfolio internationally.

Very helpful. Maybe we can dig more into the opportunity with autonomy. I think the company said BlueCruise-equipped vehicles on the road increased 70% to 80% year-on-year in 2025 to about 1.2 million globally. Maybe help us understand out of the 1.6 million total subscribers the company talked about as of last quarter is coming from those BlueCruise users?

Yes. So let me start with the installed base. So the installed base was 1.2 million, as you said, last year. It's now grown to 1.5 million as of right now. So it's continuing to grow.

The 1.6 million customers -- and I'll just be clear because different OEMs report this differently. That is just customers who are paying after the purchase. So these are not included with duration. These are not free trials. This is -- who have decided to pull out a credit card for a retail customer. If you're a Pro customer, you're paying for it after the vehicle purchase.

So we have 200,000 BlueCruise customers out of that 1.6 million after paid subscribers. An interesting point about that 200,000 is that's grown 170% year-over-year. And we like that number, and we track that number. And part of the reason why we look at the 1.6 million number differently than other OEMs is because that's a good signal of -- we think it's one good signal of product market fit. Meaning, if you're deciding to purchase this product after the fact, look, that's a pretty good sign that just bundling in the vehicle may not have as much meaning. But this is a good clear signal on product market fit, which is why we look at it that way.

And that 200,000 BlueCruise number is out of a total customer base -- BlueCruise subscriber base of 530,000. That 530,000 has grown 40% year-over-year. So hopefully, that gives you a big picture of autonomy and how all the numbers work together.

And so that 530,000 would include people who buy as far as their...

Included with duration, yes. It doesn't include -- no trials. I know other OEMs kind of bundle the whole thing. That is just customers who are paying either through your credit card after the purchase or it's included with the duration of the vehicle.

Makes sense. We're hearing a lot more about how important this feature is to vehicle purchasing decisions. Some of the OEMs in the industry have now started to say that this is the main reason they think they're seeing people choose to buy their cars, or maybe not. Can you tell us more around what Ford is seeing? Are there certain digital features that consumers are saying this is why I bought from Ford or maybe I didn't buy from Ford?

We're seeing similar behavior. I think the stat I just gave you on BlueCruise growing at 170% year-over-year is a pretty good indicator that, that's a purchase -- powerful purchase decision for the retail customer.

On the Pro side, I've seen, in my little over a year here, an evolution in the conversations that we're having with customers. And it's shifted from tell me about the cargo bed size, tell me about the towing capacity, horsepower. Those are all still really important. And it's that plus, help me understand what the fleet management software portal looks like. Because you're so deeply embedded in the vehicle with data, tell me about the controls that we're going to be able to have that no software-only company is going to be able to do. It's those -- and tell me about total uptime that we can drive. It's those types of questions that are important.

And so the -- on the Pro side and retail side, what we're seeing is that hardware is going to continue to get people in the door. They love the Ford brand. This is what they want. That's great. But software is becoming a much more important factor in actually closing the deal. And maybe tipping the scales, depending on how we do it.

Well, it just speaks to your approach around offering the products as a compliance solution rather as disparate offerings, either as digital services like specifically or even kind of at the point of sale. How are you working with the dealers to kind of drive those software sales? I mean, it sounds like they're the ones having some of these conversations rather than...

I spend a lot more time with the dealers than I ever thought, in a good way. They're starting to see it. When I first got to Ford, there's a little bit of skepticism. I mean, this is a new muscle. It wasn't a ton of money in the grand scheme of Ford, right, for them. But that -- the spiffs that we've been paying out, the money they've been -- being able to earn because of our growth, it's become a much more important part of the business, and they're very excited about it.

And so we work with them in multiple ways. We try to figure out how do we motivate the salesperson to do the right thing. We've built technical tools. We have this -- not to get too technical, but we have a digital delivery day tool that is a component or a companion for the salespeople so they can go through the checklist and make sure that you're touching off all the key points of what the customer is subscribing to.

But now that our app is becoming even more valuable to our customers, there's a lot of education tools we can build right into there. And so we want to hit them in multiple spots. The dealer is important because there's a trust factor that's been built up with the salesperson. But we have this app that's growing in terms of daily usage with a lot of people that we have another opportunity to sort of two bites at the pie, right, to get that right education with them.

But it is about motivation. It's about the coaching. We are starting to scale a lot of our education tools for them. And so the dealers have been a very important part of our journey.

As the included purchases of some of these features roll off, maybe it's autonomy, maybe something on the Pro side and it comes time to kind of drive that follow-on subscription, that 1.6 million number we were talking about, is that something that comes from Ford? Or is that coming from the dealers?

Well, good question. Right now, it's mostly coming from Ford, but we want it to be a team effort, right? If you're -- and this is the reason why we spend a lot of time on the unsexy back-end stuff like connecting the dots between our data and the dealer data because we think we can do a great job doing -- capturing that customer. But if you're going in for an oil change and you flagged in the dealer tool that you're up for -- your BlueCruise is up for renewal, Mark, would you like an offer here and extend that? We want to make sure that we have -- they have that capability as well. So we see it as a team effort because they are building that trust relationship with the customer. And so we want to make sure that we give them the tools to do that.

Very helpful. Maybe talk about Pro. I mean, subscribers there grew about 20% to over 900,000 last quarter. What are some of the key applications underpinning the 900,000 that you're seeing really lead to that adoption?

Yes. So we have four main underpinnings, starting with data services. So think of data services as raw data that we feed to our partners through an API. They can put it in their own systems. They can do whatever they want with it. Then the next level is telematics. And that's the raw data plus insights, so vehicle health data, how the driver -- driving behavior. And think of that more as insights or a dashboard into kind of what's happening.

Then we have fleet management. And this is a portal where we enable our customers to manage their fleets, manage their drivers. It's a bit more robust of an offer to help them manage the overall fleet. And then we have managed maintenance, which is us going in and proactively finding potential issues through our telematics data, scheduling it for them, actually bringing out the mobile units to help fix the problem.

So it's -- if you think about our customers, that's not their core competence. Their core competence is probably plumbing or homebuilding or whatever that is. But that is our core competence. So it takes a pain point off of their plate and allows us to kind of do what we do best, which is let's manage this fleet and keep it up and make sure that they're able to drive revenue from it.

Helpful. 20%, obviously a good number. So I'm not trying to pick on 20% year-on-year growth, but the rate of subscriber growth in Pro has been moderating somewhat over the last several quarters. Are you seeing any constraints that's limiting the growth rate of Pro subscribers? And anything you see that could cause that number to reaccelerate?

Yes. So we have a new Pro President, her name is Alicia Boler Davis. She and I both started around the same time. And prior to us both getting to Ford, Pro had a hardware sales team, and then my team had a software sales team. And that worked, got us to 900,000 subs. So customers would go in and buy a vehicle, we would come in after the fact most of the time and sell software. That worked up until a point.

But the shared vision and promise that Alicia and I both saw was, gosh, we have this amazing hardware. We have brands like Super Duty that our customers love. We have a service platform through our dealers that covers large swaths of geography around the world. That's another strength that a lot of other people don't have. And then we have this growing software base.

And so from my perspective, I was thinking, why are we battling it out in the SaaS sales space against software-only companies? Like why aren't we leaning into the fact that we have hardware, software and service, and we can close that loop for our customers? And so a couple of months ago, Alicia and I just affected a reorg where I took my sales team, put it under her, with the strategy of going in once to a customer.

And yes, we're going to talk about hardware, we're going to talk about software, but it's really about what problems are we trying to solve? Uptime, total cost of ownership? Do we want to take some pain points off your hands like managed maintenance? Well, we can do all that for you. These software-only companies can't do it. Other companies that don't have as broad of a service base can't do it.

And so let's sell a problem, and let's solve problems that only we can solve in a differentiated way. Mark, it's still early innings, but I have a lot of hope for that because this -- it makes total sense for us. It's something -- it's a moat that we have that others don't have. And so I think that's going to unlock a lot of value for us over time.

And I guess another example of the benefits of bringing a combined hardware/software services solution rather than one point product, it's not like autonomy or something like that, that unlocks more. It's just how you go to market as opposed to...

Yes. And I think it's also indicative of the team that Jim has built where he's really instilled in us, like let's think enterprise first. And sometimes I have to give something up to another team to make it better. But our main goal is lifetime value of the ecosystem. And if that goes up, we're willing to take a hit as long as that -- the overall pie goes -- the pie grows, and we're able to drive a bigger business for Ford and to solve real problems for our customers.

Well, speaking of the business, let's talk ARPU. Over the last couple of years at this conference, we've spoken around ARPU of the Pro business, and we talked about that approaching $10 per month at one point. Maybe could get an update there, broaden out the conversation as well? How should we think about ARPU overall? And how would that maybe split out between commercial and retail?

Yes. So we talked about $10 ARPU for Pro. And the blended ARPU for both Pro and retail is now $14. And so that's a number we track, Mark, very diligently. It's a number that's important to us, and we're going to continue to keep looking at it.

But to just keep jumping on the LTV piece, that's a number that I'm actually even more excited about over time, especially as we evolve and get smarter about it. And the reason why is -- let's take an example. We sold the customer a $10 telematics software subscription.

But now we're able to see a potential break issue, alert the customer, schedule the service with a dealer, fix the break, fix the part, capture that revenue and service revenue. Well, we just turned a $10 product into a several hundred dollar higher-margin revenue stream in other parts of Ford. And so that's the force multiplier for me. So if we can keep doing that, yes, this is great and ARPU is really important, but I'm really kind of focused on, all right, how do we now start to connect the dots to other parts of the business so that it can grow.

Very interesting. The $14 that you said blended, any big differences across commercial versus consumer? Or are they both sort of in that ZIP code?

They're both in that ZIP code.

Okay. And then just to make sure we're kind of talking apples-to-apples, that's relative to that 1.6 million number of people paying after the fact?

Yes.

Okay. All right. Very helpful. What drove that increase from $10 to $14? Was it new features, just kind of general increases in price per product?

Yes, new features. Yes, it's just -- with -- on the Pro side, it's increased. As we move up the chain, obviously, you go from data services to managed maintenance, those are higher ARPU numbers. But -- and then as BlueCruise has started to take a little bit more weighting in the ecosystem, that's also driving up the retail side as well.

Okay. Well, it's a TMT conference, let's talk AI. And Mike, you had a blog post on the AI assistant that Ford unveiled at CES last year, and that was great. So thanks for having me in your CES session. Maybe talk more about why Ford decided to build its own AI assistant, and what are the key features of this offering?

Yes. So we -- it goes back to that engagement piece of the flywheel. We launched it in our app first for both Pro and retail just because it is starting to become a utility that customers are using on a daily basis. So that's a great start, and we will launch it in-vehicle eventually.

But I think for us, the reason why we did this is if you think about LLMs, of course, they all do great things. But what do we have that they don't have? Well, we have all the vehicle health data. We know the trim, make, model of your vehicle. We know who you are as a driver.

And so to just give you an example, I saw on Reddit -- gosh, it was a few weeks ago, somebody was talking about this. And they went into -- it was either a Costco or a [ Key ], they're going to buy a couch. And they had an F-150, they weren't sure if it was going to fit. So they took a picture of the tag, said is this going to fit in my F-150? Well, ChatGPT wouldn't be able to answer that because it doesn't know your specific trim. But they were able to answer that and then end up fitting perfectly.

If you're a Pro dealer, one of the cool features that you can do or just questions that you can ask is questions like, I've got a 50-van fleet. Tell me which ones are the most egregious offenders of just raw idling, because I'm wasting a lot of fuel. Who's the safest driver? And then it will actually be able to take those insights and drive something towards them. So it will give those drivers coaching, it will help them understand exactly what they need to do to save money.

And you can ask it, track it over time. Tell me if there's actually -- the metric is getting better for me. And so we've turned an LLM and made it more relevant and contextual for our customers, and that's the reason why we did it.

You asked about monetization. Right now, it's all part of the packages that we sell with our customers. There's no specific extra incremental cost right now. Maybe that will change over time. But right now, we're really happy with getting people more engaged.

Because if you use that, if you think back to the use cases that I've talked about in this session so far, we think that there's probably really good indirect ways we can monetize this, which is you trust us, every time we send you a notification in the app, you're going to believe us. You're going to feel good about it. You're going to take your service back to -- and keep it within the Ford family. And so we're looking at -- there's direct monetization and indirect, and that's how we're looking at that piece of it right now.

Very interesting. I think you talked in that blog post and at CES about potentially launching a Pro-specific AI assistant. Any update on that?

Well, we have launched the Pro assistant. We have launched it. It's available. It's embedded in the telematics platform. And so yes.

Got it. Okay. Maybe talk about how big you think Integrated Services can be over the longer term, maybe as you look out over, say, 3 to 5 years in terms of revenue potential?

Yes. So -- unfortunately, I can't disclose our Integrated Services today, I'm not going to do it. But what I can tell you is between our business and the physical service business, it's a $15 billion business, and it's expected to grow at 8% through the end of the decade. So good growth for the whole service, physical and digital.

I would say that there's three lenses that we look at in terms of how big Integrated Services can potentially be. One is, are we doing our job driving activation of digital services? Are we doing our job with all of these concepts that I've talked about, bringing in more of that extensive aftermarket, which most OEMs don't even capture a vast majority of that, are we able to bring that back into Ford?

And then the third piece is if we do a really, really good job, is this a factor in keeping people in the Ford family? Are they just going to keep buying Ford? Because they love the ecosystem. They love the fact that we know them, they feel like they know us and we make their lives easier, that's going to be a key component. And if we can do those three things, this business is going to be a force multiplier across Ford, we believe.

I mean, I think you guys have spoken about that to some extent over time in terms of the -- especially on the Pro side, people come back again and again and again because you offer that full set of products. I mean, are you able to measure people who have been Integrated Services customers are more likely to come back and buy next from Ford? Or is it too soon to say?

It's -- we are starting to see early positive signals. I would say it's still a little too soon to come out with anything definitive. But I've built a whole data science team with the mission, really, of going out and starting to think through the attribution of our features and what that's driving across the ecosystem. Because what I want to do is I want to be able to make sure that we can attribute those actions to it. And if we find that there's attribution, we start to double down on all those areas. But it's really getting smarter about the data and using it in the right ways to make the right product decisions.

Makes sense. And as you think about where this business goes over the next 3 to 5 years -- and not putting specific revenue figures to it, but maybe talk about some of the bigger incremental drivers as you try to grow that business? And maybe put it in terms of you have 14 million connected vehicles on the road, 1.6 million people subscribing after the fact. As you drive the growth, is it coming from better penetrating that 14 million vehicles? Or is it more about as new vehicles hit the road and capturing those new buyers?

It's a mix. I think we're going to see our installed base continue to grow, we need to capture more of that. I think there's low-hanging fruit in terms of activating even more of that installed base, right? And so we can capture that.

As we move towards with UEV and our own in-house ADAS, there's incremental -- the cost is going to be the same, but it's actually going to be a lot cheaper. So the margins could go up. So there's margin expansion as well as we move to an in-house ADAS. But yes, for us, so it's about that direct revenue piece, but we are spending a lot of our time trying to think about this aftermarket world and the loyalty space and building on all the positive data app installed base products that we've built so far and make that a much more robust part of the business.

Interesting. Maybe talk about growing the portfolio. Ford has previously discussed potentially wanting to do some accretive M&A to further its strategic objectives. Are there opportunities to deploy capital to build out software and services?

Yes. So I -- spent a lot of years as a former corp dev guy in the past, and so that's sort of a natural -- in my DNA to think about that. I don't have any acquisition opportunities to talk about today, but we do look at it from the lens of build, buy and partner. And it depends on where the value is coming from. It depends on the speed at which a partner or an acquisition could get us to our goal.

One example of a very recent partnership, it wasn't a buy partnership, but it was a partnership is with Apple Maps. As you know, Apple spent a lot of time and resource making their Apple Maps even better over the initial start. And one of the things that was great about that partnership is they were excited about working with Ford. They leaned in terms of our vision of connecting ADAS and the IVI system so that it all feels like it's one system, not just these separate things that people are operating in. And so that was a good example of a win-win where we take their best-in-class mapping, we take what we do really well, which is we know our customer, we have the great IVI platform and ADAS platform and start to bring these two together in a way that is a great win for them, but it's also one for us and for our customers.

Makes a lot of sense. Maybe we can close out with one around the demographics of the typical Integrated Services customer. To the extent you're able to measure it, any differences around the typical user of those features from a demographics relative to the typical Ford buyer? Do they skew younger, older? Or any other trends?

Yes, it's interesting. There's nothing abnormal about any of the demographic work. I would say that what's interesting about it is, it is by trim. Or maybe it's not as interesting. It's kind of what you would assume. The higher the trim, the more likely you are to use. The split between EV and Lightning, our Lightning products and our non-EV products obviously skew more heavily towards the EV products, although that gap is starting to close. And it's starting to close pretty quickly.

And so nothing sort of out of the norm in terms of the demographics and how they use it. It's just like it's kind of typical, what you would expect.

Well, unfortunately, we have run out of time. Mike, we really appreciate you coming yet again this year really to the conversation.

Yes. Thanks so much, Mark. Appreciate it.

Good everyone. My name is Layla, and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company Second Quarter 2026 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Maria Ricciardone, Chief Investor Relations Officer.

Thank you, Layla, and welcome to Ford Motor Company's Second Quarter 2026 Earnings Call. I'm Maria Ricciardone, Ford's new Chief Investor Relations Officer. I most recently came from Lockheed Martin, where I was Treasurer and Head of Investor Relations. I joined Ford because the opportunity ahead is tremendous. Few companies today are navigating a transformation of this scale and this consequence. My focus will be straightforward; clear, consistent communication with all of you and ensuring the market understands how our differentiated strategy translates into profitable growth, capital discipline and shareholder value.

With that, let's jump in. 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 Bohler 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 will be referencing 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 20 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 Mike Aragon, President of Integrated Services at the Goldman Sachs Communacopia and Tech Conference in San Francisco on September 8, and the Morgan Stanley Annual Laguna Conference in Laguna Beach on September 17.

Now I will turn the call over to Jim.

Thank you, Maria. I want to start by thanking our extended Ford team, all of our dealers and our suppliers for their commitment to delivering on our Ford+ plan. I especially want to highlight all the Ford team members who work so effectively through the Novelis disruption. I also want to recognize our team in Canada, along with our labor partners, Unifor, under the leadership of Lanapain for reaching a ratified 3-year agreement covering all of our Canadian employees. Our business in Canada and our manufacturing operations in Oakville are really important to our future at Ford. And this agreement also underscores how important USMCA is to our future at Ford and the opportunity we have to build a framework that levels of playing field for North American manufacturers just like Ford against the mass imports from Japan and South Korea that carry a huge currency advantage.

In the quarter, we delivered a strong performance, generating $48.3 billion in revenue and $2.5 billion in adjusted EBIT. We are also raising and narrowing our full year adjusted EBIT guidance to between $10 billion and $11 billion, a $1 billion raise at the midpoint. The most important part of the quarter is the growing evidence that our strategy is working. Ford is becoming a more profitable, more disciplined and generally a different company.

Our Ford+ plan focuses on 3 complementary areas. Of course, we have first our core auto operations, our retail and commercial vehicles that are becoming more profitable and more dependable. Second, we have the software and physical services layer, which is growing, margin accretive and built in everything we do at Ford. And third, adjacency businesses such as Ford Energy, that open all new sources of profit for the company. We play only where we have real competitive advantage or we can build one, and we're ruthless about where we put our money. Every dollar must earn durable returns and drive profitable growth. So let's talk through each of these areas.

On core automotive operations, our execution is underpinned by a fundamentally stronger industrial system. For more than 3 years, we've been relentless about building top quality, and that work is showing up. In our home market, Ford finished #1 among All Mainstream Brands J.D. Power's 2026 Initial Quality Study. We see this win as a first down payment on a much more consequential virtuous circle, going from initial quality to long-term durability, lowering our warranty costs even further, fewer recalls, stronger customer loyalty, more pricing power and for our conquest and growth, improved resale value.

Ford's quality renaissance goes hand-in-hand with our equally intense drive to improve our cost structure. We have significantly reduced our warranty and material costs since 2024, and we continue to optimize costs as we enter a heavy new product launch period over the next 3 years.

Turning to the products themselves. We're reinforcing our strength in our trucks, our vans, our personality utility and off roaders, iconic brands and distinctive products delivering real pricing power. We can see it in the quarter. In Ford Blue, F-Series remains the #1 truck brand. outselling the closest competitor by more than 80,000 units in the first half of this year and is on track for 50 straight years at the top. That's 5 decades of trust and capability with our customers, and we intend to extend our lead. But it's not just F-Series that makes our truck business strong. We continue to grow our customer base across our entire lineup that spans every price point in the U.S. truck market from our MAVERICK all the way through the top end of our Super Duty. And there is much more to come soon, including an all-new F-Series and an all-new Super Duty.

We also continue to see momentum with our off-road enthusiast vehicles. In fact, they now make up 25% of our U.S. sales in the second quarter. We made it a huge bet on Bronco, Tremor and Raptor, and is paid off with higher growth and higher margins. And these vehicles are bringing new customers to Ford. They're younger, more affluent and more geographically diverse. And we are investing to grow our leadership in this space. Stay tuned.

Hybrids are another strength for Ford we plan to build on. The F-150 hybrid leads among full-size trucks and the Maverick Hybrid achieved record sales in the first half to become America's best-selling hybrid pickup. We plan to extend our hybrids across our entire lineup over the next several years.

On the commercial side, Ford Pro is the cornerstone of our global business and holds commercial vehicle market share leadership in both North America and Europe. And the Oakville expansion I referred to earlier is on track to launch in the fourth quarter of this year, adding up to 100,000 units of additional Super Duty capacity. We're investing in Super Duty production to increase our manufacturing flexibility, to add resilience and to meet pent-up demand. These investments will help drive Pro's future financial performance.

And turning to Mach-E, we're aggressively driving down general costs and will become a major scaled competitor as we invest in affordable versatile EVs. The Louisville plant changeover for the new UED platform is well underway at Ford. You may have seen prototypes now of our first vehicles off the UED platform testing on roads across the U.S. Customer deliveries will begin next year. The first UED product will compete in the affordable heart of the U.S. EV market, where we'll offer customers a wholly new proposition that we can't find in the market today. It starts around $30,000. It has more cabin room than the Toyota RAV4, plus it has a pickup truck bed, it has bidirectional charging capability, incredibly fun to drive and personalized technology in the experience. In fact, we just announced Apple last week, as you know, will be the embedded map provider for every UED platform vehicle. And we are very excited to show you much more about our move to be among the leaders in the EV space.

In Europe, as you saw last week, we announced our agreement with Geely, which will bring speed and capital efficiency to our European operations. The second area of our Ford Pro plan is software and visible services, including our parts business. These businesses have significant room to grow, are central to our 8% margin target by 2029, and the idea is really simple: combine our digital services, our large dealer network, our physical services into one seamless experience, building a flywheel across software, vehicles and parts.

On software, we're turning a onetime sale into a lifetime relationship as we said. We now have over 14 million connected vehicles. That's an enormous base to grow from. Our goal is to activate that base, driving real digital usage and convert engagement into reoccurring high-margin revenues. Our services aren't just digital, they're also physical. We continue to grow our parts business. For example, we're expanding our parts catalog. We're growing our sales to U.S. wholesalers and co-investing with our dealers to increase service base and our mobile fleet. Customers love our mobile service. We have over 5,000 mobile service vans and trucks on the road. And we see Net Promoter Scores much higher for remote service, leading to higher loyalty. In fact, in Q2, we delivered 1.5 million remote services at Ford, 1.1 million just in the U.S.

Finally, we're making progress on our adjacent businesses. Earlier this year, we launched Ford Energy reporting through Mach-E. It's a strategic business for us at Ford, but one with a very short payback. Ford Energy can win because it's built on capabilities few companies can match, tariff resilient, world-class U.S. manufacturing, leading battery technology and iconic American brand that is already familiar to communities who are most in need for grid support and infrastructure upgrades and of course, the ability to leverage our vast auto service expertise. By late next year, we expect to reach 20 gigawatt hours of annual capacity for Ford Energy, which is -- and we have potential to expand beyond that. We believe this will position Ford Energy among the leading energy storage manufacturers in North America. Scale matters in this business. It drives efficiency, improves the levelized cost of energy and creates a competitive advantage that is hard to match without the scale of global auto to leverage.

We're building a business that can integrate further into energy ecosystem and that aspires to create value far beyond the sale of our DC blocks. Our agreement with EDF Power Solutions North America is a good step to serve a broad and enduring customer base. We're in talks with a wide range of strategic customers and look forward to sharing more with you at the right time.

As you can see, Ford is becoming a more disciplined, higher-return company. We have strong automotive business with an increased bit industrial system. To complement that business, we're scaling high-margin software and physical services around a seamless customer experience while leveraging Ford Credit. And adjacent to all of that, we're building new businesses like Ford Energy, where we can establish a competitive advantage. Over to you, Sherry.

Thank you, Jim, and hello, everyone. Our second quarter results demonstrate our resiliency and intentional actions to drive profitability. In a complex macroeconomic and industry environment, we generated $48.3 billion in revenue, down 4% year-over-year, while earning $2.5 billion in adjusted EBIT, up 17%. Revenue was impacted due to expected volume reductions stemming from lower Novelis aluminum supply and the sunsetting of certain vehicles as we refresh our portfolio. Consistent with our deliberate actions to enhance profitability, this quarter's EBIT strength was largely a result of strong mix and net pricing.

We generated $2.1 billion in company adjusted free cash flow and ended the quarter with a strong balance sheet, including $22.3 billion in cash and $43.4 billion in total liquidity. We remain committed to our investment-grade rating and returning capital to shareholders. In fact, over the last 5 years, we have returned more than $16 billion through dividends and anti-dilutive share repurchases. And today, we announced a third quarter regular dividend of $0.15 per share.

Before unpacking the segment results, I want to address our $1.3 billion net loss in the quarter. As we announced in December 2025, we recognized a onetime special item charge of $3.6 billion, of which approximately $500 million was cash. This charge was related to the May disposition of the Blue Oval SK Battery joint venture. We expect the vast majority of the remaining cash charges related to our December announcement, which total up to $2 billion to be completed by the end of the year.

Operationally, we are successfully navigating the Novelis aluminum supply recovery plan, and we remain confident in our net $1 billion EBIT improvement, heavily weighted to the second half of the year. Year-to-date, we have incurred about $800 million in Novelis related temporary costs and now expect a full year cost impact of about $1.5 billion. The hot mill restart is on track and contingency material is secured. U.S. inventory of 52 retail day supply is slightly below our target of 55 to 65 days, and we expect to return to targeted levels as the recovery progresses.

Turning now to the core automotive highlights. Ford Blue delivered $1.1 billion in EBIT on revenue of $26.1 billion. Our revenue and EBIT were up 1% and 72%, respectively, reflecting favorable product mix enabled by U.S. regulatory changes and higher net pricing, more than offsetting an 8% decline in wholesales. These results demonstrate that our focus on off-road vehicles and passion products is resonating.

We had record sales for the Bronco family in Q2, and our 3-row adventure utilities are growing with Explorer and Expedition retail sales up 22% in the quarter. F-150 remains strong while inventories recover. With a disciplined go-to-market execution in Q2 that included the highest retail share, lowest incentive spend, highest share of revenue with sales focused through our most profitable channels.

Ford Pro delivered a solid quarter despite significant headwinds, delivering $1.7 billion in EBIT and $17.8 billion of revenue, down 26% and 5%, respectively, primarily due to temporary Novelis disruption.

We continue to see growth in software and physical services, highlighting the durability of our ecosystem strategy even in periods of disruption. This resiliency positions Pro to benefit from second half volume recovery. We are confident in the pricing power of our Pro business. And although early, 2027 model year customer contracting in North America is off to a fast start, placing us about a month ahead of where we were last year. For Mach-E, we reported an EBIT loss of $919 million on revenue of $1 billion, reflecting a 31% EBIT improvement on declining revenue. This was our third consecutive quarter of year-over-year EBIT improvement. [indiscernible] was driven by structural cost reductions, rightsized Gen 1 volumes and lower U.S. incentives following regulatory relaxation. We continue to prioritize profitability and capital efficiency on our path to breakeven. As such, we expect to improve Gen 1 EBIT by approximately 40% year-over-year in 2026, paving the way for our investments in UEB and Ford Energy.

Our software and physical services keep getting stronger. Total paid subscriptions grew about 50% to roughly 1.6 million, including more than 900,000 Ford Pro intelligence paid subscriptions. Customers are actively choosing to pay for these services beyond an included trial, a direct signal of value. We've also seen positive net pricing in our parts business in line with the industry. These services carry attractive margins and create recurring customer relationships.

Ford Credit delivered another solid quarter with EBT of $757 million, up $112 million. These results reflect our strong financing margin, our high-quality portfolio and our disciplined approach to capital and risk management. We remain confident in the quality of our portfolio and ability to continue supporting the market shift toward longer-term financing options for customers. We also continue to execute on our multiyear certified preowned enterprise strategy, which ultimately protects our residual values. According to third-party data, our year-to-date CPO unit sales growth in the U.S. is over 20%, now positioning us as the #2 CPO brand in the market.

Now I'll turn to our 2026 outlook. For the full year, we now expect company adjusted EBIT of $10 billion to $11 billion, narrowing the range and increasing the midpoint by $1 billion, driven by strong pricing and mix. An increase in adjusted free cash flow to $6 billion to $7 billion, which now includes flow through of this higher EBIT and our expectation to receive in 2026 about $500 million of the $1.3 billion IEEPA reimbursement we booked in Q1. And capital expenditures remain unchanged at $9.5 billion to $10.5 billion as we invest in higher return growth opportunities. Our guidance does not include potential impacts of a significant escalation in the Middle East or a material downturn in the U.S. economy, which could have a substantial impact on industry demand.

For our full year segment outlook, we now expect an increase in Ford Blue's EBIT range to $5 billion to $5.5 billion, a narrowing of Ford Pro's EBIT range to $7 billion to $7.5 billion, an improvement in Model-E losses to about $4 billion. This includes about $1 billion in incremental investment for UAV and Ford Energy, mostly weighted towards the second half of the year. And for Ford Credit, EBT is now expected to be above $2.5 billion.

Our guidance continues to assume a U.S. SAAR of 16 million to 16.5 million units, commodity headwinds of just above $2 billion and we remain on track to deliver $1 billion in material and warranty cost reductions in 2026, enabling our increased investments to UEV and Ford Energy. For U.S. industry pricing, we now expect full year to be about 0.5 point higher at plus 50 basis points.

The accomplishments this quarter reinforce our trajectory. The investments we are making in our truck lineup, UED platform, Forward Energy and high-margin services will bolster our margins over time, keeping us firmly on the path to our 8% EBIT margin target by 2029.

With that, let's open the line for your questions.

[Operator Instructions] Your first question will come from the line of Andrew Percoco with Morgan Stanley.

Can you guys hear me?

We sure can. Thank you.

Great. Well, congrats on the really strong results this quarter. I do want to start on the energy storage side of the business and just hoping to get more of an update in terms of the conversations that you're having on that front. Obviously, we saw the EDF agreement. So utilities do seem like the obvious customer here just given some of your long-standing relationships there with Ford Pro. But I am just curious to what extent you're having conversations directly with hyperscalers that might want to lock up some of your domestic battery capacity. So it's really a 2-part question. One, are you engaging with the hyperscalers about direct offtake? And two, what inning would you say you're in, in terms of getting some incremental contracts to market -- to the market?

Sure. Just to take a step back, what we hear from our customers is we're in the center of the market, a 20-foot containerized LFP prismatic solution DC block with a 2- and a 4-hour configuration is exactly the heart of the market. So that's a real positive. They also appreciate our approach to service, prognostics, remote monitoring. That's a real big positive that Ford can bring to the -- as a product. We are -- people are excited about the talent in our team. We have specialized talent that have real experience in this market building this business.

The kind of conversations we're having, we're in the real depth now. The demand signal is very strong for us. And given there's about a 6-month lag between kind of when you start, when the projects have to land, we're kind of a little bit -- we're like in the first or second inning to tell you everything about the customer for '28 capacity, but it looks really good. We're in line with our forecast inside the company, which I won't go over, but we're seeing a broad group of customers. They are not just utility providers. There are other. In fact, every day that goes by, we see more broader application of storage batteries from broader customer bases. We have a whole process where we're monitoring the customers they go through because these are projects oriented -- these are project quotes. We go from kind of initial early discussions, then we go through the legal and contracting phase and then we have the final contract at the end.

So I would say we're kind of in the third inning of of selling out the 2028 capacity of 20 gigawatt hours.

I would say, just to emphasize in my speech that we have the capacity to upgrade at Kentucky One, and that we are building prototype cells already in [indiscernible], Michigan. So this is not a theoretical business. We are building cells already. And obviously, Kentucky One is building out a little bit later than Marshall. I hope that gives you some more texture.

Yes, that's great. If I could just sneak a quick follow-up there. What are some of the things that you're looking at specifically in terms of whether or not you decide to add additional capacity? Is it simply booking out the first 80% of that 20 gigawatt hours over a multiyear period? Or are there other things that you're kind of looking at, whether it's legislative tax credit related in terms of your decision to go ahead and move and add more capacity?

I think your list is pretty good. I think it's basically 3 areas. Obviously, the tax treatment is very important for customers. We are also looking very carefully at strategic choices for the company. And we're looking obviously at the customer flows. So I would say the list you have is a good working list. I don't want to get any more specifics than that.

[Operator Instructions] And our next question will come from Alex Perry with BofA.

Congrats on a strong quarter. So I just wanted to ask a bit more on the mix opportunity. So off-road performance trims and other higher-margin trims such as your BA series continue to increase as a percent of sales. Maybe just talk to us what are the key drivers of the strong trim mix? And how we should be thinking about the mix benefit throughout the balance of the year?

Yes. Thank you, Alex. This is Andrew Frick. We have seen certainly some product and series mix as a position of strength for us right now. And I think a couple of the key drivers are it's a direct reflection of the choices we've made in our brand positioning as well as some of the regulatory environment changes that help us match customer demand. So Jim made some comments in his statements in his opening comments, and I'll maybe add a little context to that. We've seen growth in our portfolio mix, our product portfolio mix and large utilities and the Bronco family. In fact, Bronco family had our best first half sales ever. You mentioned off-road mix. We grew that by over 3.5 points in the first half and actually in the second on quarter, it was up over 4 points year-over-year. And we have series mixes like Tremor that is now 15% of our Expedition sales and Raptor is really strong right now across our portfolio. We've grown our Raptor sales 9% so far this year. So -- and you mentioned the V8, so we're increasing our V8 mix as well.

Bottom line, to answer the question is we expect that level of product mix and series mix to continue through the balance of the year.

Our next question will come from Joseph Spak with UBS.

Maybe you could just talk -- I heard in the prepared comments that the Novelis ramp is proceeding as expected. Maybe you can just talk a little bit about what you see for F-Series here in the back half? Because in your guidance, you do factor in the lower volume recovery. So that's a little bit more measured. And it doesn't sound like it relates to Novelis. So is that just some prudence because of what you're seeing in terms of the competitive dynamics in that segment and you want to remain pretty vigilant there to protect price?

Yes. Thanks. I'd let Andrew to comment, but what we are seeing F-Series is around 45 days supply, which for us, is very lean. So we have a lot of upside on the wholesale side, not just from retail side. Andrew, anything you want to highlight?

Yes, I would just add the overall truck demand right now across from Maverick all the way up to Super Duty is really strong, and we're seeing strength across the lineup. Maverick Hybrid achieved a record in the first half. For F-Series specifically, we're really confident in the strength of our F-Series business right now. Jim mentioned, we're on our way to 50 years of leadership. And our -- we lead the competition right now in key go-to-market metrics. So we have significantly lower incentives, higher share, higher share of revenue with really strong turn rates, which is an indication of the strong demand. And we're also being really disciplined on our channel mix with the limited production we have. In fact, we've had a really low rental volume, where a lot of our competitors have really increased this year year-over-year. So as Jim just mentioned, our days supplies are in good shape at 45. That gives us upside coming out and the demand continues to look really strong.

What drives the lower volume recovery?

Can you repeat that, Joe? I didn't hear it -- we didn't hear you exactly.

You mentioned in the guidance that the lower aluminum headwind is offset by a lower volume -- the volume recoveries at the lower end. So I'm just curious what changed there?

It's just mix. It is just mix. And as I said, that we are planning to be able to still have a year-over-year improvement of $1 billion. So you had roughly $2.5 billion on the top line, $1.5 billion due to Novelis costs now lower than what we had originally thought, before we thought $1.5 billion to $2 billion, but now it's tracking at the lower end. So the results are going to be the same in terms of what we guided, and it's the mix change.

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

Which is on the tariff and trade environment. I think on tariffs, you left your outlook unchanged. But under the current policy rules. Maybe talk about the ability to further mitigate that going forward. And you also spoke a bit on USMCA. And Jim, curious if you have any early thoughts around how the discussions are going? And based on some of the proposals to potentially require more U.S.-specific content, how might that affect Ford's operations and it's supply chain?

Sure. Well, let me just comment on USMCA because it's very critical. Look, Ford is an unusual company in a way we build the most in the U.S. We have the best ratio between imports and our local production. We also export the most. And even for us, this -- an improved USMCA could be a great opportunity for the industry and for Ford. What we're -- and we've had really good not only conversations with the U.S. administration and USTR, but also with Mexico and Canada. So I think because of Ford, we're Ford. We have great access to everyone. And I think at the top of the house, we all have the same kind of principle, which is build a stronger U.S. industrial base.

Our orientation for USMCA is maybe a bit different than others. We want to make it easier for Ford and other U.S. makers to compete with Japan and South Korea. They have incredibly strong local supply chains like steel and aluminum. They have much weaker currencies in some cases, 40-year lows, and they have a modest 15% tariff, even some of our domestic competitors import from those locations, and they have huge advantages. We are prepared to support revising the USMCA so long as it allows the promotion of more competitive U.S. auto sector. And that's really our lens for this negotiation. It's really we want to put Ford and companies like Ford that are committed to U.S. manufacturing in an advantaged a better level playing field with these foreign competitors.

We're in the early days of engaging. So at this point, I think it's very early days, but that's going to be our orientation. In terms of tariffs, et cetera, I think there has been some recent news. But I would say as a whole, Ford, I think, has done a good job with our exposure to tariffs. And I think we've worked really hard with the administration as well as even our strategy around collecting cash to really manage through this in a way that advantages the company. I don't want to get into specifics because I think those are pretty well documented by the team.

Your next question will come from Dan Levy with Barclays.

Okay. Great. About a month ago, you put out a headline that you ranked #1 in this J.D. Power initial Quality study. And I know that warranty and quality has been sort of a journey for you and you reiterated some of the cost benefits this year. But maybe you can just give us a sense of just an update for [indiscernible] and what this headline potentially means on incremental cost outs in the future on the warranty side? Just any reads factoring as well for 2027 and beyond?

Okay. I think, Sherry, it would be great to get your view from the financial standpoint, but I think the real essence of this is is this question about the lagging indicator of recalls versus our initial quality. And I would just emphasize that recalls are not all the same. The software recall and a powertrain recall are quite different things. So Kumar, do you want to make a comment about the kind of cost variance that you're seeing.

So I'll go ahead and start with the financials. So we do see continued improvement on a year-over-year basis. So very clear about that on warranty as well as material cost. And that is what comprises the $1 billion year-over-year improvement that we're looking to see that we do plan to reinvest in UEB and Ford Energy. In terms of where that's coming from, it's coming from coverages, which is initial quality, which is the #1 of mainstream brand award directly relates to. And that is one of the best indicators is I'll let Kumar talk about that, our recall financials will also follow suit shortly.

Yes. The initial quality improvement is great, but this focus is permanent. We're focusing on long-term durability and obviously, lowering warranty costs. That will turn into eventually lower recall costs as well. So this year, we've recalled about 12 million vehicles, but the number of recalls is down very substantially from last year. It's down about 40%. And this reflects our intensive strategy to quickly find and fix any hardware or software issues and go the extra mile to protect our customers. We are seeing substantial improvements in our newer model years both in numbers of recalls and recall volumes and, of course, warranty. So it's a bit of a, like Jim said, a virtuous cycle that's starting to begin initial quality great. It will turn into long-term quality and as well as recall improvements over time.

This is one of the most important road maps to our 8% margin is continue to close the cost gap. And we're seeing initial -- good initial indications. We want to do absolutely what's right for the customer. What I'm most excited about is the work I'm seeing in the next-generation products in the powertrains. The team is absolutely obsessed with these next generation of products being engineered with the right supply chain to make a massive move forward in our cost of quality.

Our next question will come from the line of Tom Narayan with RBC.

Welcome, Maria. So one of the big learnings that we're seeing in recent weeks has been how automakers are benefiting from software. We already know about how great this is for you guys at Pro -- but I wanted to ask about BlueCruise specifically. Could you comment about how BlueCruse might be contributing to forward financials? And then just an add-on to that, the Apple Maps integration could this expand beyond the UVB platform to other Ford vehicles?

For sure, it could. We haven't made any announcements, but we're really impressed with the progress that Apple's made in their map. And we really see the benefit for customers to have a great integrated solution. I would guess the big story there for Ford is the transformation of our electric architectures. I don't think it's been covered in the media yet, but UED has a fully zone electric architecture with our own software. And our new generation products will come with a massive upgrade to our electric architectures with a lot of software coming from Ford. And in fact, the ADAS solution and the integration of Apple Maps are going to be mostly Ford efforts. So that is a major step forward for our customers. And I think that's strategically the most important thing.

We still continue to see great revenue growth for BlueCruise. It's probably on the retail side, our best proof point for software. Paid subscriptions in Q2 grew by 20%, which is great to see. And in fact, BlueCruise made up 50% of our retail integrated services revenue. So that's how important BlueCruise is. And the cost is going to come down. The functionality will go up. Even the UEV is going to have a ramp to [indiscernible] on-ramp L2 capability, which no 1 in that segment at that price point has anything close to that.

So on BlueCruise, I think for people to get a dimension of the scale, we have now 12.1 million or more than 12 million hours used since launch, and we're approaching 1 billion miles, 840 million milestone now in BlueCruise. It's something that our dealers are getting better at selling. It's something that we are getting better at specking out tied to our series mix and packaging. So I would say it's really -- the revenue management capability in the company around the software is really improving. That doesn't take away at all the Pro software that also is growing really fast. But since that was your question, wanted to hone in on ADAS and Apple Maps.

Our next question will come from Mike Ward with Citigroup.

One clarification. Jim, you mentioned Super Duty is an extra [ 100,000 ]. Did you specify where that was coming from? And then my question really is just a follow-on on the subscription side. You mentioned the Ford Pro at [ 900,000 ], I think that was in your sales release. And then, Sherry, you talked about 1.6 million subscriptions. Is the remaining portion of that BlueCruise? And how -- I assume you're looking at it from a financial standpoint on the margin contribution rather than revenue given the size of Ford. But is it getting to the point that in the next 2 years, we could see these things, the subscription revenues, adding 0.5 point to margin at Ford Pro and overall Ford automotive margin? Is that the type of direction we're looking at?

Yes. That's a pretty long question, but thank you. Maybe Alicia, I'll ask you to comment on Ford Pro software and then Sherry, if you want to touch on then the subscription numbers. I will just say, overall, companies measure subscription and paid subscription a little differently. And so it's kind of apples and oranges depending on the company. Some companies bundle them into their vehicles with the trial. We really, at Ford, just philosophically, we are focused on paid subscription. Even though we have a lot of subscriptions that aren't paid, for example, trial. We're very focused on paid subscription. So you'll hear that at Ford maybe more than others. Alicia?

Yes. Yes, I can make a comment. First, Michael, on your first question around you mentioning 100,000 additional Super Duties. And so we're launching the [indiscernible] facility later this year, and we'll have capacity to produce up to 100,000 additional Super Duties. Relative to software and Pro, we're continuing to drive a profitable growth really by expanding software services and parts to increase our share of wallet. As Jim mentioned, we really focused on paid subscriptions, and we're over 900,000 for Pro. That's over 20% year-over-year growth, and we expect to continue to see that growing through the balance of the year, and it will be -- it will continue to contribute from a margin perspective.

Obviously, software has a higher margin. So not as high as a percent of revenue, but definitely contributing from a margin perspective.

And the net would be, as you said, primarily BlueCruise. And we could absolutely see this business, the integrated services being 0.5 point of margin for the company. It's very profitable, and we haven't really seen the margins come down.

And I can just clarify the question you had on the paid subscription. So as I said in my prepared remarks, 1.6 million million paid subscriptions. That does include retail plus Pro. The 900 was the Pro Intelligence, so the 700 remaining paid subscriptions is going to be retail. It's going to be other Pro services, and then it also includes BlueCruise.

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

Just kind of a quick question on just the updated guidance. I was hoping we could do a bit of a second half versus first half kind on bridge for Blue and Pro? It seems that the second half outlook for Pro is kind of nicely improved, but Blue seems a little bit lower ex E. Just kind of curious to get the puts and takes between the 2 trajectories for those segments.

Yes. So first just the enterprise level guidance. The increase is really simple. That's mix and pricing. So I just put that out on the table. And then when you're talking about the second half, you're talking about the EBIT bridge between second half and first half. So there, you would have had -- and then do you want to get into Blue and Pro specifically?

That would be great. Yes.

I mean really, what you're seeing is you're seeing increased volume, right? You've got the Super Duty and you have the F-Series that are going to be coming back in full force for the second half of the year you were going to have commodity increasing. We had $500 million of year-over-year improvement -- hit impact, rather, of commodities. Now when you get into the second half, you're going to have another $900 million. So the second half is going to have higher commodities that is hitting us. And also the second half has higher investment in UEV as well as Ford Energy. But you're really seeing in terms of the improvement is the value increase in terms of mix and pricing.

Yes. And I can just give a little more context from a Pro perspective. So we expect to make up our postponed Super Duty fleet orders in H2 that was primarily explained by the impact of Novelis. And so we expect to end the year with our full recovery to Ford Pro's 2025 revenue run rate and then Super Duty availability being aligned with demand. So if you look at the first half, from a Pro EBIT perspective, $3.4 billion. Second half, if you follow in our guidance, is $3.6 billion to $4.1 billion. And that's really driven largely by the additional capacity that we have in the Super Duty space.

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

Great. So it's good to see all these operational and execution traction this year. Curious, do you expect further improvement in EBIT next year in 2027? And if so, would you be able to speak to us about some of the puts and takes and the drivers of further improvement?

Sure, Emmanuel. Thank you for the question, and good to have you with us today. So I knew I wouldn't get out of this call without talking about 2027. But it's a little bit early to talk about it in detail, but let me give you some of the puts and takes as you suggested. First up is going to be the nonrepeat of the temporary aluminum sourcing costs that are associated with Novelis. I just gave more precision around that number today, which we now expect to be about $1.5 billion. So that starts you out. As you look at the core, as you just pointed out, yes, you're absolutely seeing a bitter core business and one that has momentum and it's going to be more durable for the long term. So I do expect to continue to see reductions in costs, especially in material costs and warranty, but also structural costs, too.

And as we just talked about, continued software and physical services growth. We do have launches that are going on in '27. So you're going to have launch costs associated with that especially related to our battery energy stationary storage business, Ford Energy, as well as the universal EV platform, both launching in 2027. And we're going to start investing in preparing for an all-new U.S. truck lineup that we've started talking about a bit.

On the headwinds, you're going to have the nonrepeat of the IEEPA tariff EBIT benefit. You'll remember that was $1.3 billion that we booked in Q1. And we'll have to see what happens with commodities. At this point, we are planning for 4 quarters of impact versus 3 quarters of impact in '26. And any improvement that might happen, we start to see a little bit of softening, that would be a tailwind. So in short, you see a company more efficient, more durable and fitter and better able to absorb headwinds.

So that's a lot of puts and takes. But overall, would that net to a higher EBIT in your math? Or is that too early to say?

It's too early to say at this point.

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

Just wanted to -- sorry, I have more of a modeling question to start off. But you mentioned $2 billion in raw material. Could you just say $500 million is already incurred. So is that the other $1.5 billion year-over-year is the headwind in the second half? And then you said the $1 billion in investment costs Novelis has impacted already in the first half. And any color on the value. It's -- is that -- how much is in the first half, how much good news is in the second half? And then if I step back, your -- the second half EBIT rate is stepping down why not annualize that? What -- because especially with the Novelis improvement, I would have thought that would actually help you. So what is sort of unusual in the second half that we shouldn't be annualizing that or should be?

Okay. Well, let's take on turn, Colin. So first off, with commodities. As we said, we're expecting a bit over $2 billion for the year. And I'm expecting about $1.5 billion of that to be in the second half. So [ 1.4-ish ] , right? We said about $900 million additional to what we've already had. Then when you get to Novelis, at this point in time, we have had Novelis costs hit us at about $800 million. I also guided that I'm expecting the total cost to be about $1.5 billion. So the balance of that, $700 million, would be in the second half.

Your questions on -- then you had a question on the first half bridge versus the second half bridge. And you're right, very strong volume and mix. Is that what your question was, second half versus first half EBIT bridge?

Well, if I annualize the second half, it would imply a slowdown. So -- and particularly with Novelis actually recovering, I think you're supposed to get those pickup volumes back up. So why shouldn't we not be concerned by the annualized slowdown, particularly as Novelis is sort of back on track in the second half?

Yes, that's right. So you've got -- as you said, you've got the strong volume and mix coming in from Novelis, but you had some of that in Q2 as well. And what you're also going to see in the second half is unfavorable commodity pricing that I just talked about 2 quarters versus 1. And you also are going to have accelerated investments in Ford Energy, in the universal EV platform and the Oakville launch. So a lot is coming at us in the second half, but there's some strength in coming back with the volume is going to be what's really enabling us to to be able to be very close to where we were the first half when you take out the nonrepeat of the IEEPA onetime refund of $1.3 billion.

Yes. And just comment certainly we can follow up offline and just go through the detail of the model. So we can follow up after the call.

I think we can take 1 last question. We're almost at the top of the hour.

Your last question will come from Edison Yu with Deutsche Bank.

Great. Just want to ask about for defense Jim, you had mentioned on the last earnings call, you were kind of contemplating you're doing some work on the component side. I think just the other day, you confirmed to be working on a contract for the ISV. How should we think about this effort going forward? And any sense on how big this could be in the next couple of years?

Sure. Thanks for your question. Ford always calls -- always answer the call to duty. That's our principles as a company. We did sign a contract with the U.S. federal government to produce 3 prototypes they're considering for based on the Super Duty for military use. We're really excited to get into building those we already dominate in that market in the commercial world. We want to offer the U.S. government the same advantages that our commercial customers get and that includes great parts availability and everything else that comes along with being the leader.

It's a great opportunity for us, I think as a company, this particular opportunity in the transportation space. We are discussing -- continue to discuss additional defense-related projects with the U.S. government, but we have nothing else to add at this point. We do believe we have a lot to offer, but we'll think through this as an adjacency. It has to be a strong business with really good returns and really good capital returns. I have to say, when you look at the scale of the opportunity here and all the opportunities versus something like best, which has a very short payback, they're pretty different opportunities. They're very as metric.

So as I said, we're very focused on these adjacencies that are very close to our core business like best. Defense will be another one. There's a few others that we haven't talked about yet, but they're not all the same, and they don't all have the same opportunity. And I would say, at this point, Ford Energy is a great opportunity, and we are really excited to get going with the U.S. government on these prototypes. So stay tuned. Nothing else to add at this point.

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

All right. Good morning, everyone. Welcome back. Very pleased to move on to the next presentation. With us from the Ford Motor Company, we have Sherry House, CFO. Sherry, thanks again for joining us this year.

Yes, Joe. Great to be here.

A lot of topics to get to. So we're going to sort of try to be pretty orderly here. Let's start with '26 because it is a pretty noisy year. I think one of the key swing factors here is really Novelis, your aluminum supplier and them coming back online. Now a couple of weeks ago, the CEO mentioned, they fired up the plant again. Maybe you can sort of just talk about what you're seeing from them, what you're hearing from them and what you -- how you expect that ramp to proceed over the balance of the year?

Yes, sure. So from our perspective at Ford, I would say Novelis is largely on track. So when we talked about Novelis in the past at Q1 earnings, we talked about having a $1 billion tailwind this year as a result of being able to make up a lot of our volume. So we do have -- just to maybe break down that $1 billion tailwind for everybody and to give everybody a reminder of it.

What we're expecting is that we are going to have an additional $1.5 billion to $2 billion of cost this year associated with having alternative supply of aluminum until that plant gets fully up and ramped. And then what you're going to have as a counter to that is you have a nonrecurrence of the 100,000 loss of vehicles that we had last year, and we're also doing a partial makeup from last year of around 50,000 vehicles. But at this point, in terms of communications with the Novelis facility, I would say that we would say it's largely tracking as planned. And we're going to be expecting to kind of be in this like 10- to 12-week period where you're in the process of ramping up.

So that's going to consist of validation of the material. That's going to consist of making sure that it can get successfully through all the parts of the supply chain. And if there are any hiccups along the way, we have secured contingency material as well.

So with that 12-week, does that effectively mean that in your guidance as you sort of get into the fall, September, October, you think that plant is running pretty high utilization? Or how should we think about when you can sort of get...

I would say that it's going to continue to be back half weighted as you're going through the second half. And we would say that it's -- it will be a little uneven. That's how these things go. But we would expect that you would start seeing something that's approximating full pace full capacity as we're in Q4.

Okay. Perfect. And then on the headwind, you talked about that $1.5 billion to $2 billion from tariff and logistics. It was only -- I think you said about $300 million in the first quarter.

It's correct.

So is it fair that we see that stepping up here in the second quarter into the third quarter before starting to phase back down? Is that the right shape of that cost?

Yes. I would say you're going to see it stepping up in Q2 and Q3. And we'll see how this all plays out in terms of the production because a lot of it will be matched to the production as you're using the material.

Okay. Other parts of the '26 guidance and maybe thinking about sort of first half or second half, you mentioned $1 billion investment for energy storage systems, which I know we'll get to in a minute, and UEV, which will also get to, I think, $600 million was for the UEV.

That's right. $400 million for BESS.

It seemed like a pretty de minimis number, quite frankly, and maybe earlier on in the year, so -- which maybe led to some of the better than expected sort of first quarter performance.

It's correct.

So how should we think about that ramping through the year? Is it really sort of more back end of the year loaded as well? Or do we start to see some of that creep in, in the second quarter?

So you are going to see both BESS as well as the UEV, some in Q2, and then it's going to continue to accelerate into Q3 and Q4. That's right. Because, yes, you're getting closer to your launch, and that will continue into 2027, too.

Yes. Commodity is another bucket that sort of people focused on here, and I know you raised your headwind to $2 billion year-over-year. I guess maybe the pace of the price of aluminum has slowed a little bit, but you still sort of seems to have like creeped a little bit higher from first quarter. So -- but how are you sort of thinking about that in terms of your outlook for the year? Because I know you sort of also started to put in some more hedging involved as well. So any sort of -- maybe just level of comfort with where we see our current pricing?

I would say we're very comfortable suggesting that it's going to be a $2 billion year-over-year impact with commodities, in that range. And our guidance, which was $8.5 billion to $10.5 billion fully comprehends that $2 billion of commodities, potential headwinds.

Okay. Maybe just one more on the near term on '26, and we could sort of talk bigger picture about '27, but we had May sales, the other -- come out. Demand, I think at an industry level still looks pretty good. Maybe what are you seeing specifically at Ford from a demand perspective, from a consumer perspective in the face of sort of higher gasoline prices? And how do you see pricing holding up as well?

Yes. I would say industry numbers for May looked pretty much as expected in terms of where the industry shook out. I would say that for us, we had some expected reductions with the Focus and the Escape that we were going away because we've been moving more into more high-margin vehicles, higher mix here currently. So I would say that the industry is largely as we would have expected. And you had a second part to that question as well.

How you're seeing pricing holding up for Ford?

Yes. We've -- that was one of the reasons why we updated our guidance is that we saw strong net pricing in Blue in Q1. We also saw great software and physical services as well. And at this point, we are not seeing fracturing in terms of the demand. And we think part of that is because our products have such more powerful powertrains than we had in the past, are much more fuel efficient than they were. If you go back just a few years, you've got 20% improvement in fuel efficiency. And so this is playing out into the consumers. And then also, when you look at the demographics of who is buying our vehicles, particularly when you're getting into some of those high trucks, you have a richer customer, a customer that is able to be able to purchase those vehicles.

Also, you also find that a lot of the vehicles are purchased for vocation, they're purchased for lifestyle. There's people, particularly commercial customers that need it for towing. They need it for the payload. And so as a result, even though the fuel prices have been going up, and we know that we need to continue to offer a wide range of products that are going to enable our customers to be able to adapt, we're not seeing a lot of changes as of this point in time.

Yes. Maybe to bridge this conversation to sort of how investors should think about 2027 and beyond for Ford Motor Company. And I think a lot -- I think post the first quarter, a lot of investors said, we're looking at the guidance for the year. We look at what you did in the first quarter. It assumes about a $2 billion pace for the balance of the year. I know that's not sort of how you view it internally. And I'm not expecting to sort of give 2027 guidance here today, but if you want to, feel free. But maybe we could just sort of talk about some of the larger building blocks, the puts and takes you see for '27 relative to sort of what is transpiring over the balance of the year?

Sure, sure. Well, thank you for acknowledging that it's early to be talking about 2027, but let me give you a few puts and takes as you suggested. So first off, from a tailwind perspective, you wouldn't have the $1.5 billion to $2 billion of the aluminum supply, alternative supply costs that we had. So you start with taking that away.

As you look at the core business, I think what's important is you are going to continue to see a fitter business and one that is really focused on being more durable for the long term. And so that breaks into us continuing to work on warranty and our material costs and a lot of our structural costs are continuing to do that, but we are going to continue to have launch costs as well as we're getting closer to the unlock that those investments are going to make for the BESS, the battery energy storage business as well as the Universal EV platform, both launching in 2027. So you're going to have, I would expect continued savings. You're going to have the continued investment there. Now we also have been seeing...

Sorry to cut, but more than the incremental $1 billion you're seeing today? Or sort of is that the right level?

Well, I think that you should think about it as comparable. Yes. So kind of think about that comparable as you're -- the composition might change a little bit as to what's in it because now you're starting to get more labor that you're hiring, as you're getting rate of launch and you're backing up some of those other costs. But think about that as being roughly comparable. But you're also going to have software, you're going to have physical services. We've seen years now of improvement there.

We're continuing to expect to see software and physical services improving. And also, remember that we've got a pathway laid out in order to get Model e profitable by 2029. And so a lot of that is getting the BESS and the UEV kind of continued in its launch curve through 2027, which will give you that further unlock as you go forward. And then in terms of the headwinds, I would say one would be the nonrecurrence of the IEEPA receivable. So that would be one. And then I think we're going to have to see what happens with commodities. But is that going to continue at its current pace as you move into next year? So I would say those are the couple of things I'd be thinking about.

And what about the additional Super Duty capacity that comes on or...

That is a great point. So Oakville is ramping really well. And our thesis all along is that we have not been able to supply is the amount of demand that we've had for that product. And so we do believe that there's going to continue to be increased demand. How much? It's probably a little bit early in the year to still to make that call. But that is going to be there. It's going to give us the upside opportunity.

Okay. And the capacity there is about 100,000 units.

Yes.

All right. Let's move on to BESS, which I think is probably what a lot of people have been waiting for. So late last year, you talked about this $2 billion investment to convert one of your facilities in Kentucky, 20 gigawatt hours, I think, 5-megawatt hour plus systems. As we -- and I think everyone sort of continues to do a little bit more work on this area, especially sort of coming from the auto side, you see it's a pretty somewhat fragmented value chain, right? You've got the cell provider. You've got the pack and sort of container provider, the integrator, if you will, and you've got install service.

So if I go back to your original release, you sort of talk about almost cell to service, but I want to sort of maybe try to sort of touch on every -- each one of those parts of the value chain to sort of see where you think Ford fits in and what the core competencies there. So if we start with the cell, you have the CATL license, right? I think they are widely viewed as one of the leaders in LFP. So that's a good thing to have, I would say.

And I think it's, I would say, very unlikely anyone else would be able to sort of get the setup that you have right now. I think where we get some questions from investors and maybe, hopefully you could sort of help clarify or maybe even debunk some concerns, right, is I think you've made it clear that you're PTC eligible. I think people look at some of the language, the FOC language around licensing and everything. And so I know this is probably a very nuanced sort of answer, but maybe at a high level, maybe you could sort of clarify for people why you think you are or why you are PTC compliant.

Yes, sure. So this is drawing upon the same licensing agreement that we already have in our Marshall facility. We went through great lengths to make sure that this was going to be eligible for the current language of the production tax credit. And we believe that, that is going to hold as we move into this additional factory that's making the same type of cells that we were making before. We're also making electrode coils, as you were talking about the value chain. So we don't see any issues there.

The other thing that's really important is that we believe this is going to be ITC eligible as well. And so that is really important for the customers to be able to have a U.S. domiciled product able to get the eligibility of that ITC.

Yes. You front ran one of my questions there. I was going to get to that, too. But maybe just a little bit on sort of the cells. So to the extent you're able to sort of comment on this, right, like some of those components that -- or the materials, if you will, needed to sort of make the cell clearly are not yet available in the United States. Now you can get them from Asia, whether that's Korea, Japan, China, of course.

That's right.

Given that it is sort of, let's say, a CATL licensed technology, does that mean you sort of piggyback off their supply chain? Or do you have leeway to sort of source as you see fit for your business?

Yes. So we're in the process of setting up the supply chain today. We do have a level of kind of flexibility there, I would say. And given what we know today with the way all of these regs are written, we don't see any concerns with respect to eligibility of what we're sourcing.

Okay. Perfect. So if we move from the cell now to the module, the pack, the container, right? I think it's easy to sort of maybe think of this as like somewhat simple, like you're just shoving it all in and packing it. It seems I think in reality, it's much more sort of complex than that. So you're really acting as, I would say, the storage system integrator here. And that's where I think some of your Ford's manufacturing capabilities really play in. And I know Tesla does this, although they're sourcing their cells from overseas, I guess Fluence is another one that's sort of acting as an integrator. How would you assess that part of the market and why you think Ford has an ability to compete and win in that integration area?

Yes. So what I would say is it's very similar to the way that we create battery packs today. The container is different. But we're already creating battery packs today. So you start with the cell, the cell then goes into a module that we are creating and building, and then it's going to go into a container that we're buying. We're also going to have in their liquid cooling, thermal regulation components, and you're also going to have battery management infrastructure that's going to be resident within that container as well.

Our role today extends for the entirety of the container. So everything that goes in the container, we're going to bring in, we're going to manufacture. These are not incredibly complex units to create, especially when you compare it to something like a vehicle or a truck. So we're going to be building those. We're also going to be providing service on that as well. And so that's largely where we're...

Once it's installed, you mean?

Yes, that's right. That's right.

So you mentioned some of the other components that get into the container, battery management, some power electronics. You obviously have some of those capabilities from, as you mentioned, your electric vehicle business. I know I was recently out at your formerly known as skunkworks facility in California. And look, I think like one of my takeaways from that is that there's a big focus, not just on sort of hardware, but also software.

As this -- as the energy business evolves, is there also an opportunity to take some of the software and hardware learnings from that UEV platform and apply it to energy? Or are you sort of -- are the requirements different? Do you need to bring in other parts of the value chain or supply chain to make that container?

Certainly, as it relates to the container, the battery management system, the thermal cooling. These are core competencies that our company has today. And so we're going to continue to do that. If you are looking to go even further kind of downstream, then we're building the DC block, the direct current block. From there, a lot of times there's an inverter that would be added to enable you to be able to link up to power sources, whether they be solar or they're wind or they're otherwise. And that part of the value chain we are not participating in at this point.

We'll keep our options open as to whether or not that makes sense, but there have to be synergies, it would have to be profitable. We have to make sure that the bringing together of the business components made sense. But at this point, we are definitely fully committed to the full container and everything that goes along with that, including service.

So you did design your own inverter for UEV and others other powertrain...

Yes. We've got that capacity in-house. That's right.

Okay. And then installation, is that -- are you partnering there? Do you have any sort of ambitions to sort of get involved in that part of the value chain?

The customers would be responsible for the installation. Of course, on-site support would be something that we'd be providing as it relates to our container.

One of the things I was sort of thinking a little bit about in sort of Ford's broader capabilities also is you obviously have Ford Credit. It's effectively a bank. Is there an opportunity for Ford Credit to also help finance customer purchases here on the energy side?

We haven't really spoken about that at all at this point yet. So nothing to share on that front.

Okay. So 20 gigawatts -- 20 gigawatt hours and full capacity...

At the end of '27.

Right. We know through the old sort of BOSK setup, you have a second facility right nearby that I think is effectively just 4 walls. I don't know maybe at this point, and it's empty. So I guess, you clearly have capacity. Now I think you would obviously need to make an investment to sort of build that out that capacity. But wondering how you sort of think about if you decided to go down that path, the capital requirements to do so. And also really what signals you're seeing internally for the decision to make further investment? Because I can certainly totally appreciate that, like you don't want to get too far out of your skis and commit capital before you sort of see the demand signal.

On the other hand, right, like things like the PTC, we know start stepping down in terms of expiring. So it does seem like you've got a counterbalance there that would almost want you to move faster rather than slower to sort of take advantage of some government programs.

Well, I think you're right in that we want to get our 20 gigawatt hour facility up and running first, and we're making terrific progress on that today. And that had a $2 billion investment associated with it. And partly, that $2 billion investment is not as large as what it would require to build out a second facility because this was already a battery operation. Now it was producing NMC versus the LFP. So we do have to do some conversion to get there, but it would be a different investment profile to move into that second facility. And we think it's just too soon.

We're making all the right progress points that we'd want. The -- as you said, the Blue Oval SK dissolution occurred, so that JV dissolved in Q2. And so that has now enabled us the unlock to do the factory changeover that we needed to do within the Glendale, Kentucky 1 facility. And we're -- the equipment is ordered. We're working on that process. And we're also in the process of doing all of our contracting. So in terms of levers, let's get our contracts all set for this first 20 gigawatt hours, and we'll continue to evaluate if and when it makes sense to expand, but we're certainly not looking to be talking about that today.

Okay. One thing that I did -- that has come up with a couple of clients. I think if you go back to the original Blue Oval SK announcement, there was talk about sort of maybe total ultimate capacity of like 60 gigawatt hours with the possibilities to expand further. But that's not the right sort of level to think about now because, one, again, what you're building has changed, plus some of that footprint is being used for containers, et cetera. So is it fair to say that at least in -- if you look at the original BOSK footprint, you can't just say, okay, we were going to do 60. We could do up to 60 with what you're doing now on the energy side.

Yes. I would say that probably the most available capacity would be actually in our Marshall facility that's already making LFP batteries as well. We do have a little bit of capacity there, but that's not something that we're talking about at this point. We're still talking about the 20 gigawatt hours. But there are other alternatives for expansion that we could look at, but we just think that we want to really focus on landing successfully what we have right now.

And I know you had the initial EDF Power Solutions agreement.

That's right.

And I'm sure Lisa Drake and her team are working to sign up as many customers as possible. So is that really what you would -- you internally and what you advise investors as well to sort of look for as confidence and demand signals before you start thinking about -- I know you said you're not ready to make that -- have that conversation today. But presumably that is what you're looking for as signals to sort of be able to make a go or no-go decision on additional...

It's one of many. I mean you would look at what is the profitability of expanding? How are we seeing the industry demand signals play out? Are we seeing any type of commoditization that's occurring? How does our right to win to continue to play out? We feel very strongly about it. But we've been watching all of those items. Is the early investment that we made on target. So watching all of those, the progress points.

And then the EDF contract that you mentioned, yes, that's for 20 gigawatt hours over 5 years. It is a framework agreement and then it has the ability to get up to 4 each of 5 years. But it does, importantly, have a minimum purchase commitment that's part of it as well, which some of these agreements don't always have that clause, but ours does.

Okay. And what's that level?

Well, we haven't shared that.

But the best way to think about that is sort of mostly like -- so it's like an offtake agreement.

That's right.

In the simplest terms is the way to think about that. Okay. Let's move on to UEV. As I mentioned earlier, I got a chance to explore that facility. And I know start of production is scheduled for next year. The EV market, I think, in the U.S., generously, I think you could sort of say is a little bit at a crossroad. So I guess, internally as a management team and working with Alan and sort of the other constituents within Ford, how -- because you have made this comment about like you won't launch a vehicle unless you're comfortable that it can be profitable within 12 months. So how do you get comfortable with that framework, given what we're seeing from a demand side?

Yes. So we haven't really talked about that kind of framework in a couple of years that you're referring to right now. The way we look at this product is it's a platform. And the more that you utilize the platform, the more the economies of scale will come in to play and the more profitable it will get over time. So we are excited about this product. It's going to be very feature-rich. It's going to be very tech forward. It's going to be affordable.

And we think that it's affordable to the point that it's not just competing against EVs, it's also competing against gas-powered vehicles as well. And so that starts to open up a larger total addressable market, which helps with the point that you were making about where is EV today, we see the market opening up when you're starting in the price point range of $30,000. And so at this point, the project is going really well.

We are on plan for our 2027 launch. We are making prototype vehicles in Michigan. We're testing those already on the road. We're testing our mega castings, which is a new product. We're doing supplier readiness assessments. So all those things that you'd expect us to be doing as we're kind of preparing for launch are in full force today.

On the supplier readiness, I think I'm glad you sort of brought that up because I know in talking to Jim, he mentioned, right, the unique process you went out to suppliers to sort of try to source content for this vehicle. And I forget the exact number, but he mentioned that I think it's -- I want to say like it was 80%, but there's a lot of new suppliers to Ford, I think, through this program. So maybe you could sort of talk about that process, some of the benefits, but also maybe some of the risks it presents because it sounds like that's what you're sort of going through now in terms of sort of assessing their readiness.

That's right. Well, we have a standard protocol that we take all of our suppliers through. They have to run the product at rate, at high quality. There's a production approval process that they go through. What's really important about the way we did this product is it started with the design. We decided to design the most complex items in-house, and we took a very physics-based approach to the cost because we looked at what should it cost, and we know because we designed it.

So that puts you at a very competitive advantage as you're going out to then source it. And it allows us to then take that knowledge, and we chose to not just go to the suppliers that we've always had, but to open the aperture a little bit wider to see what other opportunities were there. And so that process where we have full design control, we know intimately what it should cost. We also know where you can make adjustments to the design to potentially improve the cost, we believe, is part of what is making this so successful.

And how should we -- as we think about UEV and it's sort of being more like a next-gen platform, maybe something a little bit closer to what Tesla and some of the Chinese have done, right, where the hardware is sort of mostly fixed, you're able to sort of continually improve the vehicle via software and over-the-air update. But I think like when I go back to sort of Tesla's earlier days in visiting their factory in Fremont, like they had also mentioned that basically like even some of the hardware, right, like that you're looking at the vehicle that's coming offline today, like there could be dozens of changes versus sort of what was produced maybe a couple of months ago because they sort of found a better way.

So how set is some of the hardware and the manufacturing? Or -- and do you sort of expect it to be a little bit more iterative relative to sort of how you typically have designed programs?

We're already looking at the next generation in next elements of savings, cost savings. So this is something that Ford is always doing. You have a product that you launch and then you're looking at how are we going to take cost out over time? How are we going to continue to improve the product over time? So although we're launching in 2027, you can expect that shortly thereafter, we're going to continue to improve that product. And that's part of the agile engineering that we're doing. Of course, you're going to make sure that, that makes sense from an investment perspective. Are you going to get to payback based on the life cycle of the vehicle? But importantly, this is set up as a platform.

The platform is capable of everything from B-size vehicles all the way up to commercial vans, and it can also adapt to different types of battery chemistry. And it was all designed in to enable this to be flexible, to enable us to get economies of scale.

And you mentioned the new suppliers and the supplier readiness and that they're going through now, I guess, where are they in terms of sort of for lack of better term, like setting up shop here in the United States or near Kentucky or wherever they are going like how is that process going? Because as we've seen many times in manufacturing, right, like there's a hiccup somewhere along the way, it sort of obviously can impact your output. So what's their ramp looking like?

Yes. I'm not here to maybe talk about the details of that. I guess what I would say is that as we've selected these suppliers, we looked at it through the entire life cycle of what it would take for them to deliver the product, operationally. And then we also look at it, what would it take to deliver it financially. So we look at a fully landed cost.

We think about the piece price, we think about the investment, and we think about the logistics to get it to where it needs to go. So all of that is in the financials. And then we look at that entire life cycle stream as well as it relates operationally. And that goes into the consideration set as to whether to select the supplier or not.

When we were talking about large factors for '27, you mentioned starting that glide path to Model e breakeven in '29 from about $4 billion, $4.5 billion loss this year, right? So we know the energy -- Ford Energy is a part of that, right? And since you're sort of really not committing beyond that 20 gigawatts, we could all sort of make reasonable assumptions or how much that contributes to '29. It still does suggest like pretty meaningful improvement in the vehicle making of the business.

And I know the mix right now of vehicles from Europe versus the U.S. might sort of help a little bit with that loss, but can you help us understand what type of cost down assumptions on the UEV you're baking in? And also more importantly, obviously, like what type of volumes because clearly, you need -- you're going to need some sort of scale here in order to sort of get billions of dollars of loss out of that business?

Yes. What I've said publicly is that we've got a whole vehicle plant that's dedicated to it. So you can make your own assumptions about what a vehicle plant might be capable of. We also have just said that we are going to be launching additional top hats over time. And so I think that you're going to continue to see capacity increase.

As you know, there's unit step function increases that you can do at key points to increase the number of shifts that you have, which enables you to maximize a first shift before you move to a second, then you can do different types of labor arbitrage in order to be able to get a little bit more through overtime. And so we're going to be working all of those mechanics to optimally produce this from a structural cost perspective. You can certainly expect that.

Okay. Let's maybe close I don't know if we have time, we'll see if there's anything in the audience but on USMCA. So there was obviously some news and headlines late last week about the U.S. negotiating for 50% content. I guess maybe to take a step back, a couple of questions here. One, I know Ford and really the entire automotive industry has been in, I think, pretty close contact with this administration and understanding sort of what's going on.

So what are -- what can you share about what the Ford team is hearing and thinking about how USMCA will evolve and/or change? Maybe you could also help us understand on average, what you would sort of put the U.S. content on, on the Ford vehicle today? And then maybe finally, some comments on work that is already being done to sort of help shift more of that content to U.S. content. Because I think when we talk to the suppliers, I mean, without mentioning you or any automaker specifically, they do broadly mention, right, that there is an effort to sort of try to bring more of the content to the United States.

Yes. So let me just start at the highest level first. Very important issue for us, USMCA, as the company that produces the most vehicles in America and also the company that exports the most from America, this is a very key issue for us. It's going to be really important that we've got a strong North America agreement that also enables ability for supply chains to thrive as well. And so as we look at the components of the policy that are important to us, we think that we need to have good clarity around labor.

We need to have really good clarity around content. And there needs to be a structure that enables noncompliance to be handled with tariffs. And those tariffs have to be meaningful enough to really encourage the type of behavior that we think the U.S. needs in order to continue to have high scale, high wage jobs within America. And so that is going to be kind of the overarching framework in which we talk to Canada about, we talk to Mexico about, we talk to our own U.S. government about.

As we have been encountering these content requirements, just even associated with what we're dealing with today, we're constantly looking at where does it make sense to onshore more, maybe to put more within Canada or Mexico, that is already ongoing. So as you said, if this is what you're hearing from the suppliers, it's true. We're constantly talking to them about that. Not really here to kind of talk about -- I can't really talk at this point about any specifics there on what we might be changing. But I think it's fair to say that, of course, we're looking at it, and we're always going to be trying to profit optimize.

What about just on average across your portfolio, roughly the U.S. content?

We haven't shared that.

Can you -- like, I guess, the other thing that's at least unclear to us from the outside is what is the government considering as part of the content? Like is it straight physical product? Is it some of the intellectual property and R&D that goes into the vehicle? Like what -- do you have any color there?

It's -- the concepts, the negotiations are ongoing. There's lots of things that are on the table that come off the table. So it's -- I would say that there is not a lot of clarity yet in what this is going to look like.

Okay. Maybe let's see if there's anything in the audience here. We just have a couple of minutes left. Okay. If there's nothing there, I guess, maybe just to sort of close, I mean, if we -- I know you sort of gave out these 2029 targets. If we sort of think and fast forward to 2029 and even beyond, if Ford is sort of successful on some of these initiatives and energy storage system and software and services, how would you say that sets the company up for the future to be a structurally different company going forward than sort of what it's been in the past?

Yes. I think that what you're seeing as a company that is becoming fitter through all of the cost and quality efforts that we've been ongoing, being able to take $1.5 billion out on a net basis last year, taking another $1 billion we're expecting out of costs this year. Now we are reinvesting some of it this year, and I expect that we're going to continue that momentum as we go forward. So that's going to be a core part of the foundation laying in order to enable that pathway to 8% in 2029.

Also important is going to be us to continue to successfully launch all of our new profit pillar vehicles like the new F-150, the new Super Duty, and also these new products that have a very important part in our portfolio like the Universal EV platform that isn't just going to satisfy an affordable product for the customer, but it's also a hedge on what if regulations change in the future as well. And now we'll have a product that's going to be a lot more profitable for us to lean into if we need to. So you're going to have all of that happening.

Then of course, you've got, as you had said, the adjacencies and the diversification that we're doing, so the software and physical services are going to continue to give us uplift. And that is anti-cyclical. So now you've got a more durable company as well. And then the battery energy stationary storage, we're very excited about that. It's an opportunity for us to continue to be in high-growth, high-margin, anticyclical businesses that we think are going to make a much more sustainable -- sustainable financial picture for Ford and just accrue benefit to all of our shareholders more successfully. So those are -- that's what I would say that you can expect to continue to see from us. And we have all the strategic initiatives in place to make that happen.

Great. Well, looking forward to seeing what's next. I think we got through a lot here today in our time. So really appreciate you coming back to the conference here, and thanks for joining us.

Thanks, Joe. It's a pleasure.

Take care.

Really appreciate it.

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 First Quarter 2026 Earnings Conference Call. [Operator Instructions]

At this time, I would like to turn the call over to Lynn Antipas Tyson, Chief Investor Relations Officer.

Thanks, 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 for 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.

Now I'll turn the call over to Mr. Farley.

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're 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 reduced 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 learning -- 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 Work 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.

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 onetime 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 onetime 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 day 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 a 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 and 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 in flat industry pricing.

Now some context and important puts and takes for the year. We have the $1.3 billion in 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 Instructions] Your first question will come from Joseph Spak with 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's aluminum. There's been some hedging -- and this is really only 9 months. So I know prices have really gone up, it looks like, pretty big numbers. So I just want 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.

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.

Okay. And then I guess just a second question maybe, is there any update you could provide us on the Novelis time line? 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 sort of expected to ramp through the year. But I'm not quite certain that sort of still the case. So maybe just help us with some of that cost phasing timing.

Yes. Joe, this is Kumar. Your assumption is correct, we are still expecting the hot mill to restart in May. There are 2 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.

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

Your next question will come from Dan Levy with Barclays.

We know within the guidance that effectively the IEEPA refund is being offset by raw mats. So really the net of the guidance improvement is coming from improved operations. Maybe you can just [indiscernible] the improved operations beyond the warranty material, which looks like that's consistent. And how much runway do you have on this? And can this offset any increases in raw mats that you might be seeing in '27 just given the staggering of costs that are going to be hitting?

Yes. So as we look at kind of what's the -- basically the basis of our $1 billion raise versus guidance, it's going to be software and physical services, is one of the biggest components there. The Ford Pro business continues to have very high paid subscribers. We now are up at 879,000, as I said in some of our prepared remarks. It's 30% on a year-over-year basis. The enterprise is also doing quite well across the physical services and the software.

The other item that was really big for us in Q1 was the net pricing. As we said, the share of revenue, highest in 5 years. And this was really led, as we said, by full-size utilities and trucks.

And then we did have some timing differences in cost. So some items hit in Q1 that we were expecting to hit in Q2, and that was very favorable for us. So we took all that underlying performance into consideration. We felt that $0.5 billion was the amount to be able to pull through for the full year, and that's why our guidance reflects that.

Your next question will come from Andrew Percoco with 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 like $2.5 billion in the first quarter, of which a little bit over $1 billion is for 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?

Yes, I don't think you're missing anything in the bridge. It's just as I said, we had the 3 components that we're 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.

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?

Sure. I'm sure glad there is a lot of focus on it. As America's largest auto producer, we are totally dedicated to a thriving U.S. auto industry, and, of course, safeguarding our country's industrial base. That's just not economic vitality, it's also in national security as a country. And when we see China and Japan and South Korea, they've really prioritized their domestic auto industry and manufacturing for these same reasons that I mentioned.

I would say, to answer your question, we leverage global partnerships and even IP sharing including with the Chinese OEs to grow our business around the world. But we are really fully committed to a level playing field here in the U.S., and also safeguarding our home market because of the importance of the auto industry and our industrial base.

So how I would think about it is Ford continues to be a global company. We want to have the rights to win around the globe. We need IP and partnerships outside the U.S. to do that. And 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, that will play out in our strategy as a company. But as America's #1 auto producer you can understand our perspective.

Your next question will come from Alex Perry with 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.

Yes. This is Andrew. 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, Expedition. We phased out Escape. We're in the sell-down of that, and our F-Series remains strong.

And we actually -- we grew our share in the off-road space 25% of our volume, but our share actually grew by 0.7 point, which was really important. And that's because we're able to lean into across 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.

No boring products.

Perfect. Very 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?

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. We have, in some cases, we have fixed cost contracts, multiyear contracts. 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 would be sharing that with you. But you're right, if they go down, that will be a net positive to the business.

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

I was hoping to start on the comments the company spoke about 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. So can you help investors to better understand what's driving that degree of revenue growth over the coming years? And more importantly, what does that mean for EBIT?

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 had to invest a lot in dealer capacity for the service.

Really our focus is on 2 key areas. We have a lot more focus on these 2, 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 are especially excited about this because they don't have to come into 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 parts 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 anti-cyclical. 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 anti-cyclical 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.

That's very helpful. My other question was on the pickup market. 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?

Yes, Mark, this is Andrew. And I think it's important when you talk about the truck business, maybe 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 with the full-size pickup and medium pickup. But what we've been able to do is really expand the pickup segments themselves. Maverick has created a whole new segment. And we've been able to really take advantage of that. In fact, we've -- if you look at the trends in the market, you've seen a lot of car buyers go into truck and even utilities go into truck. And we think that trend will continue, especially with the type of packaging that 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 that has to really appeal to not just truck buyers, but to source 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.

On the commercial side, I would just -- I'll just comment similar to what Andrew said. We have commercial buyers that buy pickup trucks from Maverick size all the way up to our F-750. And we have products in those segments and we also have diverse powertrains, and we see that continuing to grow. We continue to have strong orders for 2026 right now from fleet customers. And we continue to see -- we just opened our '27 model year order books, and we're starting -- we're seeing some early indicators. So we know the demand is there, is strong, and we want to make sure that we have offerings from the very beginning, Maverick all the way to the higher pickup trucks.

How we like to think about 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 Onboard. And part of protecting is not just having an affordable electric pickup or a hybrid throughout our lineup, but it's also having a flow of customers and 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.

Your next question will come from Emmanuel Rosner with 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.

Yes. So as you move into the next half, obviously, one of the big things is you're not going to have the repeat of IEEPA, that's $1.3 billion positive. As you said, with respect to Novelis, as we start to gain more volume, what we are going to be hit more as we're more towards the end of the year on commodities, as I alluded to earlier.

And also, the other thing is we are investing more in our launches right now, and that's going to be in BESS, our battery electric stationary storage business, the UEV platform, and also Oakville in Canada. So we have those investments that are going in and ramping as we exit the year. And that's -- there's cash elements of that too, not just CapEx. So that, and commodities, non-repeated IEEPA. But then the positive is Novelis.

Okay. And cadence-wise, sorry, and then I have another follow-up question. But any sense on is the degradation mostly in the second half? Or is the second quarter ex IEEPA also quite a bit lower?

Fairly consistent, I would say, as is Q2; Q3 and Q4.

Okay. And then my second question is on free cash flow. Can you give us a bit of color on why free cash flow was almost a burn of $2 billion when EBIT was quite robust even ex IEEPA. But I think most importantly, in the guidance, you're not flowing through any of the improved EBIT to the full year free cash flow guidance even though it seems to be driven by better underlying performance. Why is that?

Yes. So let me hit your first question first. So with respect to the $1.9 billion usage in the quarter, it's very typical for us as you move from Q4 to Q1 to have a usage of cash. And that's because of the higher working capital that is needed. We're typically, at that point, you are drawing down on inventory, you're not typically producing as much the last couple of weeks of the year. That was amplified for us with the Novelis disruption as well. And you're paying out your payables. So you're going to have that negative start.

In addition, for us, this quarter, our net spending was up. And as I said, we're investing in our future. We've been really transparent about $9.5 billion to $10.5 billion this year, and you're spending on UEV, you're spending on BESS, we're spending on the future. And then also there's timing differences in there. And we pay our compensation bonuses in Q1. You also have timing differences associated with marketing incentive spends that are taking place as well.

So those are the big components. We do expect this to reverse. We do expect our free cash flow guidance to stay at $5 billion to $6 billion. The big change, as you know, was the IEEPA tariff of the $1.3 billion, and that we don't have certainty as to when that is going to come in. So we did not put that in the guidance at this time. If we get certainty that that's going to be sooner, then we will certainly update accordingly. And we thought it's a little bit early to be pulling through some of the other cash items given some of the volatility that we're working through.

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

I wanted to come back to something that 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?

As the most American company, Ford is always called to answer to duty to support our country. It was ventilators in COVID, of course, the arsenal democracy. We work with -- as you know, we are very successful with our government sales and business in Pro. And so we have very close relationships through the vehicle side.

What I'd be able to say at this point is 2 things. First of all, we are in early discussions with the U.S. government on some defense-related projects. We're not going to go into details of those today. In addition, and I would say equally important, is Ford's role as an anchor customer on onshoring critical minerals and many other supply chain vulnerabilities we have in the country. And I think you should expect Ford to play an outsized role in manufacture-grade semiconductors, critical minerals like batteries and rare earths.

And our supply chain is heavily engaged, not only with our government, but new companies that are starting to emerge in our country to onshore some of this capability. And I think maybe perhaps in the short term, that's the biggest role Ford can play in helping our country.

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

I would say yes. Not just over the last 3 or 4 months, it's something we've been, frankly, watching carefully as it evolves because we were involved in Argo and are very well aware of both managing the fleet and the SDS system itself and the progress. We kind of knew from Argo what to look for as robotaxis became -- the SDS itself became more proficient and we're starting to see that now.

I think how you should think about Ford's approach is that we are completely focused on having the most efficient EV and the lowest cost of ownership in North America, number one. And number two, because of our Pro business, we have the most fit repair and fleet management capability for new fleets, all fleets. And that capability can be applied to all sorts of different fleets. That's how we think about the market as it emerges. And I think that's all we're prepared to say at this point.

Your next question will come from Ryan Brinkman with JPMorgan.

Is there any 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.

Ryan, well, as you know, we are committed to over 20 gigawatt hours capacity starting in the fourth quarter of next year. That will be mostly Kentucky One 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 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 the key element of our bridge to 8% margin.

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, super energized about Renault on the commercial vehicle side in Europe. What do you think the broader potential for collaboration there might be?

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.

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

Just as I'm looking at Slide 10, there's a $900 million of other, 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 a $1 billion of cost benefit for the year, which would mean underlying costs was actually worse year-over-year in Q1. So what is driving the weaker Q1 cost?

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.

So you had $900 million of software EBIT?

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

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

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

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

It does include IEEPA, that's right.

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

Well, you have Novelis in there as well.

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 did mention regulatory savings. Just other cost savings that we're kind of missing in the walk?

I would say, yes, it's a variety of other savings throughout the company as well. So we thought that really it's -- cost is fairly flat on a year-over-year basis. We're really presenting very close to what we presented in the past. The big changes as we've gone into this guide is we have the $1.3 billion resulting from the IEEPA Supreme Court ruling, then we had the increase in the 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.

Your next question will come from James Picariello with 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 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 cadence for the rest of the year?

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.

And not only our supply perspective, but also, as Andrew said and in the speech, we have a -- we're in a really good stock situation too. So we're very confident we're going to need those units.

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.

Yes, and I guess, I would just say that...

Just on the cost side?

Yes. 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. Yes, 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.

Got it. That's helpful. And then just as I 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?

So it's going to be -- the UEV investments, we're already making some of those. We're going to continue to make come through Q2, Q3 and Q4. They will go up a bit as you get to Q3 and Q4. And then we also, as I said, we've got BESS in there as well and we also have the Oakville launch during that period of time also. So 3 major items that are increasing in terms of investment.

Your next question will come from Itay Michaeli with 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?

So Itay, this is Kumar. Answering your first question on the, let's say, the industrial launch of the product. There are 4 major pieces to it. There's the hardware of key new parts, like mega castings. UEV has its own software platform, so development and testing of that platform. Third is the readiness of our suppliers with all the parts that are coming from suppliers. And lastly, number four is equipment installation at our plant.

We're in the middle of all 4 of these right now and all enablers and all indicators -- early indicators of these forward streams are on track. So we feel good about it.

Your second piece of question, number of top hats. As we've mentioned, it is the platform. We plan to have high volume at Louisville. But I think it's -- we don't want to give away our plan to competition by talking about how many top hats or which top hats. It would be too early to do that.

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.

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.

I think the market is already predisposed to this price point, but now it feels like in the U.S., the EV market is moving even closer to the UEV platform. And there's really not much choice on a fully specced, highly capable technological vehicle platform that's really affordable, there's not a lot of choice for customers. A lot of compliance vehicles, but this is a real legitimate, fully capable product for customers.

So we think the market is really moving. And we understand that. That's why we're working so hard on the demand creation.

I think UEV is on -- as far as the new suppliers, do you want to mention anything about the new suppliers, Kumar.

Yes. I would say that the UEV team took a very interesting approach. We did the toughest and the most complex commodities, we design 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.

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

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

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 2025 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Lynn Antipas Tyson, Chief Investor Relations Officer.

Thank you, Leila, and welcome to Ford Motor Company's Fourth Quarter 2025 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 our guidance for 2026. We'll be referencing 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 21 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 Sherry House at the Wolfe Research Auto Tech and Semiconductor Conference in New York City tomorrow, February 11.

Now I'll turn the call over to Jim.

Thank you, Lynn. Thank you to the Ford team, to all of our dealers, to our suppliers and all of our partners. We executed very well last year. We managed through numerous challenges that came our way from multiple tariffs to supply chain disruptions and delivered good results in all areas within our control at Ford. We continue to grow $187 billion of revenue. We also lowered material and warranty costs and made significant progress on quality. Our U.S. market share climbed to 13.2%, our best performance in 6 years. I'm pleased to say we delivered TSR of 42%.

On the bottom line, we generated $6.8 billion of adjusted EBIT for the full year. This includes $2 billion headwind from Novelis fires and the net tariff impact of $2 billion. That's a $1 billion higher tariff impact than we communicated just in October due to the unexpected and late year change in tariff credits for auto parts. Without that, our full year EBIT on that one-timer -- without that one-timer would have been $7.7 billion of EBIT.

The takeaway from my perspective is we closed last year a much stronger business with a solid foundation to achieve our target of 8% adjusted EBIT target by 2029. Let's talk about that foundation. We dealt decisively with the reality of the market and shifted our focus of our EV business to a high-volume, affordable end of the market. You'll hear more in a second. We made big strides in cost and quality. And yes, that means we recalled many of our old vehicles to take care of our customers. We quietly but very thoughtfully modernized the company, upgrading our talent, all of our IT tools and enterprise tools, the culture of the company and the facilities to unleash the performance and efficiency of our team.

We've looked -- we're now locked in a more vibrant and profitable product and technology road map. No boring products is what we like to say. And boy, we can't wait to see -- wait for you to see our next generation. We have another wave of sophisticated and passionate vehicles for work, adventure, fun and off-road with the tech suite that will change the experience of owning a Ford and drive our IAS business.

Bottom line, the earnings power of our business is accelerating, and our Ford+ strategy distinguishes us from the competition in clear ways. First is the revenue power of Ford Pro. It's a durable commercial business. Our competitors cannot match. Global demand for Super Duty and Transit franchise is extremely healthy. In the U.S., Ford Pro's Class 1 through 7 market share is over 42%, roughly the size of our 2 largest competitors combined.

In Europe, we're the #1 commercial brand for the 11th straight year. But crucially, we're diversifying that revenue. Software and physical services grew 10% and now contributes 19% for Ford Pro's EBIT, rapidly approaching our 20% target. And we continue to deepen our competitive moat, thanks to our dealers who are specializing and investing in more and forming new partnerships like ServiceTitan to broaden our reach and integrate directly with the trades.

Second is our strength of our diverse truck and off-road lineup in Ford Blue. We have a powerful position in pickup trucks from the affordable Maverick all the way through the F-Series, including globally the Ranger. And Ford just won the North America Truck of the Year for the sixth year in a row, an unprecedented industry feat. We also have the highest share of revenue in the U.S. pickup market, growing almost 2 full share points of revenue last year.

Furthermore, we are translating our off-road dominance directly into the profitability of the company. Raptor and importantly, our off-road performance trims now account for more than 20% of the U.S. sales mix. This gives us massive earning power and with pending EPA changes, puts us in a strong position to satisfy those unfulfilled demands in the market. You see this all coming to life in improving customer loyalty and advocacy as evidenced by our higher Net Promoter Scores. Our corporate reputation is also getting stronger, important to dealing with policymakers, our partners and, of course, our communities. In fact, Time Magazine named Ford the most iconic company in America based on its very large survey base of its readers.

We also expect to achieve the seventh straight year as America's #1 auto producer, and we produce more than 5 vehicles in America for every one that we import. This year, we anticipate a more stable policy environment for our partnership with the administration this year, especially given a reset in the emission standards. We also expect year-over-year profit improvements driven by richer Ford Blue mix, Ford Pro growth and reduced Model e losses. We are also targeting another $1 billion of industrial cost improvements. And to drive strong execution, the management's compensation is directly tied to hitting key milestones for cost and quality and software for the vehicles that will come out in the next few years.

Our Ford+ plan is now focused -- is not just focused on near-term -- short-term profitability. Let me be specific about some of the most important drivers for our long-term value creation. First, affordable EVs. We aren't just building compliance vehicles at Ford. We're launching a cost-efficient universal EV platform that will drive profitable growth in the lower-price segments where the EVs have continued to thrive in America. We will launch multiple vehicles off that same platform, starting with a midsized pickup, bringing younger and more diverse customers into our brand. The universal platform also gives us a scalable hedge against a potential regulation snapback in the future.

Second is Ford Energy. This is a very strategic business, a start-up with a short payback period that uses our manufacturing muscle and cost advantage with our LFP batteries to diversify our revenue and derisk the core automotive business. Third, we're controlling the electrical architecture at Ford. By bringing this in-house, we lower cost, cut our supply chain risk and build the brain needed to enhance the user experience to differentiate and expand our integrated services profit pool.

Fourth, smart partnerships. We continue to build on our partnership platform. We're looking for ways to help us move faster to get access to IP that will eventually become commoditized and to lower our capital expenditures and improve our scale. Our recent agreements with CATL and Renault are different but good examples. And finally, our product road map. We're doubling down on our icons, making the next-generation F-150 and Super Duty absolutely breakthroughs in terms of cost, technology, powertrain choice and functional features. We're also expanding our off-road and performance lineups across our most important and popular franchises.

At the same time, we also plan to expand our market coverage with more affordable trucks and SUVs. And we'll do it with a broad mix of powertrains, gas, different kinds of hybrids and fully electric. Customers want choice. Overall, we entered this year with the right portfolio, the right strategy and the discipline to execute. Sherry?

Thank you, Jim. Looking back at 2025, our performance clearly demonstrated 2 things. Capital discipline and improved cost performance. Our top line remains healthy. Revenue grew for the fifth consecutive year as we continue to expand our share of revenue, including nontraditional segments like hybrid trucks, while accelerating the growth of our higher margin paid software subscriptions. We also stayed disciplined on inventory, cutting U.S. gross stocks by 16% and ending the year at 56 retail days supply, the low end of our target range.

We generated $3.5 billion of free cash flow and ended the year with close to $29 billion in cash and nearly $50 billion in liquidity. We continue to prioritize our balance sheet, a significant competitive advantage that provides flexibility to accelerate investments into accretive opportunities like Ford Energy and both software and physical services. These are high-margin, high-growth opportunities grounded in disciplined capital allocation that will drive a higher returning, more resilient business model over time.

We remain committed to our investment-grade rating while also delivering top quartile shareholder returns through both share price appreciation and dividends, including the declaration of our first quarter regular dividend of $0.15 per share last week. Now turning to segment highlights. Ford Pro once again demonstrated its importance and persistence as a key profit pillar for Ford by delivering more than $66 billion of revenue and EBIT of $6.8 billion with a double-digit margin. Pro achieved this in the face of tariffs, production losses due to Novelis, normalization in U.S. industry pricing in more commoditized areas like government and delivery vans and the challenging macroeconomic and regulatory landscape in Europe, where we achieved market share growth.

In the U.S., Transit had record sales, up 6% and Super Duty had its best sales in over 20 years, up 10%. Pro continues to evolve its business by diversifying revenue streams and building out its high-margin service infrastructure. Paid software subscriptions grew by 30% last year. In 2025, we made meaningful progress in Ford Model e, improving structural cost, our mix of higher-margin products and driving adoption of affordable high-volume vehicles. Model e delivered revenue and volume growth of 73% and 69%, respectively, driven by new product introductions in Europe. EBIT losses for the year improved to $4.8 billion loss, reflecting fewer losses on Gen 1 products, partially offset by increased investment in our Gen 2 products as we prepare for the launch of our UEV platform in 2027.

The lower Gen 1 losses were driven by cost reductions and higher volume in Europe, where margins are stronger. Lastly, in December, we rationalized the role of pure EVs in our near-term product portfolio based on changing market realities in the U.S. Our disciplined approach to capital allocation will significantly improve the run rate of the business going forward. Our performance in Ford Blue was supported by our industry-leading power of choice and strength of our truck and SUV franchises. Revenue was roughly flat as higher net pricing and the strength of our product lineup offset most of the 5% decline in whole sales, which includes disruption from Novelis.

In the U.S., Blue had the 2 best-selling hybrid trucks, Bronco had record sales and Explorer was the #1 3-row SUV. Our higher-margin Raptor franchise also had record sales. Blue delivered $3 billion in EBIT as lower warranty, other cost improvements and growth in software and physical services were more than offset by planned and unplanned loss of production and adverse exchange. Ford Credit delivered full year EBT of $2.6 billion and distributions of $1.7 billion. EBT was up 55% for the year, reflecting improved financing margin. Ford Credit continues to originate a high-quality book with U.S. retail and lease FICO scores exceeding 750.

We are excited about the recent approval of our industrial bank application. This long-term initiative will expand our capabilities, enabling us to offer additional savings options to customers, further diversify and lower our cost of funding over time. So let me turn to our 2026 outlook. For the full year, we expect company adjusted EBIT of $8 billion to $10 billion, adjusted free cash flow of $5 billion to $6 billion and capital expenditures of $9.5 billion to $10.5 billion as we shift capital to higher return growth opportunities across our portfolio, including roughly $1.5 billion for Ford Energy. Our full year outlook for the industry assumes a U.S. SAAR of $16 million to $16.5 million and flat industry pricing.

Excluding Novelis, tailwinds and headwinds for Ford include positive market factors, including favorable mix associated with the sunset of low-margin nameplates and benefits from changes in the U.S. regulatory environment, flat cost, which I would like to unpack further. We expect lower tariff costs of about $1 billion, reflecting a full year's worth of credit expansion. We also expect further material and warranty cost reductions, building off our momentum in 2025. These combined savings allow us to absorb about $1 billion of higher commodity prices driven by inflation and pressure on DRAM as well as incremental investment in support of our UEV platform, the ramp of Ford Energy and cycle plan actions that will drive higher return growth in 2027 and beyond. Additionally, we expect our high-margin software and physical services profit to grow by about 6.5%.

Now let me frame Novelis for you. We expect year-over-year improvement of about $1 billion, which is back half weighted. This includes $1.5 billion to $2 billion of temporary costs, including tariffs to ensure continuity in aluminum supply. These costs are not expected to be repeated in 2027. From a calendarization perspective, we expect our first quarter EBIT to be roughly flat sequentially as we continue to work through the impact of Novelis. We expect to approach a more normalized EBIT in the second quarter with a plan to hit our underlying EBIT run rate level in the second half as volume stabilizes and our portfolio optimization takes hold. To help you better understand this calendarization, we have included a first half, second half bridge for you in our earnings deck.

Our segment outlook anticipates another robust year at Ford Pro with EBIT of $6.5 billion to $7.5 billion. The fundamentals of Pro's business are strong. In North America, we expect continued share growth in an industry that's roughly flat, enabled by conquest sales and a diversified channel mix, which we believe to be well balanced at roughly 1/3 large corporations, 1/3 SMB and 1/3 government and rental fleets. We still see untapped demand for crew-cab and diesel Super Duty, and most of our contractual deals for the year have already been agreed to.

Ford Pro continues to improve its durability by growing its mix of profitable software and physical services globally through precision customer targeting, demand generation initiatives and Pro specific solutions. While Pro's underlying business continues to strengthen, we expect 2026 results to be dampened by the near-term impact in Novelis, ramping Oakville to bolster Super Duty capacity in Canada and a tougher regulatory climate in Europe. We expect losses of $4 billion to $4.5 billion for Ford Model e. This reflects about $1.6 billion of improvement in Gen 1 products, driven by lower U.S. volume and cost savings from restructuring the business. These savings will be partially offset by around $600 million in higher Gen 2 costs as we near the launch of LFP batteries in Marshall, Michigan and our UEV platform in Kentucky, along with roughly $400 million in start-up costs for Ford Energy.

The team is aggressively working on additional Gen 1 cost reductions in ways to further optimize the market equations in the U.S. and Europe. We continue to target Model e reaching breakeven in 2029. For Ford Blue, we expect EBIT of $4 billion to $4.5 billion, reflecting improvement in the underlying business as we recover from Novelis, favorable mix as we lean into our revenue and profit pillars and continued progress on cost. Exciting new products like Bronco RTR and Mustang Dark Horse SC will help us expand our off-road leadership and grow our performance business. Furthermore, like Pro, we expect continued growth in our software and physical service offerings for retail customers through increased convenience and engagement.

Lastly, Ford Credit's EBT will be about $2.5 billion. Relative to special items for 2026. In December, we announced actions to rebalance our EV portfolio and assets and launch more multi-energy platforms. In 2026 and 2027, we expect to record about $7 billion in charges related to our updated EV strategy and the expected disposition of our BOSK investment. Cash expenditures are expected to be up to about $5.5 billion, with most of this weighted in 2026.

As I mentioned at the beginning, our 2025 performance demonstrated progress against our Ford+ plan, not just in growth and profitability, but also quality, capital discipline, the right product portfolio and consistent cash generation. Our underlying business is strong, and we are relentlessly working to strengthen it further as we continue to focus on improving both quality and cost as well as returns and cash flow.

I'll now turn it over to the operator so we can start Q&A.

[Operator Instructions] Our first question will come from Dan Levy with Barclays.

I want to first start with a question on Slide 19 and some of the assumptions you have for 2026. And maybe you can help us unpack the pieces on the market factors, which seem to be quite positive and what's driving the year-over-year increase. Now I know you said that there's $1 billion of Novelis, but maybe you can help unpack the magnitude of other benefit you're getting on the mix side and how that all of this can -- on powertrain and how all this can offset maybe some of the declines on volume from Escape, Corsair and also the more competitive environment? And maybe you could just a word on tariff assumptions as well.

Yes, sure. Thank you so much, Dan, for the question. So let me just start with the Novelis improvement of $1 billion year-over-year, and I'll unpack that slightly for you. That assumes $2.5 billion to $3 billion, reflecting the nonrecurrence of 2025 losses and capacity actions at Dearborn and Kentucky truck plants.

So you'll recall that we had about $2 billion of losses last year. The expectation is that would be nonrecurring as we enter into 2026. Originally, we thought we would make up about $1 billion of that. Now we think we'll make up $0.5 billion to $1 billion based on the second fire in November. That's going to be offset by $1.5 billion to $2 billion of temporary costs, and that's to ensure supply continuity. There will be tariffs and premium freight associated with that supply continuity of aluminum until we can get the Novelis hot mill back up and running sometime between May and September.

With respect to the positive market factors, yes, it does include the sunset of low-margin nameplates, namely Escape, but there's also benefits that we expect to achieve from changes in the U.S. regulatory environment. And the biggest impact there would be about $0.5 billion less of credits in the U.S. You'll note that we had about $0.7 billion of credits last year, but about $0.5 billion of that is attributed to the U.S.

Cost, roughly flat, excluding the Novelis impacts. We had industrial cost improvements. We're expecting maybe around $1 billion, again, in material and warranty costs. We're expecting tariff costs lower by $1 billion year-over-year. But again, that's going to be offset by the Novelis temporary costs in '26. We'll have higher commodity prices, we think. And there's also investment in UEV, Ford Energy and the cycle plan that we spoke about. We also expect there to be continued growth in the high-margin software and physical services businesses that we talked about in Pro, but across all of retail, including Blue. Other factors are largely balanced exchange compliance, et cetera.

And then did you have a further question on tariffs?

I think you covered the tariff question. As a follow-up, Jim, I'd like to just ask conceptually how you're looking at the investment in EV and AV. And really, it's just in the context of if we look at the arc of investment you had in the past 5 years, we know that you and others went through this very heavy push on EV, AV software sort of had mixed results. And I know you took a big impairment. A lot of companies took a big impairment on the back of what happened with the regs. But it seems like you're resetting strategy now. There's a fresh push on EV with UEV. You're making more investments on ADAS and software.

So help us understand in light of the experience the last few years and how maybe capital inefficient it was for the industry as a whole, how you're making sure that this new round of investments is being done in a more capital-efficient manner.

Thank you for your question. So I think the customer has spoken. That's the punchline. The customers in their duty cycle have spoken, there's enough choice around the world on electrification for us to cherry-pick customers' choices around the world and come up with the right strategy, not only in the U.S. but around the world. In the U.S., you hit it. Our bet is on the UEV. We believe this platform localized in LAP will hit the majority of profitable EVs sold in the U.S., which are $35,000 EVs, high volume. Tesla has shown that they could -- we can make money in that market even without subsidy from the government at the right cost level.

But that's only part of our strategy. In addition to that, we're betting on hybrid across our lineup and EREV where it makes sense for our duty cycle like a large trucks where towing is a real important application and both FHEV and pure electric will definitely not work. So we're looking to make CO2 reductions across our lineup, but we're doing it in a very efficient way. Overseas, the story is a bit different. Overseas, we're looking to piggyback like in Europe with Renault and Volkswagen on capital-efficient, high-scale, lower-cost solutions like [ BCAR ] EVs in Renault. We think that is a market depending on how the EU and the U.K. incentivize them, but that can be profitable.

Elsewhere, we'll be opportunistic between PHEVs and hybrids for Ranger, our body on frame and our growing export business from China will be opportunistic based on that customer in Australia or South Africa or Brazil, exactly what they want. I think the real question that I ask myself is how will the Chinese change the game with all of these in terms of pricing power, given the overly competitive subsidized reality and for example, in January, the Chinese market being down 25% year-over-year.

If that persists, we will have to future-proof our cost around that pricing reality. That and the regulatory environment, I think, are the wildcards in this strategy, but that's the same wildcard every OEM has. And -- but I do believe this is the right allocation of capital. It's a combination of partnerships where it makes sense, efficient partial electrification investments where we have revenue power and really hitting the EV market in the core of the market in our home market where there's not a lot of competition.

Your next question will come from Joseph Spak with UBS.

Sorry to go back to this so quickly, Sherry, but just to make sure I got this Novelis impact right in my head here. So it was a $2 billion impact in '25. You're talking about that's lower by $1 billion in '26, so $1 billion, but that's still inclusive of $1.5 billion to $2 billion of temporary costs. So the delta to get you back higher, I guess, is the volume portion of it. So I guess, put another way, if all that temporary sourcing costs and logistics and higher tariffs is really temporary, you're basically saying that $9 billion EBIT is more like $10.5 billion or a little bit above that. Is that the right way of thinking about that?

It is a fair way to think about it, yes. So basically, we have nonrecurrence of the $2 billion from last year, right? So that would start to 2026 better. And then we had planned on being able to make up about $1 billion of that. Now we think it's probably $0.5 billion to $1 billion. So that's how I said top line, $2.5 billion to $3 billion, but we have temporary costs, and those are going to be $1.5 billion to $2 billion. So when you take that off, that gets you with a net positive $1 billion for the year. And I do agree that you would have some tailwinds on that going into 2027.

Given Novelis is so important, Kumar, do you want to say anything about the variability of those costs and how reliable is our aluminum supply now?

Okay. So 2 facts there, Jim. We expect the mill to start back up somewhere in the middle of the year, the range between somewhere May and September. We have a team working closely with Novelis on the ground there, so we know exactly where things stand. But the more important part is the second part of your question. We have contingency plans to secure sufficient supply for various scenarios, no matter where we end up with the start date between May and September.

Okay. And then just the second question, another one, I guess, on market factors. I want to focus, I guess, specifically on 2 areas. One is you've got some competitors out there that are sort of trying to regain share in North American trucks and European LCVs. So how do you think about the market impact there? I know you mentioned in your remarks some affordable trucks in Pro. And then even beyond that, like is there any more granularity or color you could give us as to sort of what gets you comfortable with the Ford-specific market mix factors that can sort of aid profitability to help offset some of these costs?

Yes, Joe, it's Andrew Frick. First of all, let me comment on the first part around full-size pickup. That is always a competitive segment. So this is nothing new for us. And as the leader, we have to be ready for challenges at all times. We have a great pickup lineup right now, a great F-Series lineup. We cover the breadth of the entire segment, and we've actually been growing. In fact, last year, as Jim mentioned, we grew 2 points of revenue share and 1.5 points of volume share in 2025, and we've actually expanded our truck leadership position over our key competitors each of the last 2 years and by a sizable margin.

But as we enter this year in '26, we, of course, always approach it humbly. Our dealer network is really set up and is a real strength for us. They continue to invest in the truck business. Our stock positions are on the low end of our day supply range right now. And our overall market approach is to remain disciplined in our market equation, balancing the stock share and our incentive spending. And we're going to continue to maximize series and powertrain mix as we approach that segment.

And really, on the second part around broader market and our portfolio, we're looking to improve our mix based on customer demand across the whole portfolio. And Sherry mentioned some of the product mix impacts. We started making some of those in the second half of last year based on the changing conditions. For example, we're increasing hybrids on Maverick to address demand, while F-150, we're increasing V8s, Lariats, Raptors, both again, tied to customer demand.

So part of our ongoing efforts to optimize the market equation, our approach is to balance our mix while also increasing our revenue. And that was evident last year as we increased our share of revenue again on pickups and 4 by 4 vehicles.

Alicia, any comment from you on Pro for our assumptions this year for market equations, what you're seeing given that we're competitively quoting for several months now?

Start it off, we've been a leader in Europe from a fleet perspective for the past 11 years, and it was a very competitive market. Last year, we expect it to continue to be. Right now, we're seeing strong demand from an orders perspective on the light commercial vehicle side. We absolutely have a very competitive environment, but we have very competitive products. And we also have services that we're continuing to invest in and grow, where we're offering our fleet customers solution for uptime and productivity.

So we're seeing strong demand for orders coming through the quarter, and we've also seen just solid pricing, right? And so our initial assumption was that we'd see a small decline in pricing to start the year, and we actually have not seen that yet. But we're very tied into what's happening in the market and making sure that we're responding there for customers.

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

My first question is on capital expenditure. So you're making these investments into higher return products and technology going forward. But I think at the income statement level, it's roughly offset by ongoing cost savings. So you're investing, if I get the numbers right, maybe an extra $1 billion, but you have $1 billion in savings. At the CapEx level, it seems like you're actually taking it up, and I was a bit surprised by this. So how should we think about the CapEx needs for these investments over the next few years? Is this sort of like a new run rate? Or is there sort of like an initial boost needed because of the energy storage investment?

Yes. Thank you for the question, Emmanuel. So guidance reflects an increase in capital spending of a little more than $1 billion, as you noted, so $9.5 billion to $10.5 billion. That increase is driven by our investment in Ford Energy, which is the largest portion of it is expected to be in 2026. We had talked about a $2 billion investment in Ford Energy and $1.5 billion of [Technical Difficulty]. The mix of our capital spending continues to shift. We have a new capital allocation process. It's changed. It's really pushing our capital into more accretive areas of the business.

And we've consistently stayed nimble, adjusting to customer demand and a changing regulatory environment as well. So what I would say is that roughly 75% of our capital over the plan period is going into our higher return, larger truck and multi-energy portfolio. And then that balance, 25% is your Ford Energy and continued Model e investments like in UEV, EREV and things of that nature.

And the goal for that capital allocation is very clear. It's to get to 8% EBIT margin for our company. We are investing more in Blue as well, hybrid and new products that will be very profitable. And we are decelerating the investment in Model e, even though it's still at high levels, as Sherry said, we are descaling that investment. So the goal is to set up the company over the next couple of years to be that 8% margin company, and that's the kind of capital we need to invest.

And then as a follow-up still on Model e. Then, I guess to get to this ultimate target, you probably also have to execute on bringing back Model e to profitability. Can you talk maybe about some of the levers and cadence between now and 2029? It seems like you're doing -- you're having a lot of savings this year on Gen 1, but investments on the new generation. Is the improvement towards breakeven, is that going to be back-end loaded towards 2029? Or can we expect some steady improvement throughout the time period?

Yes. Thank you. I think you can expect steady improvement throughout the time period as the UEV products come on board '27 and then get even more profitable in '28 and beyond with additional variants, that's going to improve the profit margin as well the introduction of B vehicles in Europe that also will be coming on board as well. And all of that's going to be happening as some of the Gen 1 becomes lower volume.

Your next question will come from Ryan Brinkman with JPMorgan.

I was intrigued by Jim's comment that full year 2025 tariff costs track $2 billion versus the $1 billion, that was communicated at the time of the 3Q earnings due to a late year change in tariff credits on auto parts such that full year EBIT pro forma for this would have been $7.7 billion, which is substantially better than the $6.0 billion to $6.5 billion that was guided to on the 3Q call.

Firstly, can you help on what exactly was the regulatory change? I'm aware of the change to tariff on the non-USMCA compliant parts. I thought that was a positive, though, allowing for a longer phase out to the offsets there. And then secondly, the fact that full-year EBIT pro forma for the unexpected headwind tracked $1.2 billion to $1.7 billion better than expected. Can you talk about what is it that tracked so materially better than at the time of 3Q earnings? And then finally, as we head into 2026, you characterized the headwind as maybe onetime. Is there any headwind relative to the tariff credit change that continues with you? Or did it only impact the fourth quarter?

Go ahead, Steve. I think -- we had all -- great question and a very important question for Ford because we're the most American company, we have a very different footprint than our competitors. It's largely related to parts recovery and the timing. Go ahead, Steve.

Sure. Thanks. Yes, the short explanation is a credit that we have against our tariff liabilities on parts became effective on November 1. And we had understood it would become effective instead on May 3. And so that delta is about the $1.9 billion that Sherry referenced. It will mean to your last question that going forward, we can use this credit, and this is a onetime hit, but that was the hiccup that we experienced in December and accounts for about $1 billion of the difference.

You had a follow-up question about just Q4 must have been coming in stronger given that we would have been at $7.7 billion. You're absolutely right. It was crossed. A lot of that was cost. And you might have noted that we said that we ended up with $1.5 billion of cost improvements on a year-over-year basis versus what we originally were targeting at one. And it's multiple elements of cost, a little bit of pricing in there, too.

Okay. Very helpful. And then just lastly, while I know you don't report EBIT by region, could you speak to the performance in Europe, including how you would rate the strength and profitability of both your passenger vehicle and commercial vehicle businesses there and how the outlook for the 2 businesses could be impacted by either the EV portfolio changes announced on December 15 or the agreement that was signed with Renault on December 9 regarding the 2 incremental Ford-branded EVs and cooperation on light commercial vehicles.

Thank you. Well, we've always been very consistent. The core of our European business is our Pro strategy continues to be very profitable. And in fact, this is kind of the first year we've seen the benefits of the VW scale with our 1-ton van where it's worth a lot of money to combine our scale. Your question obviously points to the growing concern around the profit pool for profitable passenger cars in Europe. And that's exactly where the conversation should go when it comes to Europe.

We obviously are taking steps to address our profitability of our passenger car business as we have for many years. Jim Bomback and the team are very focused on using Renault's platform, especially their B-sized EV to dramatically reduce our costs and improve the profitability of our EV business in Europe. And we see that as a very critical moment for us. We also have plans -- exciting plans for Europe on our passenger cars, but we will play very carefully in specific segments to our strengths to make sure that not only we build a profitable passenger car business, but we also support our dealers' profitability so they can invest even more in growth in Pro.

Now the real rub is going to be how the U.K. and the European EU handle the choice between CO2 reduction and jobs. And this is a place where Ford is quite outspoken because we're not a national champion. We can really speak on behalf of the customers on what the right balance is between CO2 reduction and where customers really stand as well as job risk. And I will tell you that most of the variability of that profitable passenger car market is going to come down to the policies with the EU and the U.K. governments.

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

I just wanted to come back to energy storage and hoping you can just provide a little bit more context around your capital allocation decision there. And along with that, this is a -- I know you're 2 years away or so from really ramping up that production, but this is a much longer lead time market than your traditional auto market. So I'm just curious if you can share any feedback or context around what customers you might be speaking to and maybe the feedback that you've been receiving and maybe where you see yourselves really fitting into that market?

Sure. It's early days. But at the strategy level, there is no doubt that the growth for battery storage for both data center build-out and grid stability, places like California and Texas and Florida is exploding, both for consumers and business users like data centers. We have been deeply engaged with customers as we develop this business plan, and we continue to engage them in specific contracts for our 20 gigawatt hour capacity in '27 and beyond. I would say this is not -- this is not at the pace of auto industry. We can build the factories faster than auto, and we can scale our revenue much faster.

We also have a significant advantage technology-wise. We have access working with CATL and licensing their technology, but in our own plants, we have a significant advantage with the LFP technology compared to our competitors who are either importing with high tariffs LFP or trying to run this business with lithium batteries and much higher cost locally made. We believe that Ford has the manufacturing expertise to scale this business. We have great partners that can help us, and we're really excited to be a customer-facing business. We don't want to be a contract manufacturer of batteries. We want to have end-to-end solutions for customers where Ford Energy people will be calling, fulfilling not just the sales contract, but servicing those customers over the long term. We believe this is a great adjacency for our Pro business, fits right in the wheelhouse of our expertise.

And given our advantage technologically, maybe for a period of time before battery costs commoditize, we feel like the customers are very excited. When we come calling to large grid suppliers, energy companies, they're really excited about Ford being in this business. We're a trusted company. They've been buying our vehicles for a long time, and we've done our homework on this business.

Great. Yes, that makes a lot of sense. And maybe just to follow up with another question on capital allocation. I mean, Jim, I think you've been a pretty big advocate of partnerships in the past where it makes sense. So when it comes to your autonomy strategy, it sounds like you're trying to do a lot of that yourselves in-house. Can you maybe just elaborate on why that's the right decision, why a partnership doesn't make sense in this context?

Good question. BlueCruise is largely a supplier-based system that Ford basically perfected the customer experience. But Level 3 is quite different. It's a very important safety critical system where people are traveling in high speed on the highways with their eyes off, and we have real expertise coming from Argo. The people that we got out of the Argo team that are now in Latitude are very experienced people. And we don't think the technology is exclusive. What we think why we want to bring this in-house is 2 reasons, affordability. These are very expensive hardware solutions and software. By bringing them inside the company, we can save thousands of dollars per vehicle in cost.

That's why we're launching L3 with the UEV. Many of our competitors are launching Level 3 with their luxury brands. We're going to be doing it with our 30,000 to 35,000 of our views. That's a big strategy choice by Ford. We can do that because we did this inside the company, and we had control over the hardware and it wasn't supplier base. So it was more affordable.

The second thing is experience. When you're driving down the highway with your eyes off the road, it's very important to have safety critical systems when the vehicle reengages the customer, how that whole process works and all the content sharing and all the other activities that customers is going to be doing and not driving the car. So it's very important for us to control and curate the experience on Level 3. Level 4 strategy could be quite different. I'm not going to go into that today, but I think we look at Level 3 quite differently than Level 4 quite differently than Level 3 autonomy.

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

I was hoping to talk first on costs. You talked about $1.5 billion of progress this past year, excluding tariffs and expecting another $1 billion in 2026. If we go back to the '23 Investor Day, you talked about a $7 billion relative cost gap with peers. And I'm curious with the progress Ford has seen, where do you think you are on that journey? And is $7 billion still the right number for investors to have in mind over time?

So you're absolutely right, $1.5 billion last year, another $1 billion this year, most of it from material as well as warranty. And obviously, we refresh the cost gap scenarios as all the earnings come out, we will redo that, but firmly believe that we're closing that gap quite rapidly.

I just want to highlight the important work that Kumar and Doug are doing on the next-generation product. We're launching high volume, very meaningful products in the next couple of years and embedded in those products is much lower cost. So not only are we doing it kind of year-to-year through BOM adjustments, negotiation with our suppliers, lower freight and duty, lower labor content in our plants, we're also embedding that, all that thinking into our next generation of products. And to me, that is the ultimate work together because that will change the culture of the company.

Helpful. My other question was around inventory. You mentioned exiting '25 at the low end of your inventory target, obviously, facing some challenges around supply chain. But as you think about what's assumed in your '26 guidance and making up for a degree of the lost volume from this past year, are you assuming you restock dealers as part of your outlook for this year? Or are you planning to ship to demand? And I ask in part to try and understand around the extra shift of F-Series production. Is that something that might be sustainable into 2027?

Yes. Good question. We ended the year on the low end of our range. We reduced our stocks dramatically year-to-year, leaving '25. So we were down 16%. We had about a 66% gross day supply. We expect in '26 to remain within our targeted levels of the 55 to 65 retail base supply for the year. We will be on the lower end of our F-150s for the first half of the year as we rebuild in the second half of the year, but we'll stay within our overall range. And we have -- combined with that is the demand side of the business, so that will allow us to do that, especially in our truck business.

Your final question will come from Colin Langan with Wells Fargo.

Just to clarify on Novelis. I think you originally said you lost 90,000, you were going to add capacity of 50,000. It sounds like -- is that still the case that we should see about 140,000-ish increase? Or I think your comments seem to imply that maybe it's a little lower than that. Any color there on the actual volume recovery we should expect?

Yes. So we had lost around 100,000 units last year. We're planning to increase by about 50,000 to 60,000 this year is the plan.

Okay. Because I thought you originally said you expected $1 billion, and now it's $500 million to $1 billion. So is that just the added cost to get the -- that's what's worse than you originally thought in Q3 is the added cost to get that aluminum over?

Well, the added cost is definitely a factor, and that came after the second fire in November. So the added cost is different than when we had reported after the first fire.

Okay. And then if I look at the free cash flow guide, it's up $2 billion at the midpoint -- adjusted EBIT is up $2 billion, but CapEx is up over $1 billion. What's the additional $1 billion sort of help to free cash flow to kind of keep the adjusted up $2 billion without the CapEx being higher?

Yes. So we had -- you're talking about the cash flow from [ $3.5 billion ] this year to the midpoint, which would be at [ $5.5 billion ] in 2026, right? So that's going to be driven by higher automotive EBIT that's going to be driving with your free cash flow conversion. We also had a receivable from the U.S. government for $1 billion in tariffs. And we do have, as you said, higher capital spending in '26 as we moved into these higher growth opportunities.

So the receivable from the government.

This concludes the Ford Motor Company Fourth Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect.

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

Thank you, Jonathan. Thanks for having us.

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

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

We keep you guys on great forums.

Yes, exactly.

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

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

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

Yes. So as we reported in third quarter, it's very important to note the underlying strength of our business right now is really good. It's very strong in our run rate. In fact, what we reported was we were on pace to deliver $8.5 billion -- over $8 billion of EBIT for the year prior to the Novelis fire that obviously we've been dealing with.

Within that are a lot of -- through the year, we see a lot of different things coming in and out. Tariffs being one of the big things that we saw this year. It was about a $2 billion headwind. We were able to offset $1 billion of that in different market factors, volume, mix throughout the year, pricing that really led to us offsetting a good piece of that.

At the same time, we've improved the overall cost of our business as well, over $1 billion of -- in our industrial system, which is something we were really focused on doing this year. So the underlying strength of the business was really good. So that over $8 billion track we were on was on the high side of what we originally had provided as an outlook back in February, which was $7 billion to $8.5 billion. We did -- we are dealing with the Novelis fire at one of our suppliers that will have an impact on our fourth quarter. We did share and report that it would be about $1.5 billion to $2 billion negative for us in the fourth quarter. And obviously, we're focused on that recovery as we head into next year. So what we guided then was $6 billion to $6.5 billion net of that impact of Novelis.

Correct me if I'm wrong, but I think the shares reacted very positively the day you reported. Do you have a sense how much of that -- or I guess maybe the feedback you've gotten from investors was your ability to offset some of the impacts from the Novelis fire or perhaps it was the commentary around tariffs.

And maybe you can just talk about, I guess, I don't know if there are anything, there's expectations anymore. But what tariffs were at the beginning of the year and kind of how that's evolved. I believe there were some new kind of carve-outs in Trump's policy on perhaps lower tariff rates for you guys or some credits in there. So how are we thinking about tariffs? And in terms of the quarter, what were people thinking about the positives, the puts and takes, whether it was your ability to offset impact from the fire, tariffs not as bad as feared, maybe some commentary around those factors.

Yes, I think overall, it was positive because, obviously, Ford is well positioned with majority of our manufacturing being done in the United States. We're in the best position relatively speaking to a lot of our competitors. And when some of the carve-outs happened in the -- around parts and everything else, that had a -- that was a positive. So what started at a much higher amount at the beginning of the year came down to about a $2 billion headwind for us for the year. And like I said, we were able to offset just over half of that with different market factor improvements. And I think that was -- the market reacted favorably to that.

And then on Novelis specifically, our team and our supply chain team and all the way up to Jim Farley and Kumar Galhotra, who runs the industrial system, like any situation like that, the team was immediately on it. We've taken some action to help Novelis and obviously to help recover some of the lost F-Series production that we'll have in the fourth quarter. And as we look into next year, that's obviously our primary focus is recovery around Novelis.

So we announced that we are adding a third crew to our Dearborn truck plant, which will help us recover some of the F-150 volume. We'll obviously max out our production at Kentucky Truck. The good news is the demand for our F-Series is so strong right now. Everything we can build, we'll be able to. And I think when the reaction to the quick action plan and the movement from the third party that we -- or the third crew into Dearborn truck was seen as a quick action.

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

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

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

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

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

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

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

Yes, certainty certainly helps in a business where you have long-term planning, and you want to make the right calls. Of course, there's market adjustments that you make. The industry SAAR as a whole is really strong right now. Pricing remains really strong in most of our markets, and we feel very good about the actions that we're taking.

There's other policy-related items. You mentioned compliance that you -- that we kind of look to say, okay, well, how do they all play with one another. And as we look at compliance, for us, the way we look at that is a potential benefit for the way we are able to build towards natural consumer demand. And we're expecting some changes in policy here at the end of the year in the United States. Obviously, we're a global company. So we have to look at regulatory environments in Canada, in Europe and other parts of the world. But at the same time, in the U.S. It will allow us to build ICE products, hybrid products and electric vehicles to the natural demand, and we feel good about that.

It allows us to have a little more flexibility in our production in terms of what we're able to build. If you take a look at some of our off-road derivatives, F-150 Raptor or Bronco Sasquatch packages or Tremors on Expedition and Explorer. Those are high-margin series that we'll be able to build more of that we wouldn't have been able to in a more constrained regulatory environment. So it gives us some flexibility there to build what customers are looking for, and we offer all 3 powertrains. So that plays to our advantage, we think.

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

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

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

Yes. They have definitely been pulled back or we're expecting them to be pulled back later this year. To us, it gives us the flexibility to build towards customer demand, natural customer demand and not trying to force the market. You can see what's happening in different markets. In Europe, there's a tight regulatory environment. And you've seen the pricing of different OEMs go in, whether they're pooling within credits or not.

In the U.S., we had to expense credits last year to remain compliant. So as we look at how that impacts us, especially in the United States, we think it's going to be a good thing for us because, again, just always building the customer and focusing on the customer is the best thing we can do, and we have the portfolio and we have the powertrain lineup to be able to do that and remain compliant. And as we go into next year, we'd have less credits that we'd have to expense as well.

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

Great. Yes. Our Ford Pro business, which is our commercial business, is really important for the company. It's one of our strategic advantages. We have a huge competitive advantage in each of the markets that we play in. I guess maybe I'll talk about it in 3 ways. One, the vehicles and our offerings and our channels; two, the service and how we're really focusing on service; and then three, where you were going with the software and our Ford Pro Intelligence offering.

So on our vehicles, we're in a really good position because we have the greatest breadth of commercial vehicles of any OEM out there, especially centered on our van and truck and Super Duty business. We compete very equally spread across the fleet channels. So we have about 1/3 of our business with large corporations that are across multiple industries, 1/3 of our business that is in small business and what we call, fleetail or smaller fleets that come in and buy retail, and then about 1/3 in the government and rental business. So very evenly spread, which is an advantage.

And we've been able to, in both the U.S. -- actually, in all of North America, we've actually been able to grow our share this year across all 3 channels. We're the #1 selling brand. We outsell our 2 closest competitors 2:1. We double them or we actually outsell them combined. And in Europe, our Pro business is extremely strong. We're the #1 selling brand in Europe, and that we've also been able to grow our share a couple of points this year there as well. So vehicles are very strong. We've been able to maintain the breadth of our lineup, the pricing power within and it's equally spread across the channels, which gives us really good diversification.

On the service side, so a couple of years ago, we really wanted to focus on the infrastructure of supporting the commercial customer and the fleet, the overall fleet customer. And we partnered with our dealers to do that. Our dealers have invested over $2 billion in focusing on customer uptime.

For a fleet customer, customer uptime is everything. It's their revenue source. It's their business. It means so much to them. So our focus has been on customer uptime. And we've built -- we have now what we call -- we have 60, we're on pace to have 120, what we call Ford Pro Elite Centers in the United States. Those are specifically designed facilities and service capacity for commercial customers focused on them and their business. It's about -- we've added about 1,700 service stalls this year dedicated to Pro customers. We also have 750 to almost 800 what we call commercial vehicle centers across the country that, again, specialize in commercial business. So we built a really good infrastructure there.

We also have, over the last few years, built the largest mobile fleet service. So we have almost 5,000 mobile fleet -- mobile service vans that go to the customer and provide service work, which is really important for fleet customers that can have hundreds of vehicles at a location, we can come and our dealers can service their fleets and again, work through oftentimes at night to keep their uptime and their productivity high. That's become a really big structural advantage for Ford Pro and for Ford, and it's really paid off for us a lot in terms of customer satisfaction.

So we've installed a ton of service capacity for them. And when you combine that then with our software offerings, our Ford Pro Intelligence, Telematics, really focused on the total cost of ownership for our Pro customers. What happens is you start to see this flywheel of effect where strong products with strong service with intelligent vehicles and connected vehicles that actually help them be more productive with the way they run their fleets, it's incredibly powerful, and we're seeing a much higher loyalty rate coming out of those customers that are part of that flywheel.

As an example, customers that use -- we're at 818,000 paid subscribers now. And of those customers that subscribe in our Ford Pro Intelligence, they have a -- their parts attach rate is 20 points higher than those that don't. So there's a really important connectivity to our overall service and parts that go with it. As a result, our services, as a percent of our total Ford Pro EBIT, has grown over the last several years, making it just a much more durable business and helping us if there's ever any cyclicality in the industry.

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

We see it as a long-term advantage for us, and that's why we continue and invest much greater than any other OEM. As the market leader, we don't only want to be the market leader in our market share where we're over 40%, but we also want to have a much higher percentage of service business, and we want to be a leader in the software side as well.

So what that's been able to do and building that flywheel and why we've invested in that, it helps us with our multi-make fleets. We've been able to conquest a lot of multi-make companies. We've done some strategic partnerships lately. We just partnered with ServiceTitan back in August. ServiceTitan is a really impressive company that serves a lot of vocations, small, medium businesses, plumbers, electricians, HVACs, and they're a leader in providing business solutions, and we partner with them to provide fleet solutions. So we would embed our software solutions into their greater overall customer focus, and so not only can the customers focus on business solutions, but it helps them run their fleets as well, and we've integrated with them.

So there's -- Pro has so many adjacent opportunities for us in the long run. And they're really kind of endless and that's why we do continue to invest in that business. And it may seem on the surface easy to replicate, but we've been at this for years. And like I said, our dealers alone have invested over $2 billion. That doesn't just happen overnight.

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

Yes. Ford Blue is an exciting business for us. It's our ICE and our hybrid business. It's really based on passion products. If you look at the evolution of our Blue portfolio over the last several years, 10 years, we have really focused our allocation on not playing to play but playing to win. So if you look across our portfolio, I'd like to call it, we're on the podium in nearly every segment we compete in. We're either in the top of our segment, first, second or third. But if you look at vehicles like Bronco, of course, F-150, Explorer, these are all vehicles, Maverick that sit at the top of the segment.

And they're important because they're passion products. There are so many derivatives that we have off of them like our, I mentioned earlier, our off-road derivatives like Raptor and Bronco Sasquatch, and we've introduced Maverick Lobo as a street truck, like it just helps the credibility of our truck, our performance vehicles and our off-road vehicles.

So that's really the role in the portfolio for our Blue products, it's to really unleash those passion products around what we call, build, thrill and adventure and off-road. So what that's allowed us to do is focus on those areas that are -- those profit pillar vehicles. And if you look at our performance in the market, our share is up this year about 0.5 point. And that's without having edge in the market last year, which we had to overcome the volume loss that we had there. And we're still up, I think it's 0.4 point on a year-to-date basis.

We've invested heavily in hybrid. We're the only brand that has a truck, ICE, hybrid and electric. And our -- the top 2 selling trucks, hybrid trucks in the industry are Maverick and F-150, which is just continuing to help our leadership position on trucks right now. And F-Series leadership, we've expanded our lead this year against our 2 main competitors. So we continue to be in a really good position as it relates to that. And that's in the U.S.

And Canada, just here in your home, we are still the #1 brand. We've actually increased our share by over 1 point each of the last 2 years. So we can continue to grow here in Canada. And next year, we'll be 60 years of F-Series leadership. So in the U.S., we're going up, getting closer to 50. But here, we've had almost 60 years or so.

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

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

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

No, yes, that's good. So our UEV platform is our universal electric vehicle platform that we're installing into Louisville, Kentucky next year. We're really excited about it. Internally, we've been talking about it as a Model T moment. And that means a lot for us as the company that came out with the Model T. It is not only a revolutionary platform that we believe is cost competitive to go up against the best in the world, including the Chinese, but what we're really -- and it's going to change the way we manufacture vehicles. But most importantly, from a customer perspective, it's going to allow us to have a family of affordable electric vehicles.

We've announced the first one coming off as a small pickup, electric pickup that we're targeting to start at around $30,000. So we're really excited about that. It plays to our strength as a truck brand that has a ton of credibility there. But at the same sense, we know there's a market for this small truck, and we're really excited about it.

From a manufacturing perspective, what the team has been able to do, and we have just great leaders working on our -- on this platform. We had a team out in California that was innovating around this space. And what they've been able to do from a manufacturing standpoint has changed the whole assembly process. So they now will have 3 subassembly lines that merge into one final assembly. There's a front and rear unit casting and a battery structure that all come together. And what it's allowed us to do is reduce -- it's really allowed us to focus on, a, safety, that's always the first and foremost when it comes to manufacturing at Ford, but quality and speed at the same time.

So we'll have 20% less parts, 25% less fasteners. But at the end of the day, we'll be able to increase the line speed by 15%, which is a lot in the world of manufacturing, 15% increased speed versus what we currently have at Louisville Assembly. So we're excited about the manufacturing process. We're also very excited about the product that's going to be coming off of it in the form of the small electric truck.

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

We believe it will because we've learned a lot during the first generation of our electric vehicles. We led and we came out early on. What we've seen is this gravitation to more affordable EV products. We're really focused. We learned a lot around the customer and their use cases, how they use electric vehicles, including access to charging, where they live, how they use the vehicles themselves. And we think of this affordable space, which is why we're so excited about this platform and the vehicles coming off of it, really lend to what we've seen from customer usage.

In addition, we also have, to your point, the flexibility of other vehicles in the portfolio and other hybrid vehicles and other ICE vehicles to be able to adapt to the changing landscape and the change in segmentation within the industry.

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

It's really exciting. Thank you. Yes, we're really excited about our return to F1. It's part of our Ford Motor Company heritage. Ford Racing is a really important piece of our background. What I love about the way we approach Ford Racing is whatever we invest in, it shows up in our road-ready vehicles, right? The vehicles customers drive every single day. So when we win King of the Hammers for off-road, our Bronco customers know that the engineering and the specifications that are designed to win that, they get to drive every day. No different from Mustang and NASCAR. And now with F1, that will really have a big impact on our electrification.

So we're excited about it for a few reasons. One, just from an overall brand perspective and access to a whole new generation of race fans. I mean, F1 has attracted a whole bunch of new fans from older generations to younger generations that will get a whole different look at Ford Motor Company and our technology innovation. And we're really excited to partner with Red Bull and that announcement that we'll have in the beginning of the year.

So there's the obvious kind of brand and excitement that's just fun. But what's really exciting for us is the access to talent that we've been able to get at Ford, the best and brightest minds in engineering and design. They want to work on F1. They want to be part of -- I mean, that's world-class engineering, right? And they want to be a part of that. So we've had -- we've been able to attract a lot of great talent to the company. And again, they all want to work on a winning team. They all want to work for Ford. And ultimately, what that's going to do is translate to the vehicles that our customers drive and scale every single day.

So that's been really exciting to see that talent attraction, that excitement for the company. And really just that investment, not only in the brand and the marketing side of it, but the actual technical -- the technical aspects of delivering an amazing electrified vehicle.

And the debut season is?

What's that, I'm sorry?

The debut season.

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

We should have had a clip of Ford versus Ferrari.

Yes, there you go.

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

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

Thank you very much.

Good day, everyone My name is Layla, and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Lynn Antipas Tyson, Chief Investor Relations Officer.

Thank you, Layla, and welcome to the Ford Motor Company's Third Quarter 2025 Earnings Call. With me today are Jim Farley, President and CEO; Sherry House, CFO; Andrew Frick, President, Ford Blue and Model e; and Kumar Galhotra, Chief Operating Officer.

Joining us for Q&A will be Cathy O'Callaghan, CEO of Ford Credit and Steve Croley, Chief Policy Officer and General Counsel. Also with us is Alicia Boler Davis, President of Ford Pro. Jim will give a high-level overview followed by Kumar on industrial progress, Andrew on market dynamics, and Sherry on our financial review and guidance. We'll be referencing 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 20 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 Andrew Frick at the Scotia Bank Conference in Toronto on November 18 and Sherry House at the Barclays Conference in New York on November 19. Now I'd like to turn the call over to Jim.

Thanks, Lynn. Before I get started on earnings, I wanted to welcome Alicia Boler Davis to our team and to all of you. Her leadership is critical as we build our incredible powerhouse, Ford Pro into a durable products, software, services powerhouse. Alicia will cover Pro starting on our fourth quarter earnings call. I'd like to thank the Ford team as well as our suppliers and all of our dealers for delivering a very strong quarter.

We not only solidly beat expectations but our underlying performance has us on track to raise our full year 2025 EBIT guidance, if it weren't for the impact of the Novelis fire in Oswego, New York. Sherry will provide details of the financial impact of the Novelis fire, and I'm very pleased with our team's swift and decisive response to this challenge. We immediately mobilized a dedicated crisis team who worked around the clock with Novelis to secure alternative aluminum sources for our operational lines and accelerate the plant's recovery.

Several top leaders and I personally visited the site to support all of these efforts. In addition, we are adding up to 1,000 new jobs to increase F-Series production to recover lost volume and fulfill strong customer demand. We have made substantial progress in a very short time frame in both reducing the 2025 impact and putting in place an exciting recovery plan for next year.

Turning to our results. Our Ford+ plan delivered a record $50.5 billion in revenue and $2.6 billion in adjusted EBIT. Once again, we made meaningful progress in cost and quality, thanks to the disciplined execution of our industrial team. Kumar will share more details. I'd like to thank President Trump and his team for the recent tariff policy developments, which are favorable to Ford as the most American auto manufacturer.

[ Credit-based ] on our large U.S. manufacturing volume will allow us to offset tariffs on imported auto parts we need for our strong American production and manufacturing base. In addition, tariffs leveling the playing field for those imported medium- and heavy-duty trucks is a positive for Ford because we are no longer disadvantaged for building every single one of our Super Duties here in the United States. We also continue to watch [ for LEAF ] from tailpipe emissions, which may come as soon as the end of this year. Federal legislation has already scaled back California ZEV rules, and we anticipate a meaningful reduction in federal requirements next year.

We are adjusting our product mix accordingly. Our Ford+ plan is designed to win in the market. Among 4 key trends. Markets are more regional now. We all need tailored strategies. Customers are more fragmented between retail and commercial. This requires unique services and digital solutions for both. The competition is getting tougher, namely the Chinese OEMs are expanding globally, and the industry faces lower returns due to the EV overcapacity and global pressures. Thankfully, our strategy plays to our strengths at Ford, iconic [ work ] vehicles, passion products like Mustang and the off-road franchises like Bronco and Raptor. We're also prioritizing hybrids across our lineup, including the development of extended range hybrid options.

In the near term, I believe EV adoption will now only be about 5% of the U.S. market, but this is going to grow, especially for affordable EV vehicles. We are well positioned for this with the universal EV platform, which underpins digitally advanced, very spacious and appealing products that start at around $30,000. This is not a distant plan. It's right around the corner for us at Ford. Sourcing is at 95% complete now. We are testing vehicles.

We'll begin installing equipment in Louisville for the UAV later this year, and we are on track to start introduction of our LFP cells at Marshall, Michigan plant later this year. To compete, we need innovation and hyper cost efficiency. In this capital-intensive environment, smart partnerships will be essential to us. And our largest near-term opportunity is closing that cost gap and achieving world-class quality. Kumar?

Thank you, Jim. Our industrial platform is delivering tangible progress in quality, cost and modernization. Improving quality is the single biggest driver to close our cost gap, better quality lowers warranty expense and reduces recalls. 4 key elements are essential for sustainable warranty cost reduction: Seamless launch execution, minimal defects, greater reliability and durability and time. You need time to clear the car part of all the issues. .

It all starts with a clean launch, a bad launch creates years of warranty and recall problems. Over the past 2 years, we have radically improved our launch quality. We are on track for best-in-class performance across 6 nameplates with 3 more nameplates in the top quartile. This is based on JD Power Warranty Analytics data. Also, Ford was the most awarded brand in JD Power 2025 U.S. Initial Quality study. We're also catching defects earlier in the process, through rigorous engineering reviews where leaders sign off to ensure accountability and fixes happen in real time.

Our next focus is on long-term reliability and durability. We've identified the specific parts and systems needed to achieve industry-leading reliability. To get there, we've implemented a new powertrain testing regimen that is up to 7x longer than before. It includes extreme use cases that help us find issues we previously only found years after the vehicle was in the field. Now it takes time for these improvements to improve our recall numbers as older models have to work their way out of the system, but we're already seeing our recall costs shift towards more aged vehicles.

And since the peak recall period is in years 3 to 5, we expect a meaningful improvement soon. On cost, we delivered another quarter of year-over-year improvement and are on track for a net $1 billion improvement this year, excluding the impact of tariffs. Lower material costs, trade and duty efficiency and lower warranty contributed to this. This is the result of a fundamental change in our team's operational DNA. We have dedicated work streams reducing the cost of parts, optimizing repair times and transforming how we negotiate with our suppliers.

We're also modernizing our facilities and IT to unlock the next level of efficiency. We are systemically deploying AI across the entire industrial system. For example, we have significantly improved [ CAD ] loading times to less than a minute. And we have added 900 AI-powered cameras across our plants to detect quality issues at the source and help us mitigate supply disruptions. Thank you. Now over to Andrew.

Thank you, Kumar.

I will start with Ford Pro, which is thriving due to our diverse vehicle lineup, service parts penetration and growth in our integrated software and services. Our specialized dealer network is a significant competitive advantage that is difficult to replicate. Dealers recognize the importance of customer uptime and they continue to invest, adding another 1,700 service bays and 500 mobile service vans over this past year. This makes Ford the largest mobile fleet in the U.S., providing a structural advantage and brand differentiation for both Pro and retail customers.

We have intentionally diversified our revenue streams for more durable profits. For example, Softness in government sales this year was offset by strength in small to medium businesses or SMB. Our channel mix is now well balanced across large corporations, SMBs and government and rental fleets. In software, Pro's paid subscriptions grew 8% to 818,000 subscribers, and we're also seeing growth in our ARPU and attach rates.

This is producing a flywheel effect. For example, customers who subscribe to our fleet software have a service parts capture rate up to 20 points higher, which also helps us win sales from new competitors in multi-make fleets. There is upside to software via strategic partnerships. Our new partnership with ServiceTitan, the largest software provider to the trades is a notable example of this. We are embedding our real-time vehicle data directly into their workflow, combining the insights from Ford Pro's data services with Service Titans Fleet Pro software for a real-time view of fleet vehicle data.

Customers will be able to manage vehicle maintenance, streamline services and simplify repairs. Now in our home market, industry conditions were strong this quarter with a SAAR of 17 million and positive pricing. Our total U.S. share grew to 12.8% with growth outpacing the industry despite our phaseout of the Edge, driven by key products like F-150, Bronco, Explorer and Expedition. In fact, the all new Expedition is red hot, gaining over 3 points of segment share with 75% of customers choosing high-end trims like Tremor, and we continue to lead the hybrid truck market with about 70% share.

Lastly, our ample inventory does position us for a strong fourth quarter and helps to insulate our retail sales from the near-term impact of Novelis. We will end this year with retail stock levels between 55 to 59 days supply, with gross stock down 11%. As we look at 2026, even with our net recovery, we forecast being down roughly another 6% to about 520,000 units of gross stock. A disciplined approach yet still leaving us headroom to look for more market opportunities. Now I'd like to turn it over to Sherry.

Thank you, Andrew. Ford continues to make great strides in our journey to build a higher growth, higher margin, more capital efficient and durable business. and that progress is evident in our ongoing performance. In the third quarter, our strong product lineup drove global revenue growth of over 9%, roughly 1.5x faster than our growth in wholesales, and we delivered adjusted EBIT of $2.6 billion, flat with the prior year despite absorbing a net tariff headwind of $700 million.

The durability of our business is strengthening. Over the past 3 years, total company EBIT from software and physical services has grown by over 20%, and our revenue growth is diversified across regions, segments, channels, in software and physical services. Furthermore, our industrial system has delivered on their commitment to consistently deliver cost improvements, excluding the impact of tariffs.

Total company adjusted free cash flow was strong at $4.3 billion in the third quarter with $5.7 billion year-to-date. We ended the quarter with nearly $33 billion in cash and $54 billion in liquidity. Our balance sheet is a competitive advantage. We are disciplined in our capital allocation strategy and we are focused on the areas driving expected profitable growth, such as our UAW platform launching in 2027. We remain committed to our investment-grade rating and returning capital to shareholders.

Today, we announced the declaration of our fourth quarter regular dividend of $0.15 per share payable on December 1 to shareholders of record on November 7. Now turning to the segments. Ford Pro delivered another solid quarter. Revenue was $17.4 billion, and EBIT was $2 billion, with a robust double-digit margin. Revenue and volume grew by 11% and 9%, respectively. Growth in EBIT was driven by volume and continued improvement in warranty and material cost, partially offset by tariff impacts and pricing normalization in Europe and North America.

Ford Model e delivered both revenue and volume growth driven by new product introductions in Europe. EBIT losses increased due to lower net pricing and an increase in spending on our next-generation vehicles. Let me give you additional color on Model e.

Year-to-date, Model e is at a $3.6 billion loss, roughly $3 billion of this is from our first-generation products, Mach-E, Lightning, Puma, Explorer and Capri. The balance is investment in our next-generation vehicles, including our [ UAV ] platform. The only practical way to improve the profitability of our Gen 1 vehicles is through one of the more of the following: pricing, new cost reductions and improved fixed cost leverage.

Given current industry trends, it's clear, scaling fixed cost is a challenge for most of the industry. You can see this in a multitude of recent program cancellations and charges globally. We've been proactive. Over 2 years ago, we reduced our planned battery capacity by 35%. In last year, we canceled our 3-row program, making room for additional commercial vehicle volumes. Clearly, near-term U.S. customer and market realities for EVs continue to evolve.

We will have more to share about how we are adapting to these changes at a later date. Ford Blue achieved EBIT of $1.5 billion, with revenue growth exceeding the rate of wholesale unit growth, highlighting the strength of our diverse product lineup. Higher costs were driven by tariffs which muted progress in warranty. Adverse exchange was also a headwind driven by a weaker U.S. dollar against the euro and Thai baht.

Ford Credit delivered over $600 million of [ EBT ], up 16%, reflecting improved financing margin. Ford Credit also made a $350 million distribution. We continue to originate a high-quality book with U.S. retail and lease FICO scores, again exceeding 750 for the quarter. So let me turn to our 2025 outlook.

Excluding Novelis, our underlying business continues to perform well. In fact, we are tracking at the high end of the adjusted EBIT guidance range we provided in February of between $7 billion and $8.5 billion. This original guidance was provided before tariffs, which we have fully absorbed. Additionally, adjusted free cash flow is trending better than the guidance we provided in July of between $3.5 billion and $4.5 billion. Between 2025 and 2026, we expect Novelis to be a headwind of $1 billion or less.

For 2025, we expect an adjusted EBIT headwind of $1.5 billion to $2 billion in the fourth quarter for Novelis. And we currently have line of sight to mitigate at least $1 billion in 2026, and we are working to improve the situation further. We also expect an adjusted free cash flow headwind of $2 billion to $3 billion in the fourth quarter. Keep in mind the production disruptions result in an oversized short-term impact on our working capital, which will reverse next year.

Given the recent announcements by the administration, we now expect tariffs will be a $1 billion net headwind for 2025, down from $2 billion. This brings our updated adjusted EBIT guidance for 2025 to between $6 billion to $6.5 billion, with adjusted free cash flow of between $2 billion and $3 billion. Our full year outlook also assumes U.S. industry SAAR of about 16.8 million units, U.S. industry pricing of about 0.5% and a net cost improvement of $1 billion, excluding the impact of tariffs; and lastly, capital expenditures of about $9 billion.

Turning to 2026. While it's premature to give guidance, I want to share some puts and takes as you think about the industry and Ford. First, we have line of sight to recover at least $1 billion related to Novelis. For tariffs, we expect a net full year impact similar to 2025. For compliance, the evolving global emissions landscape is expected to eliminate 2026 compliance headwinds, thereby unlocking opportunities to optimize our mix of ICE, hybrids and EVs and reduced reliance on credits. And for cost, we plan to deliver another $1 billion of cost improvements across our industrial system, which will be redeployed to strategic, accretive ICE and hybrid cycle plan actions.

Additionally, [ UAB ] platform spending will continue to increase as we ramp our Marshall LFP battery plant and change over to the Louisville Assembly plant ahead of 2027 launch. Before we go to Q&A, let me end with this. Our underlying business is strong. And importantly, we are starting to more consistently execute and deliver our Ford+ plan. I'll now turn the call over to the operator.

[Operator Instructions] Your first question will come from the line of Joseph Spak with UBS.

Maybe just a couple of points of clarification. I guess I want to understand why, as of now, you only think you could recover about $1 billion of the impact from Novelis. And then also just in some maybe breaking news, there was a journal article which said Novelis plans to have the plant back up by the end of the year. So is that sort of in line with your thinking and then considered in your outlook?

Yes. Thanks, Joe. This is Kumar. Thanks for the question. And thank you for your very thoughtful paper on this earlier. Yes, that is in line with our communication with Novelis. The hot mill which is down now will be operational in late November, early December. It will then go through a quick ramp up through December. Between now and end of the year, we'll probably lose 90,000 to 100,000 units in fourth quarter. We announced today that we will add a third shift at Dearborn truck plant and higher line speed at Kentucky Truck. So through those actions, we expect to make up roughly 50,000 of those 100,000 units in 2026.

I would just add, it's important to realize that the makeup capacity next year will largely depend on Ford's capacity makeup. If we have more availability of aluminum, the real lever for us is going to be our own upside. And we're working through that. This is still early days. We'll have a lot more to update through this quarter and into next year's guidance. But please understand that's not Novelis restriction. .

Thanks, Jim. All F-Series plants were already running 3 crews and Dearborn wasn't and now it will run 3-crew as well. So the factories are basically flat out.

Okay. Maybe just 1 more. And I guess unfortunately, we keep on opting to bring these things up. But maybe you could just update us on how you're viewing any potential disruption from [indiscernible] CHIP impact? And what kind of supply you have or alternative supply and whether there's anything considered for that as well?

We see this as a political issue. We're working with U.S. and Chinese administrations. I was in D.C. yesterday actually. And this issue is top of mind for every official we met in the U.S. government. They're very well aware of it, working to resolve it. These are fairly common parts, mature node semi components like diodes and transistors. We're maximizing our buy of these components. We got really good at doing that during the chip crisis. I think all the OEMs are doing the same thing. .

At the moment, the runout dates look very close to the date when we may see a resolution. It's an industry-wide issue. A quick breakthrough is really necessary to avoid fourth quarter production losses for the entire industry. That's all I'm willing to say at this point.

Our next question will come from Dan Levy with Barclays.

Kumar or Jim, I wanted to actually just go to the topic of warranty, and thank you, Kumar. I think you've unpacked some of it. But it looks like your warranty expense was better year-over-year, you're talking about $1 billion of better cost next year as well. And I'm wondering if you could just update us where we are on the path to breaking that cost curve on warranty. This is sort of the question that keeps on coming up. But we've heard about the improvements in the JD Power survey and the efforts you're taking. But when do we start to see this finally show up materially in the numbers.

Thanks for the question. Let me make 2 points. First, the warranty is obviously made up of coverage and FSA costs. FSA costs are not simply a function of number of units. For example, software, OTA repairs and other repairs like that are significantly cheaper. And as you mentioned, our initial quality has improved substantially, and the reduction in those coverage costs is expected to offset any potential increase in FSA. And I use the word potential increase intentionally because given the large car part, it is somewhat difficult to precisely forecast the FSA number and then the FSA cost. But next year, we expect the total cost coverage plus FSAs to also go down.

And I also want to highlight our Q3 warranty costs were down year-over-year, correct.

$450 million.

Yes. It was a big , a really big achievement by the team, really seeing that coverages flow through, one of the reasons why we were able to offset the tariffs.

Great. Just as a follow-up, I wanted to ask a question about industry competitive dynamics. And I know the incremental 50,000 units of capacity is really just to make up for some of the lost volume from '25 here from the fire. But you're raising your capacity. We know that your other competitors in trucks are taking some capacity actions as well. What is your comfort that the industry price discipline that we've seen can be maintained even with this incremental capacity coming online?

Yes, Dan, it's Andrew. Thank you for the question. As we look at the industry pricing this year, it's up about 0.5 point, and we expect that to remain strong. And when you look at the strength of some of the segmentation out there like full-size pickups, it also remains very strong within the industry itself. So we see strength as we move forward in those key segments, which are very important to us.

And the reason why we feel comfortable is when you look at the underlying segment drivers, fuel price, construction, they're very strong for those segments. And as well, our competitors and Ford have a relatively new lineup. We have a new Expedition Navigator. We have a very still new F-150. We are -- the Super Duty is basically still brand new. And we have hybrid lineup that others don't have. So I think it's a combination of our optimism about the freshness of our lineup as well as the underlying drivers of the segmentation.

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

I want to start on emissions. Jim, you mentioned last quarter that the new emissions rules could be a multibillion-dollar opportunity for Ford over a 2-year period. And Sherry, you said today about the company having opportunities to optimize on mix for next year. So is that a multibillion-dollar figure still the right metric for investors. And should investors think about that as being all additive to current EBIT? Or is some of this about avoiding future compliance costs that will no longer come into effect?

There's is 2 -- thank you for your question. There's 2 principal drivers for investors for emissions in the U.S. to think about. The first is a different regime if it's confirmed in December, whenever it will be, will allow us to minimize the cost of credits that we would buy. We had those as optionality, and we don't have to use them.

That's a really big advantage. The second 1 is the monetization of that is very much centered around mix, mix of powertrains, mix of series, mix of vehicles. So even if we have basically maxed out in industrial manufacturing capacity, we still have lots of levers to sell what customers really want. And we'll put a finer point on all that in the year-end when we look at next year's guidance. Anything to add, Sherry?

Yes. Just that we have purchase obligations about $2.5 billion, and we think a lot of that may go away with Q4. And we're already 40% lower from where we started the year with the purchase obligations because the ZEV-related credits went away, you had no obligation any longer to those contracts. So that's a big part of what is being reduced.

My other question was about better understanding what's happened with profits in the business this year, excluding tariffs and the aluminum issue. If I walk from the midpoint of the EBIT guidance given with the July call, I add in the $1 billion lower tariff headwind and then subtract the Novelis cost, you end up right at the midpoint of your new EBIT guidance for 2025. So it doesn't appear on the surface that the 3Q strength is continuing into 4Q and maybe there's some timing THAT'S happening in 3Q and goes away. But maybe that's the wrong interpretation and really, you're talking more to the high end of the outlook for the year. So any more color you can share around how to think about profit trends in the core business would be helpful.

Yes. So let me just start by saying our business has been performing exceptionally well. And as a result, we would have guided $8 billion plus. With that, you take out the Novelis EBIT impact of $1.5 billion to $2 billion, and that's how you get to the $6 billion and $6.5 billion. If you would have taken our prior guidance of $6.5 billion to $7.5 billion and took out the 1.5 to 2, we would have been guiding at 5 to 5.5. So indeed, we do have progress in the business. It is partially because of the improvements in the tariffs, and that's going to be $1 billion.

But before we even got to that, we've had material cost improvements. The credit business has been performing well, and pricing and volume has also been strong.

Our next question will come from Doug Karson with BofA. [Operator Instructions] We can go to our next question, and we'll return to Doug. For our next question, we'll go to Edison Yu with Deutsche Bank Research.

First off, I think you mentioned that looking at next year, the tariff impact should be similar. Can you just walk us through some of the assumptions around that? I would have thought some of maybe the changes in policy could help.

Yes. So the changes in policy, the proclamation that happened last Friday gave us $1 billion of benefit, and that's now allowing us to offset more of our parts tariff expense. So that's going to be the primary improvement that we saw that was driving the $1 billion that I just talked about, leading to just a $1 billion net impact for this year and enabling us to have a similar impact on tariffs and costs for next year. So basically, what's going to be left is you're going to be left with the -- with auto parts tariffs that don't have offset steel and aluminum, in particular. And that's going to be both the tariffs on steel and aluminum as well as any of the pricing impacts that come through. And then any of the vehicle import tariffs that are not offset by the U.S. content offset that we're allowed.

And the time frame is different. This year was a partial year, next year is a full year. .

Yes, that's right. When you look at the impacts, we're expecting it to be very similar to this year.

Understood. Just a follow-up on, I think some of the comments you made about [indiscernible] investment. I guess how are you thinking about the [ skunk works ] efforts now? Obviously, you talked a lot about emissions being huge potential tailwind. But obviously, there's -- you spend all this effort on the next-gen EV platform. Are there just -- are there kind of changes we're thinking about related to that? How does one kind of move forward?

Great question. The EV North America market we're seeing now in the fourth quarter of this year, I believe, will be -- we believe will be very different in [ '27 through '35 ] when that vehicle is out in the market. And so 2 things to think about. First of all, the [ UEV ] was designed for 2 priorities: the lowest possible cost platform with multiple top hats in one facility and designed to really compete in the heart of what we believe is the new EV market in North America, which is affordable commuter vehicles.

We expect adoption will increase over time. and the market continue to evolve and maybe the regulations evolve. We think this product is literally at the center of the future of the EV market in the U.S. .

Our next question will come from Ryan Brinkman with JPMorgan.

Regarding Novelis impact, clearly, there's some shifting here, production and wholesales impacting the cadence of earnings and cash flows that matters to investors. Maybe with regard though to the impact on retail sales and the customer, what are you expecting there? It looks like at the end of September, you were fortunately sitting on an 88-day supply of F Series more than GM at 70 days, full-size pickup segment average, I think it's 78 days. And of course, you operate with far less during the chip shortage. So how are you thinking about that impact or about managing that impact from a customer perspective?

Yes. I think -- this is Andrew. Thanks for the question, Ryan. We believe we have enough stock to insulate us from the impact of Novelis in the fourth quarter given where we started the quarter. And that's why I wanted to make the comment on where we expect to end the quarter in the midpoint of our range, just to give you confidence on how we're managing the Novelis impact.

For our next question, we'll return to Doug Carson with BofA.

Ford and Ford Credit both have very strong balance sheet. It's a true asset certainly for bondholders and I think equity alike. The leverage has been very low. The cash balance is very high. In late September, [indiscernible] Ford Credit rolled out but appeared to be a successful plan offer subvented financing the F-150 to the subprime customers, kind of providing them an opportunity to enjoy a lower loan rate kind of reserve for higher FICO scores, perhaps easing some affordability issues.

So maybe you can kind of explore what opportunities you could maybe provide in your customers through creative strategies around loans and rates given the strong balance sheet?

thank you the question. Yes, we ran at the last few weeks of September, what we call a [ node tier ] upgrade and marketing program, and it really was to generate news for the F-150. We haven't changed our purchasing policy or our risk appetite, but we are really focused on ensuring that we use these sort of incentives to structure deals for customers that they can afford their monthly payments on a sustainable basis. So I think this program -- this program proved to be very effective. Overall, it didn't change our average FICO scores, in fact they went up. But these are sort of opportunities that we can look at on an ongoing basis.

Just so I'm clear, I believe your subprime is a very small part of the overall book compared to...

Very small. Yes, it's very small. In fact, our high risk portfolio mix is just 3% and it's been very sustainable about 3% for quite some time now.

Okay. I think that's comforting for people, but also maybe an opportunity to expand some loans to more subprime and potentially get more sales done, wouldn't be a terrible thing also. So I appreciate the question and answer. I appreciate it. .

Yes, thanks. We are concentrated on helping sell more products. So we're very open to new ideas.

You must have some dealer friends.

I wish.

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

just wanted to go back to the powertrain and segment mix opportunity next year, maybe trim mix as well with the compliance costs. To what extent would that optimization end up pushing up your your ATPs. And if so, how confident are you given some of the affordability constraints that you can kind of pass that mix optimization through to the consumer? .

It's Andrew. Thank you for the question. .

Well, our ATPs are really strong right now, as you know, and we are among the leaders and above segment average. But I think at the core of what it allows us to do is build the customer demand, and give us the flexibility to manage our mix, as Jim mentioned earlier, on certain vehicles, especially as we look at some of our off-road derivatives like Tremor and Raptor, it gives us some headroom in that to actually manage the mix within selected vehicles.

Terrific. That's helpful. As a quick follow-up, maybe on the quarter. If you could talk through the drivers behind Blue's improved pricing, I think $400 million was better than what you did last quarter as well as any additional color on fleet pricing in the quarter. .

Well, I think in general, as I mentioned earlier, the industry pricing is up 0.5 point. Retail is up more. It's very strong right now, up 1.7 points. It's driven by a lot of the tariff price seen through the year. If you look at the counterbalance that fleet has been down a bit, it's primarily in the van business. And fortunately, for us, in our portfolio and what plays to our strength, our Super Duty pricing and full-size pickup has remained very strong for us throughout the entire year.

And one of the great offsets that we've been able to manage [indiscernible] Ford Pro is not rely on the traditional fleet business. Andrew, maybe you want to talk about the changing mix of our Pro business.

Yes. We continue to increase our overall services as a percent of EBIT. Just a couple of years ago, we were around 13%. And we are now well on our way to hit our 20% total EBIT. Across the channels, we've also been able to diversify. We're roughly 1/3 of our channel mix now amongst large corporations, 1/3 was small, medium businesses, and 1/3 with government and daily rental.

So we are very well balanced, very diversified both on the vehicle side and also with the services.

But our -- that strength in small, medium business, SMB, we call it, is really a key accomplishment by the team. We heavily focused on that group. And we're continuing to try to grow that mix of that group, and that helps us a lot derisk any kind of pricing risk on the fleet> Yes

-- and we've been able to grow.

Your next question will come from Tom Narayan with RBC Capital Markets.

Just 1 quick clarification. So the net impact on tariffs on [ '25 ], $1 billion and the '26 to be similar. Do you mean to say that the '26 net tariff, assuming everything we know now is also $1 billion.

Yes, let me clarify. So for Q4 of this year, we expect an EBIT impact of $1.5 billion to $2 billion due to [ Novelis ]. And due to tariffs, we're expecting to see a positive in the Q4 because we are going to get the receivable for the $1 billion. So that's going to be a positive in Q4. I wasn't sure if you were originally talking about the Novelis as the numbers... .

The tariffs. Because I remember in 2Q, it was like negative $800 million, 3Q negative $700 million, so it's like a plus $500 million for Q4 to get to that $1 billion. I'm just understanding how to think about '26.

What's going to happen is if you would have tariff costs, and it will be offset by this $1 billion that is retroacted it's coming in Q4. So to date, we're at like 1.7%, and then you'll be able to take the $1 billion off, you'll encounter a little bit more next quarter, but you'll be positive for Q4.

Got it. Got it. And a quick follow-up. As you pivot, let's say, from EV to ICE, just understanding how that works. Clearly, there's stranded costs. We saw the EV losses worsened sequentially. I know some of that was investment. But how should we think about EV losses going forward like into next year? If volumes come down. I know some of the plants are flexible, some of them are dedicated, but how should we think about that?

We'll be excited to give you an update after the fourth quarter. as we look into next year. .

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

Great. I wanted to ask you just a little bit more how to think about the mix optimization opportunity into next year as a result of some of these lower compliance hurdles. I think you mentioned the ability to maybe maximize some of the off-road offering, raptor, et cetera. Is there a sense that those were supply constrained, like you were constraining the supply of those and that there's a large amount of like unmet demand in there. Like any sort of way to frame this in terms of how you had been managing the business before as a result of these compliance rules? And what -- essentially, what is the size of the opportunity here? .

Well, Emmanuel, it's Andrew again. Yes. So in -- when you're compliance constrained or under certain regulatory policy, we were having to restrain some of the mix because some of the off-road vehicles, like I mentioned before, Tremor and Raptor are actually very negative against compliance.

So we would suppress some of the natural demand within that. So as we look at next year and our overall building mix, we'll obviously match that customer demand. We don't want to overproduce against that so we can remain disciplined. And we'll take a look vehicle-by-vehicle like we always do to maximize our mix within 1 of the big opportunities to complement what Andrew said on the series mix, nameplate is the hybrid mix.

And obviously, we can change the pricing in hybrid and change the demand curve for the vehicle. We've had to be very aggressive with hybrid pricing to make sure we cover the right mix. And that obviously is a big opportunity for us because F-150 is a huge volume vehicle for us. And the hybrid F-150 is so popular. We have opportunity there to maximize the company's results.

The only other thing that I would add, just to be sure everybody understands is that with the EPA changes that are likely that is removing a compliance headwind that would have been going into next year. And so it's just really important that everyone understands that you were facing a headwind, and so that's going to help to eliminate a year-over-year impact.

Great. And then just 1 additional question on guidance. Comparing it to just the most recent one that you had provided last quarter. So if I basically take the current guidance adjusted for the Novelis fire, but also the the $1 billion benefit from lower tariff outlook. It seems like it's essentially an unchanged guidance versus last quarter. And that's despite essentially assuming now -- we're, I guess, expecting now for the industry, better SAAR as well as better pricing.

So are there at the same time, some industry or company factors that are playing out maybe a little bit less favorably than 3 months ago?

I mean, as I said, I mean, we were going to be $8 billion plus. When you take that $1.5 billion to $2 billion off, it gets you to the $6 billion to $6.5 billion, you add the $1 billion of tariffs. But we also are performing at the higher end of the guidance that we had put out there at the beginning of the year. And the reason for that is credit has been doing good. Material costs have been doing good. the pricing and volume have been solid. And so that's why we were at the higher end of the guidance.

Okay. Yes. I'll take it offline on the sell side call. But I appreciate all the color.

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

Just wanted to follow up. I'm actually -- I guess, I'm getting a little confused with some of the puts and takes. If I look at the midpoint of guidance, Q4 is like $550 million. I thought you just said that tariffs would be a refund of $1 billion. And then the Novelis, so it just would imply almost like rate negative, if it wasn't for the tariff refund.

And then just even if I add Novelis, then it would still imply a pretty big drop underlying from Q3 [indiscernible] to Q4. Am I misunderstanding the commentary there.

We would have been at $8 million plus, you take out the Novelis impact in Q4. So that's going to be $1.5 billion to $2 billion which gets you to the 6% to 6.5% for 2025. Now when I talk about makeup, that's in 2026. So that's where you get the $1 billion back in EBIT [indiscernible] '25?

So, I guess I'm just -- on the prior question. So year-to-date, you have like, what was it, $1.7 billion of tariff costs. The guide for the year is $1 billion, what -- how are we getting there for Q4? I thought that was the refund or maybe I misunderstood that, sorry.

Yes, that's right. So as of last Friday, when the proclamation was signed, we now can apply a greater percentage of the MSRP tariff offset to our parts. And now that we can do that as of last Friday, we're going to get $1 billion of benefit. We couldn't record that in the Q3 numbers because our books were already closed, and this just happened last Friday. So now you're going to see a receivable in Q4. It's more than going to offset what the tariff cost would be in Q4. And then when you add Q1, Q2, Q3, Q4 together with that positive receivable, you'll reach $1 billion net for the full year.

Okay. Got it. And then just, I guess, a follow-up on your color on 2026. You highlighted cost is $1 billion positive, Novelis. It would be $1 billion help into next year. Any color, I think, in the past, you've talked about around $600 million of sort of the regulatory costs just structurally going away as a tailwind. And did I catch the commentary on inventory? It will be actually down again next year. So we should kind of have a little bit of destocking factor that we should be thinking about, too?

well, in, there's a lot of texture we want to take you through as we position 2026 and beyond. And we're going to do that properly at Q4 earnings. And so for now, I just said we've got some tailwinds and headwinds that I wanted you to know tariffs roughly the same, tailwinds make up Novelis, likely removal of the EPA compliance headwind, continued cost savings, but then headwinds are going to be investments in our launches in Marshall and Louisville and investments in the cycle plan. So it gets what we're able to share at this time, and we look forward to sharing more with you in our Q4 earnings. .

That was your final question.

I just want to say 1 thing. We appreciate all of our investors and the people that analyze our industry very carefully. I just want to note that I know Adam Jonas is moving on to another segment. And I wanted to thank you for your activist investor point of view, certainly helped us be better managers and stewards of the company. And I think we just wanted to say thank you as a management team for all of you for what you do, but when someone moves on, like Adam, we want to highlight that. Thanks.

Okay. Well, thank you, operator, again. To summarize, Ford is addressing the key issues affecting our industry head on. Our improved industrial system is driving consistent results on cost and quality. Ford Pro is making [ total ] Ford a more durable company and business. We have and will continue to take decisive actions to improve and grow our company. And I'm confident in a stronger forward as we head into an exciting 2026. Thank you today.

This concludes the Ford Motor Company Third Quarter 2025 Earnings Call. Thank you for your participation. You may now disconnect.

Okay. Good morning, everybody. I'm Adam Jonas. I head up Morgan Stanley's auto and shared mobility team and moving into a new role, focused on robotics and physical AI, but I do have the distinct pleasure of hosting companies in the Auto industry at our 13th Annual Laguna Industrial Autos Conference. I'm delighted to have representing Ford Motor Company, Navin Kumar, Chief Financial Officer of Ford Pro; and Michael Aragon, President of Integrated Services.

And we're going to have a fun discussion about how Ford is transforming into just a seller of unconnected vehicles and more of a curator and fleet operator and service provider for integrated software-defined, software-enabled and delivered services and recurring revenue. That's a pretty big change. So we're really delighted to have you here at this awesome time, historic time.

Mike, maybe just to start with you. You joined the company in -- was it March?

Yes, March. Yes.

You had a 25 years of experience outside of Ford in a variety of tech and digital strategy roles, most recently with Lululemon Athletica and you ran their Athletic division and MIRROR. It's a pretty cool. We'll ask some fitness questions a little bit later.

But what specific aspect of Ford Pro ecosystem or any other parts of the Ford business that you're in contact with as you keep integrating. What aspect of the business presented the biggest challenge or would you say the biggest challenge and of course, at the same time, opportunity from your perspective to transform the company?

Yes. Well, I appreciate the context on my background. As you mentioned, I've been at this intersection of hardware, software and services for the entirety of my career. And one of the things that I've learned that was very consistent is, if you build great services and platforms that there always were these really positive benefits in other parts of your ecosystem.

And so just when I was early PlayStation Network, when we saw people play video games, when they chatted, when they watched videos, LTV was higher. I spent a few years at a company that was a very important part of the Amazon ecosystem. It was Twitch, but we were a feeder for the Prime ecosystem same behavior there. And so for me, what I was really interested in is, integrated services as a stand-alone, we're profitable, we're growing. So that's great.

But for me, the real unlock was figuring could we drive similar behaviors, benefits across the ecosystem using software as an engagement and loyalty engine. And so one number that stood out really early as we were having our early conversations. And when you look at the average Pro customer, their post-vehicle purchase attach rate for parts is about 35%, but when they use physical parts...

Physical parts.

Physical parts, but when they use our services, their active subscribers, that percentage jumps up by 20 percentage points. And then on top of that, they're spending more. So we had an early indicator that there's this behavior where good service, good digital engagement can lead to those positive things.

And so I'm excited that my job is to come in and try to put more gas on that, figure out what other features will add to that flywheel because I think -- what's exciting to me and what I -- the reason why I joined was, I believe I can build a very profitable business for Ford. That's great. But the real value is if I can drive parts and service, which are much bigger than where we are today and also very profitable, that really is the unlock for Ford.

Just like one of the secrets -- again, having 3 decades looking at autos and you don't break out the profitability, but the parts and service business, round numbers, maybe Lynn, tell me if I'm wrong here, high level, but it tends to be around 5% or 10% of revenues, but a much higher percentage of profitability, the margins on the parts. And that's even selling into the layers and layers of distribution channels and in the retail channel.

Adam, the only thing I'd add to that is in our second quarter in Ford Pro, we do release an aftermarket percentage of our total profitability. And that was for the last 12 months, 17%. So you probably remember our Capital Markets Day when we said it was around 13%, and we have a longer-term target of 20%. So we are on that progression.

Well, what's nice is that you're recognizing kind of one of the -- and I'm not just singling out Board, the auto industry, when you had unconnected vehicles, you sell the car and it's like see you later. And especially if it was a cash purchaser or a loan from a bank somewhere else, that you didn't really have that relationship other than the financial relationship. But to have a kind of it be more part of, all right, what's the need of our customers, how are you -- particularly on Ford Pro, where there's just thousands and millions of different use cases and nuances.

No one will know that customer better than you, assuming that you have the data and the relationship. So this is great. The idea of healthy tension and leadership is powerful. I call it productive anxiety, healthy tension. It depends -- but my definition, it depends who you talk to at Morgan Stanley. But could you share an example -- both of you, Mike and Navin. How the team has approached strategic choices from different angles and how you help build consensus around the decisions that you're making in terms of Integrated Services and the strategy?

Yes. So when I -- if I just put my Integrated Services hat on, obviously, my job is to drive high-margin software that we sell. But one of the early dilemmas that came up is how do we deal with multi-make vehicles. So Ford -- a lot of our large Ford fleet customers have Ford vehicles, but they also have other OEMs. So how do we deal with that?

So if you just put your sort of siloed hat on the Integrated Services, it's -- we got to protect that. We would -- you wouldn't have multi-make. But if you believe that we should take a little bit of a hit on our margin just to service our customers with other vehicles through telematics but we're driving that higher service and sales ratio that, that's a trade-off we would make every day of the week because that's really what an enterprise thinking mindset should be. And that's, I think, something that Navin and I both share.

Yes, absolutely a few things I think. In Mike, we have a really great partner on those software-related metrics like usage, adoption, lifetime value, customer acquisition cost, margins. But then Mike is such a great partner because we can take that and also frame it from a bigger ecosystem standpoint, where we have dials across vehicles, software, service, financing, and it helps deliver a greater ambition and more value to the customers and to the bottom line.

And my role, Adam, actually -- I'm the Chief Financial Officer of Ford Pro and Integrated Services. So I actually sit at the intersection of both, which really creates a natural bridge. Like Mike brings a really deep customer-first mindset from his leadership experiences in technology and digital media. And then I bring the context on the commercial industry, the Ford Pro strategy and go-to-market and just how to execute for these customers who are really embracing our productivity solutions. So it's a really good partnership.

I mean it's important that you're -- since you're writing the checks and you're cash in the check, that relationship is tight and customer-driven. How has -- Navin, for you, in terms of Ford Pro Intelligence, maybe review some of the latest trends in terms of how usership has changed over time? Where is growth coming from in terms of key customer cohorts? Is it from large customers or kind of versus your smaller, more mom-and-pop? And what would you say is the next biggest opportunity you're most excited about?

Yes, Adam, I'd say the diversification of the customer base for Ford Pro Intelligence has been a key driver of growth. We are seeing strong adoption with small and medium businesses that are driving the economy. Just one metric, our telematics dashboards and our fleet management software subscriptions, that's nearly doubled versus last year. And we are also starting to see adoption with larger enterprises.

And then overall, with Ford Pro, customer diversification is just such a key competitive advantage. We serve all fleet sizes, all locations and end markets. And that provides us stability and the ability to flex the product offerings into end markets that are growing like the trades or end markets where there's long-term structural investment opportunities like data center infrastructure for AI. And so it provides really good optionality.

And then on sustaining that growth and pace, in my view, there are really 4 key opportunities, and we're making great progress in all of them. And so the first, it really does start with the product and continuing to enhance the product to drive value and benefits for the customers and giving them time back.

And a few examples is adding more service facilitation features into our software offering, as Mike was mentioning earlier, to drive that flywheel and more proprietary in-vehicle control features, which is a key differentiator that third-party software companies can't provide. What we have in market today, it's limiters like speed limiting and also just general solutions so that we can inhibit vehicles from operating outside of a customer's work to be done. So it drives real uptime for those vehicles for those customers.

Second opportunity is bundling. Actually, Adam, you and I talked about this last year. We were early in our journey of bundling our software solutions together and bundling drives a better customer experience. It also allows you to leverage the data from the telematics into the fleet management software to operate the fleets more efficiently. And this year, the high majority of our fleet management software subscriptions are being bundled with our telematics dashboards. So we're making really good progress there.

The third point is multi-make, like Mike mentioned, and really ensuring that our solutions can be used by a customer for their full fleet. It drives a good customer experience. They don't have to go use multiple different solutions. It opens up addressable markets. It drives stickiness and loyalty. And then over time, we have the opportunity to conquest if those vehicles are up for renewal and refresh.

And then the fourth point, which is really important is, it's partnerships to enhance the offering. The next stage of growth really does involve partnering with market leaders to enhance the offering. And a perfect example of this is our partnership with Geotab, which has been growing and expanding. So we provide telematics data services in partnership with Geotab to large corporate enterprises and Geotab provides us plug-in devices so that we can serve those small and medium businesses that have multi-make fleets, including non-Ford vehicles.

So to summarize, it really is product. It is bundling, multi-make and partnerships. And when we bring that all together, that's going to sustain the growth we see in Ford Pro Intelligence. It's going to open up more addressable market, and it will really drive customer diversification.

Okay. So as you get a greater adoption and greater density of connected customers and you get more data and you learn more about how the tools, both software and hardware, help your clients -- help your customers get better outcomes. How do you anticipate or how do you already see it changing the physical requirements of what Ford touches in terms of fleet management and maintenance?

How -- is there -- just drilling into your question -- as that expands, I'm wondering if you're running into, hey, it would be great if we had more staging or mega fleet management or hygiene or working -- or systems to work with your dealer partners and the upfitters differently than you have historically. Is that unreasonable?

That is a reasonable premise. I think just to give a few examples, with upfitters because you mentioned upfitters, we have new certification standards to really kind of drive efficiencies with upfitters so that customers have more transparency on when those vehicles are coming and where they are in that upfit chain. And that leverages data off the vehicles, just like on the service side.

And on the service side, this year, we've improved repair order duration for Ford Pro vehicles by nearly 20%, and that's due to faster and more efficient repairs. But Adam, the input metrics of that are so important because it's a combination of connected vehicles, software and proactive uptime monitoring solutions and the data underpinning that, bringing that all together so that when a service event occurs, Ford and our dealer partners can be much more quicker and efficient with that service, keeping these vehicles running.

And how satisfied are you with how your dealer partners are keeping up with you? I'm sure there's a distribution curve. Some might be moving at a different pace than others. But overall, is this -- you see any changes in the dealer relations? Or is it not a limiting factor at this point?

Overall, it's very positive. Our dealers are all in on Ford Pro. They're actually with us accelerating investments in physical service and mobile service. And additionally, our dealers are actually generating the majority of the leads for our software solutions that we provide to small and medium businesses. They have been serving these customers with a local footprint for a long time. And so it's just a really, really tight partnership.

Great. Mike, Ford has spoken about the flywheel of value creation. I would be interested in hearing any specific choices that you're making to accelerate that flywheel and grow Ford's share of garage, not just within Ford Pro, but your responsibilities also include Blue and e as well.

Yes. I would say there's 3 levers that we're looking at and pulling. One is we have to solve our customers' problems, not Ford problems. And so that -- going back to that multi-make example, I think, is a good example of, we will trade some margin on my side to solve if we're solving a customer problem, knowing that it's going to drive the flywheel of engagement and loyalty down the road.

The second part of it is we want to solve problems before they happen. And so we spend a lot of time thinking about fleet safety, driver safety, in vehicle controls because we want to prevent accidents and help the fleets be more -- help them be safer. The other part is, we want to turn that check engine light into preventative maintenance, which is much cheaper. It's planned versus something that's disastrous, happens on the highway, you lose -- it's not only more expensive, but it's also you lose that -- potentially you'd lose the job.

And so we spent a lot of time trying to drive those types of efficiencies for our customers. And then the last one is just keep it simple. In our push to get product out to market, which is a good thing normally, an example I have is we've got 3 different user interfaces for telematics, data services and other software platforms.

And so what we're doing is consolidating all that to make it easier. It's one of those concepts that I have where it's like it's a paper cut, it's annoying. It's -- but if you add all these paper cuts up, really detracts from the customer experience. So that's an example of keeping it simple. The other example that we just talked about is bundles. Right now, we have so many different products on the consumer side. We've got to make it -- got to keep it simple.

I just got back from the Dealer Summit that we have in Vegas. It's -- what is it, 5,000 of our dealers in Vegas for our annual event. And that's a theme. It's like there's just so many positive things that we can sell, but it's just so much how we bring it, make the messaging simpler and just reduce cognitive load for our customers because there's so much that we're throwing at them in terms of options.

Mike, who do you benchmark on these kinds of things? Who does it well, either within the auto industry or in other physical industries that you either from your direct experience or even observing and benchmarking externally?

Yes. I think Tesla does it pretty well. I think a lot of the other vehicle manufacturers, I think that's kind of a similar, here's the different options and here's the checkmarks of what you get and you don't get. I think we want to take a little bit of a different look, maybe like a good, better, best option and not really think about it in terms of silos of like you get this thing -- you get like this secure feature for this, you get BlueCruise for this other one.

I do think of it more in terms of the Amazon model, which is there's just maybe high-end features that you might want to put in the ultimate tier. And then as things get commoditized, which they will in the ADAS space, maybe it moves down into the middle tier or the lower tier. So I try to think about it in terms of just value for the customers, which is different than what anybody else thinking.

Yes. I imagine trying to buy an iPad or something and they give you just a few strata that you do. You don't want to mix and match too many things, and you'll get the efficiencies out of it. To both of you, at the end of the second quarter, Ford Pro had over 750,000 paid subscribers. You've also previously shared data like miles and hours driven with BlueCruise, your in-house advanced ADAS solution. What other internal metrics are you using to measure success and KPIs and -- that you can share with us today?

So we run integrated services like a software platform like we should. And so I'd say there's 4 categories that we look at. One is just adoption. So are customers signing up for your services? So, one early indicator that I feel really good about is that for BlueCruise and Connected Services, so we haven't talked a lot about on the Blue side, but this is a good blue example. Our take rates from dealers and customers is almost double from when I started.

So in the 5 months I've been here, we're seeing just a much higher take rate on those services at the order level. And so to me, that's an early indicator that, okay, the installed base is starting to grow, people are starting to become interested. Then the second part of it is really activation. So once they have the hardware, are they -- are you bringing them along on the journey. And I think one of the important metrics that I like to look at is just active engaged users.

And so we've got 12 million FordPass customers or monthly active users. That's important because it's a way for us to communicate to our customers at scale. That's how we sell them BlueCruise if they didn't sign up for it at the dealer side. It's our way to engage with them on a daily basis. Sometimes it's just unlocking or locking your doors remotely, but there's other ways that we engage with them through having the diagnostics on that. So that's an important metric.

And then engagement, as you mentioned, we've got 435 million BlueCruise miles, that growth of engagement is happening across both Connected Services on the Blue side as well as on the Pro side. So that continues to get better. And then the final piece is just valuation and value. You know this, but LTV is an important metric. And you mentioned this earlier, but we are a 120-year company that's really been a transaction-based company. You sell the vehicle and then hopefully they'll come back in a few years. Now it's more of a daily based engagement.

And so I like LTV because it gives me a way to help educate the company on -- churn is a very important variable within that calculation. And so churn becomes almost as an important conversation that we have at the acquisition side. And so we look at that internally. And then one other metric that I think is very important for us is 3-year gross profit across hardware, software and services.

And the reason why that's important is because I do believe the bigger unlock for us is not just running a profitable Integrated Services business, but it's driving those other parts of the flywheel. And so I'm looking to see what things am I doing that has an attributable measurable impact on those other parts of the business?

Adam, I agree with everything Mike said. Additionally, in Ford Pro, working with Integrated Services, we're doing much more robust pipeline management. So leading indicators like new logos where companies that can be adopting our solutions as well as with existing companies really digging into that installed base, what's Ford versus non-Ford, when vehicles are getting refreshed and when we can drive more adoption and utilization in that existing customer base plus that new customer base.

So all your typical kind of CRM database management and analytics, but it's a lot more leading indicators for a business where it typically has been historically more transactional on vehicle sales, and this is more lifelong partnership engagement and management. So it's just really exciting to work with Mike and the team on delivering that type of apparatus to help grow the Ford Pro business.

On BlueCruise, what data have you disclosed, remind us, you mentioned 450,000 miles?

435 million miles.

435 million miles. How many vehicles and take rate or any other data behind the 435 million miles?

I'm not sure if we've disclosed all those specifics, but what I can say is that the adoption is growing, and there's a few ways we go to market. There's customers directly procuring the solutions. There is the dealers ordering. And the dealers ordering actually in the retail space, Adam, is such a key leading metric because we're seeing that increase significantly this year.

So that means the dealers are getting comfortable with these solutions, educating the customers of the solutions and they're getting more interest from customers in these solutions. And so -- and then in my view, I had a background working in autonomy. And while the L2 and L3 and L4 technology stacks are different, getting more adoption in L2 and L2+ solutions gets customers more comfortable with higher-performing ADAS and autonomy, and that really sets the stage for L3 and L4. So we feel like we're in a pretty good progression.

So Tesla has the hardware standard in all the vehicles...

Yes, yes.

Or pay upfront. Chinese vehicles, at least the more of the leading edge, the bleeding edge of Xiaomi, BYD, et cetera, they put in a standard equipment and then also included in the price of the vehicle increasingly. When -- is Ford at a point -- are we soon at a point where you could be like, look, every car is going to have the hardware. We're just going to put it in because this vehicle has to be on the road for 10 or 15 years and you won't -- people won't want this to be like it will affect the residual value, and we don't want to retrofit it.

So we are at a point now where like a substantial majority, if not entirety of your Ford vehicles can have the hardware just in there, collecting data, training and creating more service area with the AI and the robotics and then with a look to flipping that switch?

For BlueCruise specifically, not quite there because the reason is we have a different customer base, Chinese customers. We have a lot of folks like my parents who -- they think they like all the technology and then end up not using any of it. And so -- and there's just also a trust factor. So we've got to continue to build trust across the board. I think every manufacturer has this challenge. So there's an adoption curve.

And so what we want to do because it does cost money is, really keep it standardized at certain trims, keep it optional maybe in the middle trims and then on the lower trims, it's like these are cost vehicles. These are more of an economic play because we really want to be where our customers are right now. And I think -- I like that you're bringing into the Chinese elements. We've thought about this quite extensively. It's just such a different use case, it's a younger cohort, many -- most of it's a younger cohort. They are digital natives.

So it's a much different way of selling in China versus here with the Ford customer, yes, we do have digital natives, but we also got a lot of older folks who are kind of like, hey, introduce this to me at a little bit of a slower rate. So we want to make sure we're respectful of where our customers are at.

The only thing I'd add to that is I think with fleet customers, we're starting to build some trust and engagement with BlueCruise. Certain use cases like salespeople and sales fleets that's starting to happen. But in fleet, and we saw this in electrification too, it just takes time to integrate the technology into a fleet operation, ensure fleet uptime is robust and gain trust with these solutions. So everything that Mike said really also applies to fleet. But as we're scaling BlueCruise and getting that adoption, we're starting to see fleet interest grow.

Yes. Navin, how has Ford Pro intelligence platform started to address needs outside of, let's say, the kind of core transportation and logistics market. How do we see potential for the platform to play more broadly into commercial productivity space outside the vehicle?

Yes, that's a great question because we really started with the vehicle because that is our unique foundational competitive advantage. And now we have been pairing software and services. So we're starting to see more overall business productivity being delivered. And it always was our aspiration, Adam, to grow and scale a core operating system for business productivity and uptime.

So on the vehicle side, we mentioned a couple of examples on service, mobile service is a perfect example because when you combine our digital solutions and our mobile service, we're starting to save customers hours and hours of time, which then they reinvest in their business to grow their businesses, generate revenue and more productivity. Some of those in-vehicle software solutions like driver coaching and those proprietary in-vehicle controls.

The driver coaching, it reduces safety incidents, collision incidents, optimizes insurance costs, but it's also just freeing up time for more technician productivity. And then on the control side, ultimately, that just ladders up to these vehicles are being utilized to get the job done. So Adam, you mentioned autonomy. One of the killers in an autonomy model is dead miles, right, when the vehicle is rolling and revenue is not being generated.

That's exactly the same thing that happens in a commercial fleet. You want those vehicles to be operating and rolling with jobs to be done. So our solutions bring that all together, and you could drive real robust business productivity of that. And like we mentioned on partnerships, we are also partnering to drive differentiation and specialization. A couple of days ago, we announced a partnership with ServiceTitan, who provides market-leading software in the trade space. So we're actually integrating our telematics data into ServiceTitan's workflows, and they have an application called Fleet Pro.

So now their customers will benefit from real-time fleet tracking and monitoring and vehicle health alerts of our telematics data. But furthermore, they're actually going to take that data, Adam and then combine it with their own data to track technician productivity, including flagging any discrepancies between the text time sheet and the GPS data off the vehicle, which is more accurate.

So what that does is, it helps customers be more productive with their text and ensure that these fleets are actually being used in the jobs to be done and not like side jobs that are independent, and that does happen in that industry. So it really just drives business productivity and uptime. So what we're seeing is we started with the vehicle. We're pairing it with software and services. And now we're becoming more of a kind of central hub for driving business productivity overall with our customers.

We have time for questions from the audience, calling for air. We have a mic in the back. Don't be shy. I will come back to you one more time. Farley talks about Ford's role in helping to serve the essential economy in the United States earlier this year. And I'd be curious for your views on how does the integrated client focus, recurring always-on consumer relationship you're building at Ford Pro, how does it empower the business that forms the backbone of our economy? How does it integrate there and create a durable competitive advantage for Ford. It's something he kind of -- he's been banging on about that for a long time, irrespective of the -- who's holding office.

Absolutely. And I could take this one to start, but that mission is really the heart of what we do in Ford Pro, empowering small and medium businesses in the trades that are an essential and growing backbone of the economy. Like we mentioned earlier, for a commercial customer, time is money. And when vehicles are not running, they're not generating revenue, they're not generating productivity. So our North Star in Ford Pro really is uptime and that relentless focus on vehicle uptime.

But when we pair vehicles with software and services, we're starting to get into more of a lifelong partnership with our commercial customers and clients and helping them simplify their operations and really generate -- actually get time back to invest for growing their businesses. So in terms of durable advantages, there's a few key areas.

The first is, Adam, we've been saying often we have a one-stop shop vehicle software services, financing solutions. The nuance is, we also provide tailoring and flexibility on that one-stop shop. So whether a customer wants an ICE vehicle, hybrid or BEV, whether a customer wants a specialized upfit with a certified partner network, we mentioned that earlier, or they want software solutions for multi-made fleets, we got them covered.

The second is our market leadership. We are the market leader in commercial vehicles, and we have the most expansive distribution and service network of any brand. So when we augment that with these services and digital solutions, that just drives more durable advantage because we're building on a great foundation.

The third piece is the dealers, as we mentioned earlier. They're all on this, right? They're accelerating their investments. They're generating business for us. They're organizing their commercial operations differently. So we just have really great partners in our dealers that are local, meet customers where they work. And they themselves are an essential part of the economy, right, this essential economy. So it's really a virtuous cycle.

And then the last point is we do 80% of our manufacturing in the U.S., and we employ the most UAW workers. And so we are so invested ourselves in making this essential economy successful. And when we work with customers, we're trying to drive employee productivity and working with these customers and clients to grow our mutual businesses together, we're making good progress, but we see so much more opportunity Adam. And like you said, Jim talks about this a fair amount, and there is actually an event at the end of September called the Ford Pro Accelerate. And so you'll hear more from Jim and other leaders in the industry about what we're doing regarding the essential economy.

Yes. Michael, anything to add there on...

No, it's just -- having grown up in New Mexico and knowing how this is important. I come from a family of essential workers. I love Jim's ethos, and so we're doing everything we can on our side to push that as well, so...

Just so much -- from my lens, there seems to be a correlation between EV adoption and software-defined vehicles and then those -- software-defined electric vehicles, there are some exceptions being the sockets for autonomy and other services. Am I wrong in thinking that like that there's -- I realize the pendulum has kind of moved the other way and that EV sales have kind of stalled around 8%, 9% or so, and there's been a pull forward and there will probably be retrenchment hangover in the fourth quarter and the next year.

Next year could be a pretty dreadful year for EVs in this country. But I'm just curious, Michael, from your perspective, you don't seem like [indiscernible] your background, it would be anything but that. But is there some kind of hidden cost or trade-off if we stall -- if we were to have an outcome where like China keeps electrifying and going to software-defined electrified and Europe kind of grinds up. In the U.S. were you hypothetically stay at sub-10% EVs for the next 5 years, while the rest of the world went up.

How does that not put the U.S. and Ford in a potential disadvantage of just -- of that kind of setting the overall stocking horse pace for the adoptions of these services -- Integrated Services that you're trying to build? Would you see that as related? Or are you going to -- is your view of it really doesn't matter. We're powertrain agnostic. We can -- we're totally unencumbered no matter what the powertrain and electrical architecture is -- sorry if it's a leading question...

No, no, no. Yes, look, our software touches ICE to BEV to all kinds of vehicles. So for me, I'm looking at installed base and our recent architecture change to FnB3 helps us just get to a much faster and much bigger installed base, which is the key to anything that you're trying to build. So I feel like we're in great shape given our diverse lineup of vehicles. I think if you're asking about how are we thinking about EVs, I do feel like we're still investing in them. I think Jim just announced recently the new EV platform. And so we're still excited about that.

But here in the U.S., it's so different, and it's hard to compare to other regions because everything -- the auto industry, as you know, has become regionalized really. And so for us, we think we have some pretty good strategic bets continuing to push the ICE vehicles, but also this new factory in Kentucky is going to help us stay ahead of the game and drive lower-cost EV vehicles. So I feel like our diversity of lineup is a good bet for us.

Yes, Adam, the only thing I'd add to that is we've always, when it came to EVs, had kind of like a plan for flexibility in the Pro space. We produce the E-Transit on the same line. We produce the transit in North America, and we're in North American and Europe operation. And our Europe operation is actually performing pretty well this year in terms of volume and share. And that's the strength of our product lineup, including the one-ton transit in Europe that has an EV and plug-in hybrid.

So there is a calibration in the U.S., but we have worked with thousands of customers on EV and charging solutions. So policy is one element of it, but also it's just implementing and executing EVs into a fleet operation is quite complex. And our customers are not emotional. It's a math-based problem. It's based on return on investment. So we gained a lot of intelligence on where EVs fit, don't fit, the operating patterns and use case, the optimal set of charging solutions.

And as you think about the future and more technologies are coming in autonomy and mobility, we are setting a foundation with our customers for integrating that more advanced technology. Now the curves may look different depending on the customers, the ROI, the complexity of the operations. But the real moat to get this type of domain knowledge because it makes our leadership more durable, including on the vehicle side, really drives that flywheel and it positions us for more long-term shareholder value creation.

I'll go back one more time this time. Just one quick question, if there's from the audience. Otherwise, Ford team will be accessible in many of your meetings. All right. With that, Mike and Navin, thank you for your time.

Yes, perfect. Appreciate it. Thank you.

Thank you, everyone. Thank you.