Ford Motor Aktie

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.

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 Second Quarter 2025 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Lynn Tyson, Executive Director of Investor Relations.

Thank you, Leila, and welcome, everyone, to Ford Motor Company's Second Quarter to 2025 Earnings Call.

With me today are Jim Farley, President and CEO; Sherry House, CFO; Andrew Frick, President, Ford Blue; and Mondale and Interim Head of Ford Pro; and Kumar Galhotra, Chief Operating Officer. Joining us for Q&A will be Kathy O'Callahan, CEO of Ford Credit; and Steve Carley, Chief Policy Officer and General Counsel.

Today, Jim will provide a high-level overview of our performance and touch on the policy environment. Andrew will then cover market dynamics, followed by Kumar and on industrial progress. Sherry will conclude with a detailed financial review and our updated guidance before we turn to Q&A.

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. Lastly, I'd like to highlight a key near-term public IR engagement. On August 13, Navin Kumar, CFO of Ford Pro, will participate in a fireside chat with Ryan Brinkman at the JPMorgan Auto Conference in New York.

Now I'll turn the call over to Jim.

Thank you, Lynne. Hi, everyone. The Ford team delivered a solid second quarter, including a record $50 billion in revenue that underscores the strength of our incredible products and services. Overall, we earned $2.1 billion in adjusted EBIT and delivered another quarter of year-over-year improvement in cost, excluding the impact of tariffs.

For the full year, we now expect adjusted EBIT to be between $6.5 billion and $7.5 billion net of tariffs. I want to recognize our team as well as our dealers and our suppliers for working together effectively to drive our business forward around the world. Thank you.

Ford Pro, our growth engine best exemplifies our strength this quarter. We have transformed this business by diversifying our revenue streams. Over the past 12 months, aftermarket, which includes parts and software and services, contributed 17% of Pro's EBIT, closing in on that 20% target for next year. These high-margin reoccurring revenues make Ford Pro a less cyclical and more durable business. To accelerate that progress over our multiyear business plan, we are shifting capital towards Pro, partly funded by reallocating the resources on future EV programs.

As I hope you saw earlier today, we're pleased to announce that Alicia Boler-Davis will be joining Ford as the President of Ford Blue effective -- excuse me, Pro effective October 1. Alicia is incredibly talented and experienced business leader, and her experience across automotive and technology, logistics and customer experience is exactly the right skill set that we need to accelerate Ford Pro's transformation towards software and services and, of course, greater profitability.

Andrew Frick, who has done an excellent job leading Ford Pro on an intra basis will continue to lead Blue and model going forward. Model E delivered a significant margin improvement in the quarter as the team continued to scale operations as we more than doubled the volume in Model E, while also lowering the material cost and driving other operational efficiencies. On August 11, that will be a big day for all of us at Ford. We will be in Kentucky to share more about our plans to design and build a breakthrough electric vehicle and a platform in the U.S. This is a Model T moment for us at Ford, a chance to bring in new family of vehicles to the world that offer incredible technology, efficiency space and features.

In for Blue, U.S. sales in the quarter were especially strong. We gained share and committed higher pricing, reflecting the strength of this incredible product line if we have at Ford. And as America's largest automotive producer and the best-selling brand in the U.S. in the first half of this year, we support a level playing field globally. We value our ongoing cooperation with the administration on trade policy and CO2 emission standards. We expect tariffs to be a net headwind of about $2 billion this year, and we'll continue to monitor the developments closely and engage with policymakers to ensure U.S. auto workers and customers are not disadvantaged by policy change.

We've been working hard with administration. We believe our cycle plan is right for this tariff environment for the coming years. The latest round of tariff policies, especially the deals in Japan and Europe and potentially South Korea makes our strategy even more compelling at Ford. Our bet is not to compete in high-volume generic segments that typically require overseas production for cost competitiveness.

Instead, we are doubling down on what we do best: trucks, iconic passion products, Ford Bro and breakthrough technology that you will soon see in our forthcoming EV platform. Now on emissions, America's top brand, we further are investing in giving our customers choice along their low CO2 journey, new investments in ICE, more efficient and performance hybrids and full electric vehicles are all on tap at Ford.

We support a single durable national emission standard to ensure sound industry planning -- we proposed reforms that are on the table now give us greater powertrain optionality and reduce our need to buy CO2 credits. In fact, our commitment to purchase CO2 credits have already been reduced by nearly $1.5 billion.

Further changes will balance standards and customer choice and has the potential to unlock a multibillion-dollar opportunity over the next 2 years. primarily in Ford Blue, which has carried a lot of the compliance burden. EPA's announcement this week will give us more flexibility with respect to our product mix and volume. Once finalized, this will provide further opportunities to improve profits next year and beyond.

And finally, reaching world-class vehicle quality remains our top priority as a team. Although we face challenges with our older vehicles, the quality improvements on recent model years shows we are on a favorable trajectory. As Kumar explains, we are on track for our best initial quality metrics in over a decade at Ford. Ford is now the most awarded brand in J.D. Power's 2025 IQS study, and Link has approved 2 years in a row. We're proud of the progress, and we expect our warranty costs to decline in the years ahead. Andrew?

Great. Thank you, Jim. I will start with Ford Pro where our disciplined customer-led investment strategy is paying off. Year-to-date, Ford Pro share increased 1 point in the U.S. and 3.2 points in Europe. This performance is driven by a diverse vehicle lineup and continued investment in the Pro portfolio. Delivering on uptime, the most important KPI for our customers is a shared mission that we have with our dealers. Over the past year, Ford Pro solutions have boosted customers' uptime by reducing repair time by 20%.

As Jim mentioned, we have increased our capital spend on Ford Pro and our dealer network has done the same, investing $2 billion of their own capital since 2022, primarily to expand service capacity. And we have grown our global mobile service network by 18% to more than 4,700 units, enabling growth in service parts penetration. All of this translates to higher quality earnings and connected vehicle data fuels that growth.

Paid software subscriptions climbed 24% to 757,000 with average monthly revenue per unit, or ARPU, also growing 24% driven by roughly a doubling of the telematics and fleet management subscriptions.

Now let us look at our global business. In the U.S., our sales were exceptionally strong this quarter, growing 7x faster than the industry with market share up 1.7 points sequentially. In addition to the share gains, our transaction prices increased more than the industry average. We had our best quarter in 20 years for total trucks, driven by F-Series Ranger and MAVERICK.

Full-size Bronco posted a record quarter and the all-new Expedition and Navigator are off to a hot start with sales up 44% and 115%, respectively. We also sold more electrified vehicles than our 2 main domestic rivals combined with EVs and hybrids at close to 14% of our U.S. mix. The success of our from America for America campaign allowed us to reduce our U.S. growth stocks by 4 days supply. Building off that momentum, we entered the second phase of our from America for America campaign earlier this month and our sales pace remains strong. Our dealer stocks are healthy. Our product portfolio is fresh, and we have new entrants like Explorer Tremor and F-150 Lobo hitting showroom soon.

We are confident our product lineup and U.S. footprint will continue to drive profitable growth opportunities. Outside of the U.S., our global portfolio has made year-to-date share gains in key markets such as Canada, Europe, South America and the Middle East.

China remains a strategic export hub, especially for growth nameplates like Territory and the new Ranger P have built in South Africa has been well received in Europe and is now shipping to Australia. Lastly, Blue's international operations were profitable in all regions, including China during the second quarter.

Now I'll turn it over to Kumar.

Thanks, Andrew. Our industrial platform is delivering tangible progress on our core priorities, cost and quality. We're making this progress by establishing key enablers, leading indicators and output KBIs, enablers are the most important factor. For example, we have roughly doubled the number of our safety and technical experts. We have significantly increased testing to failure on critical systems like powertrain, steering and braking. We are also monitoring more vehicles in the field through connectivity. Insights from these initiatives are also being incorporated into current production. This has contributed to some more recalls in the near term, but it is the right thing to do for our customers.

Let's start with costs. We are still targeting to deliver a net improvement of $1 billion this year, excluding the impact of tariffs. A significant driver of these savings is material cost improvement actions, which will also flow through into 2026. It is important to note that in the second quarter, our costs would still have been down even if the special field service action or the FSA was included.

Turning to quality. Warranty is the largest component of our competitive cost gap. This is a major cost opportunity for us. There are 2 warranty costs investors should focus on. The first is warranty coverage. This is the expected cost to cover our bumper-to-bumper and powertrain warranties. Coverages make up about 60% of our total warranty costs. As the quality of our vehicles improves, the cost of coverage per vehicle should come down. In fact, we are already seeing this improvement.

Our latest 0 and 3 months in service metrics are tracking towards our strongest performance in over 10 years. The second part of warranty costs are FSAs, costs associated with recalls and customer satisfaction items. We are not satisfied with the current level of recalls or the number of vehicles impacted. We are working to reduce the cost of these recalls.

For example, we are leveraging AI solutions to improve parts traceability to help minimize the scope of recall units. Roughly 1/3 of our recalls over the past 3 years have been software related, and we are addressing this head on. We are using over-the-air or OTA updates to reduce customer inconvenience of having to take the recall units in for service. OTAs are a game changer. OTAs cost over 95% less than physical repairs.

While OTAs and other process improvements are helping us make meaningful cost improvement, most of our recent FSA costs are tied to vehicles engineered several years ago. before we made all the robust process changes across our industrial system. As a result, the expected FSA cost improvement will not impact the bottom line as quickly as improvement in coverage costs. There is a lag effect until the majority of our car park reflects vehicles designed and built under the strengthened processes, but there are early indicators that are encouraging. For example, the FSA costs for 24 and 25 model year vehicles are at least 50% better than 2022 model year at similar time and service.

Now I'll turn it over to Sherry.

Thank you, Kumar. Ford's transformation journey is well underway and our objective to build a higher growth, higher margin or capital efficient and durable business is evident in our ongoing performance.

Our global revenue grew 5% in the second quarter outpacing wholesale growth of 4%. We achieved our fourth consecutive quarter of year-over-year cost improvement, excluding the impact of tariffs. And we delivered $2.1 billion in adjusted EBIT despite a net tariff impact of about $800 million. The durability of our business has also strengthened. The consistent positive performance across our industrial system helped us close roughly $1.5 billion of our competitive cost gap in material costs last year, and we have delivered year-over-year improvement through the first half of 2025 excluding tariffs.

Now for some segment highlights. Ford Pro continues to demonstrate its structural advantages, a large and growing share of U.S. and European vehicle volume complemented by the largest and growing service operations network. This fast network is helping us rapidly grow our high-margin software and physical services businesses.

Pro's revenue grew 11% to nearly $19 billion. It's 12.3% EBIT margin is driven by a strong product lineup disciplined pricing and the increase in mix from our high-margin, capital-efficient services business. We feel confident about Pro demand in the second half supported by policy changes that should drive a recovery in small business activity. Ford Model E delivered solid top line growth, with revenue more than doubling to $2.4 billion.

Our margins improved nearly 44 points, largely related to mix, driven by the full year launch effect at the European Explorer Inkpremodels in the newly launched Puma. Mackie and Lightning also improved their material costs in 2025. From a capital perspective, Model E continues to make targeted investments where we have breakthrough innovation such as our next-generation EVs and where we have a distinct advantage such as our LFP battery technology, launching in our new plant in Marshall, Michigan.

Consistent with our goal to improve capital efficiency, we are actively pursuing options to maximize the utilization of all of our assets. You will hear more from us on this in the future. Ford Blue earned nearly $700 million in the quarter, reflecting profitable market share gains, higher net pricing and cost improvement. This was overshadowed by the nonrecurrence of last year's F-150 stock build following the new model launch and tariff headwinds, which drove lower EBIT and margin in the quarter. Ford Credit is a source of strength and a strategic asset for the company.

In the second quarter, Ford Credit delivered $645 million of EBT, up $300 million, reflecting improved financing margin and receivables growth coupled with continued strong portfolio performance. Ford Credit also paid a $500 million distribution in the quarter, bringing total year-to-date distributions to $700 million. Total company adjusted free cash flow was solid at $2.8 billion. Our balance sheet is a competitive advantage. It's strong and getting stronger. We ended the quarter with more than $28 billion in cash and $46 billion in liquidity. And over the last week, we bolstered our liquidity with 2 incremental actions. A new $3 billion delayed draw term loan and a GBP 1 billion U.K. export financing arrangement. These transactions were proactive providing flexibility to refinance the roughly $5 billion of debt we have maturing in 2025 and 2026, and at a cost that's significantly below a traditional unsecured offering.

With these actions, our liquidity is historically strong, providing us with invaluable flexibility, including the ability to invest through an economic downturn and continue to fund growth in areas like Ford Crow, while some competitors may be forced to pull back. This strength, combined with the consistent free cash flow generation is the foundation that allows us to consistently return capital to our shareholders.

In accordance with our commitment to return 40% to 50% of trailing adjusted free cash flow. Today, we announced the declaration of our third quarter regular dividend of $0.15 per share payable on September 2 to shareholders of record on August 11. So let us turn to our 2025 outlook. For the full year, we expect company adjusted EBIT of $6.5 billion to $7.5 billion, adjusted free cash flow of $3.5 billion to $4.5 billion and capital expenditures of about $9 billion.

Our updated guidance reflects a strong underlying first half performance across our 3 automotive segments and for Credit including our continued improvement in costs. Our full year outlook assumes a net tariff headwind of about $2 billion, reflecting approximately $3 billion of adverse gross adjusted EBIT impact, offset partially by $1 billion of recovery actions, primarily market factors.

U.S. industry sales of 16 million to 16.5 million units industry pricing to be about flat and lastly, a net cost improvement target of $1 billion, excluding the impact of tariffs. Given the potential range of outcomes related to how the net tariff headwind will play out by segment, we're only providing a total company outlook for the remainder of the year.

In summary, our business transformation is well underway. We are laser focused on capital efficiency and cost improvement and our strong balance sheet gives us the power to invest through the cycle and act opportunistically.

I'll now turn the call over to the operator for Q&A.

[Operator Instructions] Our first question comes from Emmanuel Rosner with Wolfe Research.

First question is, I was hoping you could give us a little more color on the drivers of guidance change and improvement in particular, you're obviously absorbing larger tariffs, $2 billion of tariffs that were not in the initial guidance. And so what are the drivers by bucket of improvement versus your previous outlook? And if at all possible, I'm curious about the EBIT, but also the free cash flow.

Sure. So let me just first commenting on the guidance. So our net tariff was estimated at $2 billion our guidance came down $1 billion. So our guidance illustrates the strong improvement in our business. We also kept our free cash flow the same versus the outset of the year at $3.5 billion to $4.5 billion. And the $9 billion for CapEx is approximately the high -- it's the high end of our prior guidance.

The guidance is underpinned by the strong performance in the business, which is primarily in the cost area. And as you know, we have a target of $1 billion of net improvement on a year-over-year basis. We're making terrific progress on that, as you're seeing in our numbers. And we're really focused on sustainable improvement in warranty and material costs that will make its way into 2026 and beyond. And currently, we have a very fulsome pipeline of opportunities to support that.

Okay. I appreciate that. So this is mostly -- because that was already your target, this cost improvement, $1 billion ex tariffs. So are you targeting a larger number now? I'm just trying to understand why sort of like the underlying performance better. I guess, where do you expect that underlying performance better to materialize on a full year basis?

We've seen it in manufacturing efficiency and our negotiated cost for parts -- those are two areas where we've accelerated past our own targets. There have been some ins and outs on the $1 billion, but those are the real strong parts of the business that we see -- and also, obviously, the market equation for Pro is very strong.

Okay. Understood. And then separately, Jim, I was curious, on the back of some of the recent changes in the U.S. regulations and a more relaxed environment. Curious about Ford's appetite to potentially be more strategic about some of the spending on the EV side and whether there's actually room to potentially cut this back in any sort of material amount in the future once you get a chance to essentially assess the impact of these software regulations?

Well, you're absolutely right. The EPA is decision and their posture has really changed a lot in the U.S. And being #2 to Tesla and EVs, we've learned a lot in the last 3 years and having a full range of truck hybrids. We've learned a lot -- and there's no doubt about it that we've had to change our EV spending and capital allocation pretty large, pretty massively. You and a lot of investors, hopefully, we'll get a chance to come to Kentucky. You're going to see the future of our EV platform shift from where our first-generation products are to now.

We've definitely moved out launches. We canceled some products. We've made the right choices in terms of battery chemistry change like in Michigan, I think we're very well positioned for the reality of the EV market with the customers today. I'm equally excited about the changes we're making in our powertrain choice. We're kind of moving from being the dominant player in truck hybrids in the U.S. to offering ERAs, PHEVs and and a full range of hybrids across our lineup, especially our bigger vehicles.

We think that's a much better move than a $60,000 to $70,000 all electric crossover. We think that that's really what customers are going to want long term. And we're investing a lot in more durable ice powertrains. The good news is that we've always built our business around flexibility of the powertrain. So our manufacturing operations can adjust to these -- and a lot of the EV spending that's come down has been reallocated to Pro, including pro services.

I think that's going to be great for our investors and great for the employees. We think the rule maker will be finalized by December and in the short term, we've already made mix changes. We've descaled our credits, our CO2 credits by $1.5 billion already there may be more opportunities on the mix side for next year, as you said, as we fully evaluate these opportunities. Not much is happening in Europe and the rest of the world. This is really just a big shift in the U.S. and a big opportunity for Ford.

Your next question comes from Dan Levy at Barclays. .

First question maybe is for Jim, Kumar, one of you can opine on this. There was a blog post Komar about 2 weeks ago on the back of your recall. And there's a comment in there that you're applying higher standards. But with that, you're now going to potentially find issues that on previous model year vehicles that maybe haven't been reported yet.

So I appreciate that the warranty coverage is getting better. But it seems like the recall piece is remaining a headwind. So what confidence is there that the recall piece is going to improve, especially as there may be now with higher quality standards, additional recalls now that you need to report.

Yes. Thanks for the question, Dan. As I mentioned, 2 big components, 60% coverage is getting better, solid evidence there. FSAs have a much longer arc. But that all FSAs are directly tied to higher cost. For example, we've had a lot of software FSAs that are a lot cheaper to fix. And there are some early indicators that the vehicles, for example, '23 to '25 model year are substantially lower in FSA costs than the previous '22 to '24 model year window. .

But I think it's way too early to really draw any conclusions on FSAs yet because the longer arc is driven by our need to turn over the entire car park before you can clear out all the older issues. So I would say good improvement on the coverage side. For example, in Second quarter was better year-over-year if we exclude that special FSA and coverage costs are significantly down versus second half of last year.

So mixed strong progress and more coverages, FS are still a bit opaque.

Great. Maybe if I could just as a second question, ask about your recent market share performance, which has been quite strong. And maybe you could just talk to, a, the $1 billion offset on the tariffs on the market factors, how you're thinking about that between share and price. And b, do you believe that your share is sustainable given we are now seeing some tariff relief? How committed are you to the current market share that you gained.

Yes. Thanks, Dan. It's Andrew. On the sustainability of our share, we do believe we will be able to carry that performance into the second half. We've seen -- from an industry perspective, we saw a very strong first half of the year. We did start to see some pullback in demand, which we then -- which we now expect to see a softer second half with a full year industry of around 16% to 16.5%.

In the world of pricing around that, we expect a share sets net pricing around flat full year. What we've seen in the retail side of the business is pricing has been a little bit higher. So we expect to see pricing up about 1%. On the commercial side, we've seen a little bit more pricing pressure, but our Super Duty pricing has remained really strong. So overall, we see flat net pricing.

But our stock positions are in good shape as we look at the second half of the market. The industry where it is strong is in segments we do well in -- and so we think we'll be able to carry that into the second half of the year.

[Operator Instructions] Our next question will come from Mark Delaney with Goldman Sachs.

I just had a question around the changing emissions policy environment. I'm hoping you can better help investors better understand how Board is balancing the opportunity to see improved mix and lower costs as a result of the change in emission policies in the U.S., while also remaining competitive with your EV technology, including relative to the Chinese domestic OEMs that are increasingly selling their vehicles on a more global basis?

Yes, we're already reducing our credit buys. We are changing our mix towards the fourth quarter of this year, and we see a pretty big opportunity next year. As I said, multibillion dollar opportunity over the next couple of years. On the EV side, I'm really excited to show everyone where we're going on our EV, we've been busy the last 3 years kind of behind the curtain, no one could really see how we're allocating our capital and what our new EV strategy. We are out of sync in a good way with our competitors who are now fully loaded with all their EVs, and they'll have to commit to them for a full cycle of product.

Ours is coming out in the next year or starting. So you're going to see a lot of news from Ford on our EVs and our strategy is very simple. We believe the only way to really compete effectively with the Chinese over the globe on EVs is to go and really push ourselves to radically reengineer and transform our engineering, supply chain and manufacturing process. And that will come to life soon, and I'm excited to show everyone.

This is the Model T moment for the company, as I said, and that will become clear for us. We really see not the global OEMs as a competitive set for our next generation of EVs, we see the Chinese companies like GE and BYD. And that's how we built our vehicle, how we've engineered what kind of supply chain we've used and the kind of low content in our manufacturing. And a key part of that is our LFP battery built in March from Michigan. And it's a big advantage for the company.

We're the first one to build it at scale. It also has -- we're thankful that Congress upheld that. That's a key part of our profitability road map to transition in these lower-cost batteries I can't wait to show you the product and the platform. So stay tuned.

Looking forward to it. My other question was on autonomy. The company made the decision to shut down Argo about 3 years ago given the time to market and returns considerations for robotaxi -- but today, there's a number of robotaxis now on the road, a partial and fully autonomous technology is improving.

So I'm hoping to better understand where Ford stands on Level 3 and Level 4 technology. And how important do you think partial or fully autonomous technology may be in driving the kind of recurring and more durable profits that the company is targeting.

I see Blue Cruise has done really well for us. The margins have held up. The pricing for Level 2 and Level 2+ looks a lot more robust than a lot of the other ADAS features. So I think we're off to the races, and we will continue to over their update improvements to Blue cruise, lane change, ramp to ramp. We have a lot of opportunities to increase the ODD, and I think that profit and those margins will stay strong for a few years until it starts to commoditize. We are making a lot of progress on our Level 3 system and that will be a major moment for the company.

We really believe this is the key opportunity for retail customers. And we have the right team, all those Argo engineers who stayed at Ford. They've been really busy enhancing Level 2 and building out a Level 3. So stay tuned, and I can't wait to show everyone. We are not going to be the first with a Level 3 system at low speed, for example, that are out there today.

We want a fully functioning Level 3 high-speed highway application with a really decent ODD where a lot thousands, millions of customers would be able to use the system. On L4, we've been thinking a lot about our strategy after Argo what looks very interesting to me is the service side of that. These are large fleets. They're going to need someone to adjust the instrumentation and repair those vehicles and Ford Pro is a fantastic partner for fleet management of those large fleets.

And they're no different than our transavance. There are some differences, but we think we're really well positioned to take advantage of the very profitable parts and service as well as offering Level 4 to some of our commercial customers in a van format. And we'll have more news coming on that. But I suspect, but that's where we're really focusing on Level 4.

Our next question will come from Joseph Spak with UBS.

Jim, I wanted to get your pulse on I guess, a, what you're hearing, but maybe more importantly, what Ford wants in light of some of the tariff discussions have been happening and what might happen with Mexico as Japan and Europe now got reduced tariffs.

Because on the one hand, obviously, lower tariffs are going to help you, absolutely. On the other hand, it's a relative disadvantage for you versus maybe some of your competitors given your U.S. footprint. Maybe you could help us understand the range of outcomes on the USMCA negotiations that you're planning for. Should we think about a 15% rate or lower or is it more nuanced than that given the U.S. content requirements. So I guess, basically, like what is Ford really lobbying for in the conversations with the administration.

I think to put it simply, Ford as a leading auto producer in the U.S. and the leading exporter with the most UAW workers. We're very clear with the administration. We want to simplify the tariffs so that we can make up for that gap between the bilateral import tariff rates and what we're paying in our tariff bill. Our Tarif bills $2 billion. .

And that's a net number. We see there's a lot of upside depending on how the negotiation goes with the administration. We're in daily contact with them. And at this point, I would say they're very productive conversations we'll give you more news when we get it. But we have a lot of opportunity even as the most American company with a $2 billion liability, we have a lot of opportunities to simplify especially parts tariffs and reduce that liability considerably, which would be upside for the company. The reality is our competitors now all have to pay 15% import and hire from Mexico. They can't change the footprint anytime soon. Those tariffs were not around a year ago. This is an opportunity for Ford. Yes, it may be less than 25%. But I think we found with administration, they're really committed to companies like Ford, and they are going to work hard to reduce that liability.

I guess just maybe sticking on policy. I heard you mentioned, I think you said you're going to scale back compliance credits by $1 billion, $1.5 billion. Did you mean purchases? Or is that what you are -- like what was -- what are you what were you planning to expense this year in the guidance? And what are you planning to expense now? I know you did about $200 million last year. I'm just trying to think about how much of a profit tailwind that could be in 2016 and beyond.

Yes. We're we've expensed about $200 million thus far. And I think you could think about that being a reasonable quarterly rate going forward. So not significant.

And on the credit side, it's very clear to us that the California situation has changed a lot, so we can descale our credit contracts and our purchases, and that will be material for the company. The most material for Ford in the end is going to be changing our mix. We have high demand for our Pro and larger SUVs right now.

We have high demand for some of our non-electrified powertrains and changing that mix is a multibillion-dollar opportunity in the next couple of years. So that's what's going to come through for the business. We just have to finalize the rule making, which probably won't happen until the end of the year.

Your next question comes from Federico Morandi with Bank of America.

Just wanted to touch upon the electrification initiatives. And I understand that now the regulation has changed and the overall environment in the U.S. has shifted. But I was wondering, how does board balances, the different commitments in the regions where it operates like the U.S., Europe and even China in terms of capital investments on the electrification portion of the business.

Yes. Thank you. We really see the pure EV market in the U.S. seems to us very clear. Small vehicles used for commuting and around town, so to speak. And we've been working really hard with our Skunk Works project and can't wait to show everyone where that lands.

And commercial. We've been the dominant player in commercial EV in the U.S., and we think that's going to be a robust business. but we want to shrink the number of top hats. We've always focused and told investors we want to have a very simple lineup with not a lot of complexity in top hats. We have some of our competitors that have 10 or 15 top hats. That's not our strategy. We're going to have just a few.

And we've made the adjustments in timing, we think, and to be in segments where we can actually make money on Globally, we're focused heavily on partnerships. Partnerships for EV, we think, is the right strategy. We believe that the supply chain and the platforms are quickly commoditizing. You cannot differentiate yourself on that aspect, especially for a vehicle.

Now it is a little complicated with electric architecture. You've got to work through that. But we know how to do that now. We've been partnering with JMC and other brands globally for a while. We know how to do the -- we think we know how to do the electric architecture with a partner. And you should expect from Ford in these other regions where electrification is very important to partner where we need to and we will use Phab and other solutions for commercial customers that make sense for them based on the local registration requirements.

I think we have a good strategy. It's been -- I have to say I'm very thankful that we move fast because we learned about the market changing maybe before our competitors, and we can reload our capital and have the right planning for this new reality of pure EVs.

And my second question would be on the mitigating factors for tariffs from what we've heard, basically, you boarded even our OEMs are kind of moving some redesigning their vehicles and putting some content that was standard into optional with a new model here. From your internal analysis, how do you expect customers to react from these changes?

Do you mean recontenting or could you be more specific? I just want to answer your question the right way. .

Yes, sure. With that, I mean, let's say, modular 2025, a certain vehicle with a certain term, which it had some standard content from what we have heard is that the same vehicle in model year 2026 has some content that basically the customer will have to pay up for that same content that last year was standard.

Thank you for your question. Look, we -- in the segments that we compete a Bronco or an F-150 or Super Duty and explore, we do very well in those segments. So we watch our competitors really carefully. We'll match them on specification. But we also know what customers want in our trim series. So Andrew, do you want to say anything about how we're changing our spec.

Well, we constantly look at our respect to customer wants, obviously, and that does change by segment, by vehicle line. We're also balancing the cost improvements that we're seeing across the vehicle lines as well. So we're using a lot of the vehicle off the data, a lot of the customer utilization rates to make -- help us make those informed decisions.

Your next question comes from Tom Norian with RBC Capital Markets.

First one, I know you guys didn't give segment guidance, but just curious in terms of how we should think about for modeling. So if we look at the EV business, we know the consumer credit is going away in September that probably means some maybe stronger Q3, but then Q4 is negatively impacted.

Just curious if that results in lower sales Bs, the credit going away, is that -- is that actually a net positive for the EV EBIT being that each car is still losing money? Or is it that there's so much fixed costs associated that it would still be a headwind. Just curious how we should think about that dynamic?

Yes. So as you get into that further in Q3 and Q4, if we were to pull back some of our U.S. EV production, most likely, you would be moving that into other areas.

So maybe you'd be leaning a little bit more heavily into Europe, where the mix and the contribution margin is stronger or moving into ICE products. So you could calculate that you could have some uplift there on a financial basis if that was to play out as you described.

Okay. And then we've been hearing from some of the European OEMs, some headwinds in the commercial vehicle side in Europe. I guess at a smaller piece of Pro, obviously, but just curious how you guys are managing that dynamic. I know in your prepared comments, you said you're gaining, I think, 3 points of share there at Pro in Europe, but -- how big of a headwind is that for you guys?

Well, we are very successful at the one-ton transit business as well as the pickup market in Europe. And we have a brand-new vehicle. Literally, it's brand new. And so that's doing really well as is a brand-new Ranger. So we have this brand new lineup.

I don't know about the competitors and where they are in their age of their products, but it seems that Ford, our Pro business in Europe is very strong now based on our new V710, the 1 ton. And then there's another factor that's important on our financial performance. This is a first generation where we are building for other people. We have the Volkswagen pickup truck as well as their van off our platform.

We're now starting to scale their platform, and that is really helping our cost basis. And remember, our cost base in South Africa and Turkey, so they're very low. So the other -- the other reason is we're not only increasing our performance because of the new products, we're also becoming more profitable on a margin basis because of our cost. And that's a good thing for us.

Your next question will come from Daniel Roeska with Bernstein SG.

Maybe, Jim, after the discussion on tariffs and the changing and compliance regulations. If we take a step back, imagine tariffs stay in place, but you get a more streamlined emission standard in the U.S. So that, as you explained, enables a lower compliance costs and probably a better mix over time. What do you think are those 2 wash traded off against each other? Or is that actually a meaningful positive tailwind, if I kind of sum up the impact of medium-term tariff changes and medium-term emissions changes.

Yes, it's a great question. I think it's a bit tricky at this point in time to handicap the ins and outs on that. But I would say the emissions tailwind is pretty substantial, both on Model E as Sherry said, but also on our Blue and Pro business, especially blue, which has taken the brunt of the electrification journey globally.

So I would say I think we're I think we're -- and that is not the reason why we increased our guidance. Our guidance was, as Jerry said, based on real cost traction. But if you had to handicap the second half of this year and next year and what could go right, I mean, depending on how the submissions works out, that's definitely a tailwind for Ford. I mean, look at the mix of our products with Pro and [indiscernible] that -- to be able to build what customers really want is going to be a financial tailwind for us.

Yes. Great. And maybe as a slide related follow-up, I'm going to ask you to take out the crystal ball to some degree. With each additional Paris deal that is trade deal that's coming in like Japan and Europe, would you agree that this kind of increases the likelihood we will not return to pre- on policy landscape when it comes to global trade. Can.

You explain a little bit more what you mean on the last part of that pre-2025?

Well, basically, a very low tariff rate for imports into the U.S. basically. And because the market has been discussing going back and forth, will to have stay in place, will they not stay in place. And to me, it seems like if we're now putting the hills with Europe and Japan and likely South Korea and then on top. I'm unsure whether the next administration would see any reason to change that again.

That is a really important question to answer. -- we increasingly see Europe, North America and Asia becoming kind of regional businesses with create tariff rates that are aligned for those 3 or 4 regions. And I believe that is a very long-term change because it's happening in multiple things, not just tariff. It's happening with electrification and CO2 requirements.

And it will happen as well as the Chinese OEMs go global and start to localize outside of China, and they'll pick the regions and the regions will pick them. So I believe this is quite a fundamental change. We were just talking before the call started about how fundamental everything seems to be changing in the car business. And this is one factors.

And I do think USMCA negotiation is going to be very material for our North America health. And these tariffs feel like especially the ones in Europe and Asia into the U.S. feel kind of long term for us. Are they big enough to change to radically change the footprint at this point in time, it doesn't look like it. Hard to tell.

But that -- a lot of that will have to do with the administration's commitment to companies like Ford that committed to the U.S. production. And what is their point of view going to be with this $2 billion liability we have -- and depending on -- again, we're having very constructive conversations with them being the most American company, you can imagine.

But depending on how that works out, this could actually reverse and we could get a sustained advantage being an American company. So stay tuned.

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

First one, I wanted to ask about pricing. I think you called out some weakness on the commercial fleet side. Curious if you can elaborate a little more on that. And maybe just directionally, is that supposed to stay kind of a headwind through the rest of the year? Is that going to improve, become a smaller headwind, some color there would be great.

Edison, it's Andrew. Good to hear it from you. Just a little more texture on the commercial side. I think what we're seeing in the pricing is the full-size pickup is remaining relatively strong, which is really good. The weakness that we've seen has actually been across the van business in the van segments.

And there was a lot of competitive pressure that we saw coming out of the second half of last year and into the first part of this year. It seems to have stabilized actually. So we're actually optimistic around that holding for the rest of the year, but it was mostly in the van segment.

Got it. Got it. Switching gears, I wanted to come back to a comment Jim earlier on autonomy. I think you mentioned that you could do something on the Ford Pro side, providing service. I'm curious what kind of what that would kind of maybe look like? Would you go to like a certain part up to someone? And does that kind of rule out any interest in actually producing some sort of integrated autonomous vehicle?

It's early days. I mean we're in the first inning of this rolling out. It is very exciting for me to be in the industry in 40 years and see all these autonomous robo taxis. But the technology is fascinating. But as far as making money off the business, which we have to bet on our capital as leaders of the company, we think that if these robo taxi fleets are large fleets, I'm not sure it's going to be a super profitable business, but someone is going to make money on owning those fleets and maintaining those fleets.

And this is a very congruous capability versus our service build-out for Pro. We have nothing to announce today, but this is quite intriguing for us as a company. We really feel like the fleet management opportunity is a big upside for Ford Pro. We're doing it digitally today. Part of those softwares that we sell that Andrew mentioned, that's growing at 24% is fleet management software.

It's very popular going into the physical fleet management is a different thing. It takes capital. It will require leasing and a lot of other more capital-intensive investments. So we have to be thoughtful about that. but we are very intrigued about these robotaxi fleets, what they can mean for Pro and our dealers over time. Again, nothing to announce today -- but I think you've heard what we said pretty clearly.

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

I just want to cover the guide implies an improvement first half into the second half. I think SAR would imply think flat tariffs is supposed to be about flat -- what would drive that improvement in the second half.

Well, we would have some of our material cost items are coming in, in the second half. Also a lot of the work that we put into place on warranty, working with the dealers, working on our time to repair. A lot of these things are also looking to be implemented in the back half as well. also just some of the volume issues with Kentucky One shutting down in the past. So you had the idled period. So you're getting the now positive impact of not doing that and not having the destocking that we did in the first half.

And then -- you mentioned several times that I guess the guidance -- the underlying guidance seems to have improved because of cost. It's kind of surprising because you just had record recalls year-to-date. Can you parse that out? What is -- like what kind of actions are actually driving that cost that's better than what you expected back in January when you initially guided -- it feels like recall I got to imagine it's a bit worse, right?

Just to be specific, as on recalls, we need to make it really clear to everyone that the number of recalls and the costs are not related. Half of our recalls this year are software. When we do a software recall, we can do an OTA, it's literally 10% of repairing something mechanical. And so that's just -- it's not -- it doesn't work like coverages where it's very correlated to the number of actions we have or defects -- and what we said before, and it's clearly happening.

The manufacturing team is finding a lot of efficiencies year-over-year, more than we expected. Obviously, in the $1 billion, we have all that broken down by function, by group all the way down by plant in the case of manufacturing, and Bryce's team has been able to accelerate beyond even in the logistics area of savings in our manufacturing.

And the second would be, we have been more successful working with our suppliers on either getting a redesigned part or a negotiated part that's better. And that's great to see. And oh, by the way, we have really nice pipelines for next year. Anything else to add, Kumar.

The coverages are improving more coverage. So the cost of to be clear. It's also decreasing.

So recall costs, even though we've seen a lot of headlines are actually not worse than you expected starting the year? .

If you exclude that 1 big special item. Yes, the answer is yes, but excluding the special item.

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

So welcome to the DB Global Auto Conference. My name is Edison Yu. I lead the U.S. autos research here. We're going to kick things off with a bang this morning with Ford, very pleased to be joined by Andrew and Navin. Thank you.

Good morning, everyone. How are you doing, Edison?

Excellent. Andrew is the President Ford Blue and also Ford Model e. Navin is the CFO of Ford Pro. Between the 2 of you, I'm sure we can cover many aspects of Ford.

Maybe I'll start with Andrew. I know you recently ascended to the role basically running several divisions now. And I think investors actually haven't heard as much from you publicly over the last couple of years. So I'd love to know more about your background at Ford and also kind of your high-level priorities coming in.

Okay. Very good. Well, good morning, everyone. It's great to be here with you, and Edison, thank you for hosting us today. Yes, I've been -- actually, I'll be celebrating my 30th year with Ford on Thursday of this week. So a big week and very excited to be here with all of you. My background primarily has been in marketing, sales and service. And in U.S., worked in our international markets group as a general manager and have been able to work in several positions serving both the Ford and the Lincoln brands over those years.

And then over the last few years, through general management have taken on the role of Ford Blue and then more recently, Model e and Interim for Pro. So from a priority standpoint, our objectives are very clear. We are obviously very focused on cost and quality and reducing that across the Ford Blue business right now. We have -- we're fortunate to have a lot of iconic vehicles in our portfolio. And we're really looking to grow at this point. Our Model e business, we are looking to improve our overall profitability as we come out of our first generation of products and into our second and working on now our advanced electric vehicles for our third generation, and on the Pro business, we just want to continue to accelerate our growth.

This is a huge competitive advantage for Ford. It's an area that we do extremely well in across North America and in Europe, we continue to grow, and we continue to -- we want to continue to, from a prioritization standpoint, just builds up on the competitive moats that we've been able to set up with our Pro business.

It’s been a dynamic start to the year, I think anyone who has been following the auto industry.

To say the least.

I would agree that. It's supposedly the stable year after everything has happened, but we cannot get to break that. So there's been tectonic shifts in U.S. policy. In light of that, I think most people would agree that Ford has emerged at the very least as a relative beneficiary. Where do you see the most opportunities from a competitive perspective and that could be both for consumer and for commercial?

Yes. I would start with -- first of all, that is true. I mean we are really in a position right now to leverage the American footprint and our deep routes that we've had in America for quite some time. Our -- as many of you know, over 80% of the vehicles we sell in the U.S. are built here in the U.S., which gives us an advantage. It's something that we are not in a position where we're having to react too strongly at this point because -- this is not a course correction for Ford. We -- this is a continuation of our strategy and our deep commitment to U.S. manufacturing.

So it puts us in a bit of a different position than many of our competitors that are having to react to this. we're on pretty stable ground at this point as it relates to that footprint, which gives us some optionality in how we want to compete in the market. We have -- like we're saying that we have optionality across our Ford Blue, our Model e and our Pro business. We also have optionality across our vehicle lines in terms of where we want to flex into competitively.

And we have optionality across our powertrain lineup as well. We sell our ICE vehicles. We sell our hybrid vehicles and electric vehicles as well. So we have the ability to really react nimbly to the market and the changing customer dynamics. All of our iconic vehicles really F-150, Explorer, Bronco, on the Pro side, Super Duty and Transit are all 100% built here in the U.S. So we really have an opportunity as we look at how we want to flex the market and compete in the market, we have the ability to look at how we're set up versus our competition and really take advantage of our footprint and really leverage that for us.

How important is growth in market share right now in the U.S? You obviously have some structural advantages with the new policies. And I think we've noticed some of the promotional activity that's been implemented. Is that kind of more of a focus now given the situation relative to perhaps pricing going forward?

Yes. First of all, market share is important to us, but it's important to us if it's done profitably. So it is really that balance of growing our share and doing it in a very profitable way. So from a promotional standpoint, like you talked about, it was very important for Ford to take a leadership position in the market on April 2 when a lot of the tariffs went in place. We felt we're uniquely positioned to really lead in this perspective. And consumers have looked to Ford -- we've been around for over 120 years. We've been through wars, we've been through pandemics. We've been through recession, recessions where we didn't take bailout money, and we really want to be very -- we want to be there for customers at times of uncertainty.

So on April 2, we launched our from America for America campaign, that provided customers with employee pricing, they pay what we pay. And we did that to really take the long game on being there for customers at times of uncertainty. They look to Ford, they look to Ford for stability, and that's what we were able to do. It's really paid off for us in the last 60 days. You've seen a lot of the results in the market last month, and this goes back to your question on growth and how we're doing it.

Last month, coming out of May, we just closed 10 days ago or so. We actually posted a 14.7 share here in the U.S. that's up 1.9 points of share on a year-over-year basis. We -- a lot of times in this industry, we fight for tenth of share and to have a 1.9% increase year-over-year was very strong, and we did it with our profit pillars. Our trucks had the best -- when you look at our whole truck portfolio, it had the best month we have had in 2 decades, in 20 years.

Our Bronco business continues to grow. Our Bronco family sold over around 30,000 units and Bronco Ford beat Wrangler for the seventh consecutive month. And we also were able to grow with our all-new Expedition and Navigator that we just launched, Expedition was up 45%. So these are all profit pillars that we're really leaning into as we look for areas to grow in the market.

And we're leaving the month of May and almost halfway now through the year, our inventories are in a really good position. Our dealers have really gotten behind the from America for America campaign, and we'll continue to run that through the fourth of July time period. And the same is true on the Pro side with Super Duty and Transit, we've been really able to lean into those vehicles and take advantage of a really strong commercial market right now as well.

And do you want to add anything on the commercial side, do those kind of dynamics apply as well from -- of a competitor and from a kind of growth market share standpoint?

Yes, absolutely. We look at very similar dynamics on the Pro commercial side compared to retail. We're looking at volume opportunities, share opportunities, market equation, and we want to grow profitably. But additionally, in the Pro business, we look at our connected vehicle installed base and our growth in software and services because that's what sustains the competitive advantages and differentiation that Ford Pro has.

Our moats are our deep relationships with customers, the breadth of our vehicle lineup. We have the widest vehicle lineup in the commercial industry. Our partnerships with upfitters and we can configure these vehicles for virtually any on-road use case. And we have the largest dealer distribution and service footprint of any commercial brand. And we're continuing to deepen those moats.

But where Pro goes is with software, we can augment all of that, taking software and connected vehicles, we're really unlocking value for customers. They're able to do more with these vehicles, be more productive as well as minimize downtime. So we're helping customers grow their business and their top line as well as optimize on costs. And it's a virtuous cycle for Ford Pro. We're helping customers. We're leveraging data and insights, which is helping make our vehicles and solutions better and better and more and more optimized, and we're growing it to higher-margin parts and services.

And so this market environment and policy really creates opportunity for us to deepen that market leadership. Because of the breadth of our lineup and the customers and the variety of use cases we serve, that's a real key competitive advantage for Pro. And why that's the case is as policy drives growth in specific areas, for example, investment in infrastructure, and roll out of data centers to support artificial intelligence or residential services, we calibrate our solutions to where the market is and so we can capitalize on those opportunities.

And 2 years ago, when we presented at our Capital Markets Day, our Ford Pro strategy, we have real tangible proof points of progress. We have over 675,000 digital software subscriptions in the fleet solutions space. This is telematics and lean management. We've been growing subscriptions, average revenue per subscription, and we've been growing with both smaller and larger businesses. And on the parts side, our attach rate of parts is about 35% and 2 years ago, it was a little above of 30%.

And we've grown that from capacity actions, adding mobile service, dedicated commercial service base, as well as on the demand side, leveraging software to lead vehicles, customer data and inputs and our dealers' physical service networks. And this is all really integral to delivering the Ford plus plan. our ambition a few years in the future is to have 20% of our profits in Pro come from parts and services. And so what we're doing in Pro is deepening our leadership but it's growing and diversifying the business into more durable profit streams and reducing capital intensity and our exposure to cyclicality.

Yes. And Navin brings up a really good point. And -- so there's investment on our side. Our dealer body has also been and our dealer network has also been investing in this area as well, billions over the last several years. And just to double-click on one of those services around mobile service. Through this year, so far, we've done over 1.5 million mobile services, 1.5 million. So it is not insignificant in terms of how we're really focused on our customers and providing differentiated levels of service for them.

So I think it's safe to say the growth has been impressive. I wanted to shift to costs, Ford, I think even if you have acknowledged this has had a cost issue for a while. I think the commonly cited numbers at one point was $7 billion. Obviously, it's been shrinking. How much progress are we making to address that, in particular, on warranty? And can we accelerate that pace of improvement?

Yes, we are making progress. This has been a main focus of the company for the past several years, and we're starting to see it really pay off. So we've had 3 consecutive quarters of year-over-year improvement. What I really like about how the company is approaching is we're trying to change our -- not by doing little tactical things but really fundamentally changing the system and the culture and the company around how we operate to make this long-term durable, and we're starting to see this pay off.

So systematically, we're really working as a team, as a governance process like across the whole team. It's not just relying on individual team members. But across our PV engineering team, our manufacturing team, our supply chain team, we're doing so much more in terms of vehicle teardowns, understanding what the competition looks like where there's opportunities. That's been a big accelerant for some of the growth that you've seen in some of the results that you've started to see. In the manufacturing lines, we're doing gemba walks and going to the plants and spending a lot of time at individual stations, making sure that we're leveraging the best of our plants across the whole Ford ecosystem in each individual plant.

We've seen really good progress there. And we've spent a lot of time with our supply chain team and our supplier partners. So much of our progress will be done through the supplier partners. And I'm really proud of how the team is working differently. We've actually brought in a lot of specialists into the organization to bring new technical skills and new technical tools to us. So we're starting to see the results, $1 billion improvement on a year-over-year basis, excluding the tariff impact. But we just went through the major launches for us this year, and we didn't lose any production. So our production, that's the first time in many years, we did not lose production through a launch.

So our production stability has improved quite a bit, our 0 MIS, which is the quality, leaving the plant -- when it leaves the plant at 0 months in service is up considerably double-digit improvement. Our 3 months in service quality is up double-digit improvement. So we're seeing these start to pay off. We're doing much longer-term testing and we're really across every nature of the business, just running the business in a different way. So we are closing the gap, as you said, but we still have a long way to go. And we're still really balanced in our approach. We're -- we understand what's ahead, and we know this is a big opportunity for us at the same time.

Edison, I'll add that growing the Pro services ecosystem is directly linked to us addressing cost as a company. Those connected vehicles and the software, that data directly links into our quality systems. And like Andrew mentioned earlier, our mobile -- growing our physical services and our proactive service and our reactive service that helps us not just minimize vehicle downtime for customers, but optimize on total cost of repair, which will translate into improved warranty costs.

And then longer term, that data will help inform the vehicles and the solutions we provide, and we can optimize our costs there and including on things like order to delivery, where we're driving more efficiencies in those processes for customers, so the customers benefit because they know when vehicles are coming and entering into their fleets. And we optimize on inventory and working capital, which will also benefit costs. So growing those services is also just really directly linked into the cost optimization that we're doing in the company as well.

Speed to resolution as we have issues really does matter. It really helps the warranty side.

Another element of cost, and I promise we won't dwell on this too much tariffs, someone is probably going to throw something, maybe if we talk about this too much. But what are you planning to do to mitigate some of these? I realize you're probably in the best position among the OEMs. But for example, I saw you raised prices on models produced in Mexico. Is that kind of the response basically to some of these costs?

Yes. I mean we were clear in our first quarter earnings that we see about a $2.5 billion headwind associated with this on a gross basis and net of around $1.5 billion. Because we do plan to offset around $1 billion of cost actions and mitigating actions. The pricing environment is really interesting because it's really important as -- the way we're looking at is we're really doing -- we spend a lot of time doing market analysis and segment analysis. So we are looking literally vehicle-by-vehicle segment by segment, where is our manufacturing footprint set up, where are our competitors, where are they likely to price? How are they likely to price?

A lot of people just think top line pricing is what we should be looking for. The reality is there are many different ways to price a vehicle. And we're starting to see that play out in the marketplace right now. There is top line pricing, which some companies have taken and some are starting to take more of as we get into the June time period here, we've seen more activity in the last I'd say, 20 days or so. But it's important to also look at the net pricing. And what I mean by that is there are a lot of levers. There's variable marketing incentives, there's different series mixes that companies can use as a lever to manage their overall pricing.

We've seen companies change the way they provide customer incentives, maintenance packages. So we've seen company sale. We're not going to actually raise prices. We're committed to not raising prices, yet they de-escalated their variable marketing. They took away maintenance packages and they did other things, which is a form of net pricing. So there's a lot of ways that companies are doing this. We're watching this literally every single day. And we're game planning it around our strengths and where we can lean into the market.

This goes back to the growing and growing profitably and leveraging the footprint that we have here in the U.S. because it is really important for us to take advantage of the market where we can and price it in an intelligent way. But like I said before, we're really going to balance that mix of production, pricing and overall competitiveness based on what's the most profitable for Ford. But it is -- you used the word dynamic earlier. It is an extremely dynamic market right now, and competitors are facing a lot. Fortunately, we're in a better position. So it allows us to be more nimble and react and lean into customers.

And I'd like to say right now at these times of crisis, just like our from Americas, for America campaign, during these times, we want to really be on the right side of the customers and lean into the customers.

On the Ford Pro side, how do we -- I guess, how do we think about it from the fleet perspective, maybe perhaps or the government customer perspective, is the tariff you sort of pass that on? Or is it mitigated differently?

It's exactly the same levers that Andrew talked about on the retail side. And this is one of the great things of having Andrew as a partner because there are things that are very segment specific, like growing our services ecosystem. But when it comes to market equation, tariff mitigation actions, we're working together as 1 team, and we're balancing across the business. Now in the fleet space, you have orders that we get in from large corporate fleets and we're negotiating those directly. We have our dealers engaging with small businesses.

So there's other dynamics there. And there could be things like taking what Andrew said about variable marketing incentives, you have some volume weighted incentives in those markets. So you have these other levers and dials. That said, 3 weeks ago, we had our fleet showcase event in Detroit. So we had a top 400 large accounts coming in, and we're talking to them about the business, the market environment, vehicle lineup and our services.

And there's a lot of optimism, demand for trucks, chassis, wagons continues to be robust in the environment. And so we look at the same levers. But additionally, Edison, like I mentioned earlier, we're really focused on growing our connected vehicle installed base. So what we're looking at also on top of all of the levers that we just talked about is customer lifetime value. share of wallet growth, units in operation potential and other loyalty factors.

And we have in the commercial space, again, our 2 primary vehicles with Super Duty and Transit, both built here in the U.S., our competitors are not in that same position. So there's an opportunity with highly profitable vehicles for Ford and 2 vehicles that our Pro customers really rely on for their business to generate their own revenue. We're really going to take advantage of that situation and lean in. And it's already paid off in the last 60 days or so.

I wanted to talk about Model e. You've obviously taken the lead over there. We've heard Jim talk about skunkworks being the foundation of the future EV strategy. I guess, what is the objective until then. Because I realize you're going to keep some of the skunkworks up underwrap, surprised people. From now until the next couple of years, what is the strategy?

Well, the EV strategy really hasn't fundamentally changed. We want to exercise the right capital allocation first and foremost. So we want to put our money into the vehicles and into our Model e vehicles where we know we have a long-term sustainable future. So it's important to know we have a strong basis even in this first generation where we've learned a lot. I mean, the last 3 years, we've been the #2 automaker in EV sales in the U.S. So Mach-E and Lightning, our 2 main vehicles have done very well in the market.

Mach-E continues to grow. What's -- what doesn't get talked about a lot right now is we actually are launching right now new vehicles in Europe. We have the Capri, we have the Explorer. We have our next-generation Puma electric vehicle that we just launched, that's doing extremely well. And those are all in a better profit position than even the Mach-E and the Lightning have been here in the U.S., and we're improving on that profitability as well.

So in the near term, it's about making -- competing in the market with those products. It's about allocating capital in a very smart way. It's about making tough choices at times. For example, our battery capacity, making sure that we have the right footprint there to serve our longer-term needs. It is -- we made a tough decision on the original 3-row Model e vehicle that we ended up canceling because we didn't think it was going to be profitable in the long run and we repurposed that capital allocation actually for Super Duty, where we have a tremendous amount of upside on our -- with our Pro business.

So it's about really in the near term, making those decisions and investing for the long term. And a lot of that has to go into the advanced next generation of EV vehicles that we're really looking forward to. We've learned a lot around how the market is reacting to electric vehicles around the use cases that customers -- that make sense for customers.

And if you look at an F-150, for instance, we offer gas, hybrid and electric. And for some of our electric F-150 customers, their use case doesn't make sense for them to buy an electric vehicle. They should buy a hybrid with Pro Power Onboard or they should buy a gas vehicle. And in some cases, they should be buying up Lightning instead of one or the other. So we are really trying to educate customers on what the right use case is for their specific needs and having that flexibility across powertrains really does matter.

In the future for electric, we really think that the smaller-sized vehicles, where we actually do very well and trucks and utilities are going to be a great place to compete. We think they can really lean into the specific customer use cases and we can control the costs in a completely different way than what we're seeing others invest in, in the market. So we feel good about the near term. We have work to do on this as well, just being completely transparent. We're continuously working our profit improvements and focus on what the customer is and what they're looking for.

I think it's a good segue to Europe. You already sort of mentioned it. What are you seeing on the ground over there? There's obviously a much different market better than the U.S. And whether it's on the mission side, I guess what's Ford's kind of strategy to deal with that? And also just longer term, I think it's maybe not clear from the outside what is the end game in Europe, both on the commercial and the consumer?

Yes, I'm happy to take this one. And I'll start with Ford Pro. I'll start with Ford Pro and it is good. Our Pro business is strong and growing, and we're managing new entrants, compliance and costs. So the overall commercial market in Europe is softening, and we're seeing some contraction in end markets like manufacturing. That said, Ford Pro's results on a year-to-date basis, our volume has actually grown year-on-year, and our share has grown by over 3 percentage points. And that's been driven by our fresh product lineup that includes the Transit Custom, Ranger, the Transit Courier and flexibility on powertrains, like Andrew mentioned, ICE, hybrid, electric vehicles.

So we're giving customers in Europe, the power of choice. The Chinese are in the space in Europe in commercial, and they've been, to date, delivery focus, and the moats we talked about earlier with Pro on our breadth of customers we serve, our use cases, the widest vehicle lineup of anyone in the industry, a partnership with upfitters and our services ecosystem. What we are seeing in Europe is Ford Pro has gained share year-on-year in the commercial space.

And so that is a key critical proof point of showing how we can compete and differentiate versus new entrants in the market. And then on the compliance side, what the EU is doing in terms of working through 3-year fleet averaging for CO2, we strive to be CO2 compliant in every market we operate in. But that puts us in the -- that moves the market in the right direction to start better calibrating regulations with customer demand.

And for Ford, that gives us levers to optimize on vehicle, vehicle mix, markets and between commercial and consumer retail applications. On the cost side, we have made progress, but we have more work to do. It's everything that Andrew said earlier. What's different about Europe and for the Pro business is that we source our vans from our joint venture partner, Ford Otosan, which is based in Turkey. And so this is a purchased vehicle arrangement.

And the Turkish inflation has been persisting and the lira has not devalued against the dollar at a pace that would offset those costs. So everything that Andrew described earlier in terms of processes, governance, live walks at plants, technical teardowns, working with suppliers. We are doing that in our joint venture partner, Ford Otosan, and it's been driving a very tight partnership with Ford.

And so the learnings we're getting out of doing that work with Otosan is helping influence what we're doing in Ford and vice versa. So it's a really good symbiotic partnership, and we're making progress, but we have more work to do. And on the retail side, we're seeing some pricing pressure as OEMs are taking actions to deliver compliance. But like Andrew mentioned earlier, it's really about having a great product, and we're really pleased with the Puma EV recent launch, the Capri and Explorer EVs from last year.

And so to summarize on the retail side, it's really about having that great vehicle and EV lineup. Our Pro business has grown historically and we're going to continue to grow it on volume and on our services. And just like with Ford overall, addressing cost is the biggest unlock for our operation in Europe.

You mentioned China earlier. Maybe we can go to that part of the world. Ford obviously has a presence there. But I think you've talked about learning, applying some of those learnings as well taken some the JVs over there to even U.S. or Europe. So I guess what is the role of China, I guess, Ford China now, going forward? Is it mainly export hub? Is it mainly to kind of cultivate R&D that can be also because of the speed of competition. How does one think about that?

I think it's everything that you actually just said, really, it is about being an export hub for Ford. We've really rightsized our overall presence in China to scale to the market and what we're actually selling in the market. So that is also a dynamic market, as you can imagine. But we've done quite well out in China last year, $900 million, and a lot of that was based on the export success that we had.

So I take a vehicle like Territory with our JV partner. We are now exporting Territory all around the world throughout ASEAN markets, throughout South Africa. We're in South America. It's doing quite well in Mexico -- actually in Mexico, Territory is now our best-selling vehicle. We sell more Territory than we do F-150s in Mexico, where there's a big Chinese influence. So it's doing very well for us. It's a very profitable business. It's capital light, because of the partnership that we have. So it's a really good investable business there.

And in terms of what we're learning from the market itself, we were just there a few weeks ago as a leadership team. Speed, the way they're integrating AI into their vehicles and into their customer experience and their digital experience is really impressive and how we leverage the learnings that are there, not only from the actual customer experience that they're going through, but the development plans, their processes, we're taking a lot of that knowledge and trying to transfer it.

Now it's not just a copy and paste because the markets are so different. China is different from the U.S., different from Europe, et cetera, South America. So what we're trying to do is really replicate the intellectual approach, the speed that they do business on, learn from our JV partners and then transfer that knowledge within the company. But it's an impressive industry.

We're learning a lot on their new energy vehicles as well and where the natural demands of electric vehicles and EREV technology and hybrids are really landing because that will likely inform plus or minus government subsidies and incentives, that will inform where natural customer demand may be in other parts of the world. So there's a lot to learn in China.

If we tie the 2 regions together, there's obviously a lot of them trying to go to Europe. From that perspective, are you seeing some of the China OEMs get any traction?

Yes. They're setting their presence up in Europe. They're setting it up in ASEAN markets in South America, Mexico, like I said, I think almost 30% of the Mexico industry now is there. But in Europe, yes, they're growing, increasing their presence, increasing their footprint. This is where I really love our Pro business. Because our Pro business strength and the over 3 points of share growth we've seen there and continued investment in Pro, that they are not necessarily investing in that area.

So that's a really good opportunity for us to continue to differentiate the Ford brand and compete in a different way. That's a very -- that plays to our strength and really should be a long-term advantage for us. It's a different market or it's a different type of business, so you have to invest over a long time.

I hear you. So Ford -- switching, we'll also do something secular, talk about something secular autonomy, vehicle economy, which is everyone's favorite topic, I'm sure. You've hinted that you will partner up potentially with advanced vehicle autonomy. What can you tell us about these efforts and how you think about build versus buy on ADAS or advanced ADAS?

So I'll take this one. Actually, before I was the CFO of Ford Pro, I actually worked in the Autonomy and Mobility space for Ford. And that Ford, we're taking an evolutionary approach to transitioning to software-defined vehicles. We're focusing on centralizing compute, middleware and controlling key areas of the software tech stack. And that includes infotainment and ADAS. We're really focused on areas that are visible to the customer and integral to the customer experience.

So then to get the specifics on autonomy. Our Level 2 solution, it's called BlueCruise. We have over 350 million miles driven. It's won multiple consumer awards. The system is getting more and more capable. For example, last year, we launched automatic game changing and it's all developed in-house. And building a customer installed base with BlueCruise is really important to build trust in the brand and the solutions, and this is a precursor to Level 3 autonomy, which is right around the corner.

And with Level 3 is eyes off on highway driving, and that's really game changing. We're developing those solutions in-house with our Latitude team, and that consists of many of the people were at Argo and transitioned to Ford a few years ago. And we believe our Level 2 and our future Level 3 solutions will be among the best in the industry in execution.

And regarding Level 4 economy, we're being really thoughtful and practical. We're balancing innovation, capital and we're well positioned. And in my view, there's 4 elements. One, we have a really strong technical leadership team in Doug Field and Sammy Omari. They know the space really well. They know the solutions out there. They have a deep understanding of the Waymo solution, for example. The second, while it's a different technology stack with Level 4 versus Level 2 and Level 3. Building and scaling Level 2 and Level 3 with customers, builds trust in these economy solutions. So there is an inextricable linkage there.

The third point is we're really confident in our ability to integrate future and more and more advanced autonomy solutions into our platforms into the future. And then the fourth point is Ford Pro has a really important role to play here. Because there's an autonomy technology, there's the integration with vehicles and putting in all those functional safety redundancy systems, but they're integrating these vehicles into mixed suites, especially for commercial applications. orchestrating these vehicles among the mixed fleet, servicing these vehicles, charging, maintaining these vehicles. And we're doing all of this right now with electric vehicles.

In aggregate, we're the country's largest electric vehicle fleet. We have hundreds of thousands of customers. They have a myriad of use cases and needs around range and charging. And so we're learning a lot. We're getting deep operational expertise, technical know-how, customer use case insights and this is all going to be really relevant as autonomy scales into use cases and expand beyond ride-hail over time.

And then on the second part of your question regarding build, buy and partner, we believe, as an industry, OEMs should be evaluating partnerships to unlock value for customers and that can be in vehicle platforms, technology and just general areas of scaling. What we look at it for because we have a pretty good track record in partnerships.

We mentioned Ford Otosan earlier, our Chinese partners is really customer first and foremost, is this going to drive differentiated and unlocked value for customers? Is our IP with a partners, IP is going to be game-changing. Is it going to advance speed to market efficiency, drive a better execution and then fit, which is really important, strategic fit, long-term growth potential, durability in these partnerships. I come from an M&A background and business development. So I spend a lot of time in the space.

And culture, cultural fit, aligned values, aligned brands and really does it tie to the tenets of our Ford+ plan, is it going to drive growth, diversification, margin expansion and derisk in terms of capital expenditures as well as cyclicality and so we apply the same framework as we look at potential autonomy partnerships in parallel with our internal development of our Level 2 and Level 3 solutions. And like I mentioned, Ford Pro has such a key role to play because it's not just about the technology. It's about bringing this ecosystem to customers, especially in the commercial space.

And that involves maintenance, service, upfitting vehicles, charging solutions and then deliberately working with customers to scale these solutions over time. And the beauty of Pro is that we directly engage with customers. So we're getting those insights and the feedback that can help inform how to deploy and scale autonomy.

So if you use that together with -- obviously, Ford Pro has a lot of fleet management, #1 fleet management. You also have the biggest U.S. footprint, robotaxi. Any thoughts there?

Yes. We look at that space. We see scaling there and you know what Weibo is doing. And I think there's definitely opportunities. I'll give a really discrete tactical example. As autonomy scales and they start mapping out cities and you want to go in and start mapping those markets. You want to do that in a very asset-light way. And that's where Pro can become a really valuable partner in terms of our mobile service, our charging solutions, and we've actually set up our charging solution network with our dealers.

And that can help autonomy companies enter markets, test, pilot, validate, start mapping in a really quick and lean way. And I'd love to give a tactical near-term example because there is an ambitious future state out there with autonomy and there's way more we can do with the Pro ecosystem. But even in the now, as you're starting to see companies like Waymo are mapping and scaling into other markets pretty quickly, we definitely believe we have an interment role to play as a partner.

So lastly, from my end, Ford is getting back to F1 in a big way, your crosstown rival has a team now. Why do you think there's this big push from the U.S. to get back in F1? And what is Ford looking to achieve?

I'm not sure why there's a broader big push. I can tell you what it means for Ford and why we're excited about it. So first and foremost, it is a growing sport without question and a very popular sport. But I always joke, Lynn always says and I love this line. It's not a vanity project for Ford. And it's not. This is actually -- just like Navin was talking about technological know-how and really understanding the future of electric vehicles and hybrid propulsion and different technologies, there is no better field to get into than what's going on in the F1 field and when it comes to that type of intellectual advancement.

So when we look at it, we're not just slapping a Ford oval on a vehicle like we are totally involved in the process. We have dedicated motorsports teams and racing teams and engineers that are co-developing. We partnered with Red Bull with a proven leader to be able to actually get the most out of where they've come. We're not building from the ground up. We're actually joining a partnership that's been very successful, and they've been extremely collaborative for us, and even the early phases as we go to enter it next year.

But this is -- I like -- a lot of people don't realize that we do a lot of partnerships like this so we can make our mainstream vehicles better. So if you look at NASCAR, for instance, it makes Mustang better for our customers. That's why Mustang has almost 60% segment share. If you look at Bronco, the success of Broncos, we raised the king of the hammers not just to have fun racing a king of the hammers. We learned so much about the necessary technology that we want to put into -- what we want to put in, what we don't want to put in for our mainstream customers that makes Bronco as good as Bronco is, and the same will be true with F1 with our future electrified vehicles.

Like we are learning -- this is a learning lab for us. It's a great way to practically apply all of the learnings from world-class engineers into our mainstream products. And we are really excited about the overall -- the sport itself. There's a lot of, obviously, a lot around it, worldwide. It's a global business as well, just like we are. So there's a lot of -- there are a lot of marketing opportunities. There are a lot of those aspects to it, of course, that we're going to lean into as well and a fan base that's really big and exposure for the brand is great.

But this is -- it's a marketing plus technological know-how that we're really looking to get. That's why we're so excited about it.

Yes. Edison, I'd add, I was an engineer like over 20 years ago, I can geek out about the stuff all the time, and it's great for our talent. When we work with these partners, and we get improvements at aero, weight reduction, design changes, system changes, removing a bracket, like those type of things really excite our team because it shows progress and continuing to build on the success. And so there's everything that Andrew described, but for the internal team is really galvanizing in terms of product development and deployment.

That is really true. The ability -- this relationship and the amount of talent that we've been able to take a look at bringing into the company because people are attracted to this and want to work in this -- on this type of a project is really important. And we've already built a really good advanced electric vehicle team that you mentioned before. We've got world-class, the best EV leaders in the world are working at Ford now, and this is going to continue to attract talent for us. So there's a lot of reasons to get into it besides maybe the face value side of it. So thank you for asking that.

I think we have time for 1 question. Anyone in the audience wants to? I think we have one on the back.

I'd like to come back to your comments on Europe, if I may. Could you comment on the pricing by powertrain. So I think you said pricing is a bit under pressure. Is that mostly BEVs or is it also on ICE. And then if you could comment on the order momentum in that market.

Yes. It's a really good question, and it's actually changing by the month, and it's changing by the month for a few reasons. Navin talked about the different pricing environment. But you have some companies that have chosen to purchase credits to help accomplish those compliance, the regulatory compliance needs. Some have not participated in that pooling.

And so there are certain channels in Europe that are getting really aggressive in their pricing. So if you look at some of the EV pricing around some of the fleets, some companies are going very deep into that. They're discounting on certain fleets, 25%, 30%, which is more than what we've seen over the last -- even 60, 90 days ago as they're trying to balance their full year compliance position. We're not in that position. We did purchase credits. We feel very balanced. We've actually seen our ICE pricing stabilize quite a bit.

And in some cases, we've actually been able to increase our ice pricing as we try to balance that with our electric vehicles. So generally, the EV pricing environment has come down, very similar to what we've seen in other parts of the world, just as there's certain volume that is trying to be a hit versus the natural adoption curve. At the same time, that 3-year leveling that was announced across -- from a compliance standpoint is really helping. People are reacting to that in terms of their near-term pricing actions as well.

So it is extremely dynamic, maybe more dynamic than anywhere else right now in the world in terms of the ICE EV pricing environment. That's where another -- on the Pro side, we've been able to actually take a totally different tack and not have to participate as much in that pricing dynamic that's happening more in the PVs, passenger vehicle side of the business. Good question. Thanks.

Perfect. Thank you.

Edison, Thank you very much. Really appreciate you doing this, and thanks for everyone.

Thank you, everyone.

Welcome back, everyone. Next up at our conference. Very pleased to have with us Ford Motor Company, Sherry House, CFO, from Ford. Thanks for joining us, Sherry.

I guess maybe just to start, I think you mentioned to me, it's your 1-year anniversary or maybe just a couple of days past, it's very, very close. So...

On Monday, it was.

Okay. So congrats on that. And then it's probably been about, what, 3, 4 months since you took over CFO role.

That's right. Early February.

So obviously, I'm sure you've been very busy since then. It's not like there's been anything happening in the world or at Ford. But I guess just to take a step back, like since you started at Ford, what has surprised you the most? And maybe you can reflect a little bit on -- the past couple of months or really even a year where it has been sort of so dynamic like -- what's changed about your thinking about the company, but also what's changed about what you do at the company to interact with this more volatile environment?

Yes. Well, I'd start by just saying like what drew me to the company. So what originally drew me to the company is I felt that they had an advantaged strategy. So the fact that we're in hybrids, in electrification, in ICE, having the pro business of ICE. All these things provide choice for customers. And coming from a full electrification platform as Lucid's CFO previously, having all of that, I thought was going to be wonderful.

The other thing that really attracted me was the fact that some of the strategic bets the company made, I felt were good ones. So got in early with electrification, got in early with hybrids and really in an advanced position with respect to Pro. But I was particularly interested in what was happening in the advanced EV development center. We used to refer to it as Skunkworks. And now that I'm inside, and I have the chance to really see that. As an engineer, as previously an engineer, what I was so surprised by is how advanced it truly is. So I spent a lot of time in venture capital. I spent time helping companies set up corporate VC units, thinking about innovation. But when a really big company is able to do innovation at scale, that is something that is really remarkable and you need to celebrate. And so Doug Field and Alan Clarke and the people who have come into this organization are truly doing that. And they're using best practices and first principle thinking, so they're bringing together designers and manufacturers, software and hardware together, procurement together, using brand-new tools that Ford's never used before and standing up a platform that's now going to have multiple variants on it over time. This is the way that Waymos work. This is the way that some of the new age electrification companies operate, but I'm seeing it in Ford. And so I'm incredibly excited and frankly, somewhat surprised by the ability of progress that they've been able to make. So that would be a few things. And I guess you also had a second part to the question.

Yes, the second part was just, I guess, as -- in your role, right, it seems like the company has to be much more nimble, reactive, in some cases, proactive, just sort of some of the volatility. So versus maybe when you came in, what you saw, what sort of processes have changed? What have you helped to change to sort of better react with sort of the day-to-day uncertainty?

So I think you're absolutely right. Optionality and nimbleness are key. So we've had to stand up SWAT teams to be able to deal with some of the tariffs and all of the changes that are happening. One of the good things about Ford is that I think we've got the right mix of talent now. We've got a lot of new talent, but we also have the long-tenured talent. They have deep connections within the company, highly internally networked. So when something like this happens, they know exactly who to talk to and all the different functions to get situated and coordinated to be able to act. And I've been really impressed by a lot of what the business has been doing there.

In terms of what am I specifically bringing to the mix, I'd say that as I observe the business, some of the things that I'm looking at is that the company has been progressing forward. They've been progressing forward incrementally. What we're looking to do now is to progress forward in a transformational way.

So take a department that you might have evaluated. You might say on a scale of 1 to 5, it's at 2.5. Where in the past, we would look to get to 2.7 or 3 and say this is really good. We're progressing as a business, and it is good. But now we're saying, what if you get all the way to 5. Does it make sense to get to 5? Do you have a cost benefit of getting to 5 -- maybe you should get to 4.7. And what do you need to do to get there? How do you break down those parts? How do you do milestone-based thinking? So kind of taking some of the venture capital thinking where you put in money when a milestone is hit and you hold yourself accountable to all of those actions.

The other thing I would say is that the business has been doing a good job of implementing new technologies and really starting to advance. But you can't just implement, you have to implement and get impact. And it's different because when you design it at the outside -- outset, you're designing for efficiency as the end goal, as cost savings as an end goal, not simply to put something in place. And so that type of thinking is stretching the organization's kind of frame of reference in a really good way.

Yes. I mean it sounds like a lot of what you're talking about does require like a deep cultural change. And like Ford is a storied manufacturer in the U.S. and really globally, but obviously, has a very sort of long history and there are sort of ingrained practices and teams and [indiscernible], if you will. So do you -- have you noticed even in your year some of that sort of culture change that is enabled that new type of thinking? Or is there still some resistance internally?

So there's a couple of things that are happening. One is we're starting to put more specialists in roles. So as opposed to putting a really great generalist in a role, we're bringing in specialists. We're bringing in Bryce Cury in manufacturing, an amazing manufacturing leader on the forefront of lean thinking. You bring in Liz Door, an amazing supply chain leader at the forefront of that thinking versus having generalists in those roles, the people understand what expertise is like.

The other thing I would say that I've been challenging the company to think about is not letting your governance define what the pace of the business is going to be. Because what happens in big companies, you all see it all the time. You have weekly meetings on a topic. You have monthly meetings on a topic. You have quarterly meetings on a topic. What happens when you set up your business that way is you are running to that governance structure and you're only doing the work to be ready for that weekly meeting, that monthly meeting. But instead, if you can step back and let the priorities define the pace versus the governance structure, the business define the pace, I think you can go a lot faster and you can make sure you're focused on the right things.

So these are culture differences. One other one would be the way that you break boundary constraints. If you're having meetings with just one function, a lot of times you can't break the boundary constraints because you don't have everybody in the room to tell you that you can do something. So you feel like you can't. So having more cross-functional meetings as well. These are all tactics but they make a difference. And we saw this in the work that I was able to help effectuate with Model e early on in my tenure.

Right. So let's get into some of those topics. I guess, not to sort of spend even more time on tariffs. But I think -- I just want to sort of level set for investors, right? You talked about a $2.5 billion gross impact, $1.5 billion net impact. Now my understanding, if I recall correctly, was that was sort of half materials and parts, right, some -- just like steel and aluminum, right, for the $2.5 billion and then the other half was sort of more, I guess, straight tariffs, right?

Vehicle.

Vehicle tariffs, right, exactly. Since though, you gave that color on earnings, right, we've seen a couple of things happen. One is change in China policy; and two, over this past weekend, some changes to steel and aluminum. So how should we think about what you previously said, what was sort of embedded in that? And what are the puts and takes from those two -- at least two new factors?

Yes. So I'll start by saying I'm not going to provide like the full details of those puts and takes because we're going to study that, and we're going to give you that in Q2 -- with our Q2 earnings, which will be probably late July. But let me just break down the $2.5 billion for you. So the $2.5 billion has two parts in it, as you said. About half of it is parts that also included steel and aluminum in it, okay? It also included $0.2 billion of tariffs we already paid in Q1 related to parts.

The second part of it is vehicle tariffs. And so that's going to be related to the vehicles that we are importing less the offset that we are anticipating to get for the U.S. content that are in those cars, okay? So those are the two pieces. The two new things that you just mentioned, the China tariffs brings the parts piece down and the aluminum and steel brings the parts piece up. So good news is they're offsetting. So that's about the level of context that I can provide at this point, but we're going to be happy to provide more detail in Q2.

Maybe just on that. You did withdraw the guidance on the first quarter. And I think it was understandable at the time there was still a lot of raw and fresh sort of information and things seem to be changing, if not by the day, by the hour. Like do we think we're at a level now where you have a little bit more visibility and confidence to sort of reintroduce that full year guidance with the second quarter?

So -- we would like to, okay? I'll put that out there. We want to give the Street as much information as we can. When we decided not to do it in Q1, we had looked at what do we know and what do we not know. And unfortunately, what we didn't know was so much bigger, and there was so much variability associated than what we did know, we felt that it was prudent and appropriate to pull guidance. But what we did do is we said, had it not been for tariffs, we're on track with the $1 billion. We're on track with our prior guidance. We were able to define for you an estimate of what we thought the gross and that impacts of tariffs though. But what we didn't know, and some of it, we still don't know is what types of changes we might have in the domestic tariffs. You mentioned just two that happened in just the last 10 days. But then also what is going to happen internationally, any type of retaliatory tariffs, what are going to be any policy changes, consumer impacts, how is the consumer going to take the tariffs and what are going to be the impacts on them. And then importantly, we have this other item called rare earth minerals and getting the approvals out of China to move necessary components into the U.S. to spend an issue.

So all those items still exist to a degree. I do think there has been some settling in several of them. And so as we move into the next couple of weeks and prepare for the quarter, if we give guidance, it will be with the caveats of what we can't define. And if we don't, we're going to give you every piece of information that we feel we can to help you and other analysts and investors with doing your models and being able to understand the business as much as possible.

I want to maybe just double click on a couple of things you mentioned there. So maybe I'll go in reverse order. The first is rare earth minerals, which obviously sort of has become a little bit more topical, at least in my conversations with investors over the past week. You mentioned maybe you're seeing some potential disruption. I mean like how pervasive is that? And like really -- or maybe you can just sort of describe, I guess, what it's impacting and what type of backlogs there might be in terms of getting rare earths into the supply chain that could impact your production of vehicles?

So there are many components that rare earth minerals are in. And any of those that are coming from China require you to now go through export control. And so there's an additional layer of administrative process that has to happen. Sometimes it goes through really smoothly. Sometimes things get held up and there's questions. When it gets held up in it's questions, we've got to work through that. So we then -- if we're not positive, it's going to go through, you have to look for alternative parts or alternative ways to get things. Most frequently, it goes through, it just may take more time. So then you might be facing expedited shipment costs that you weren't anticipating. And it just puts stress on a system that's highly organized with parts being ordered many weeks in advance. So we're managing it. It continues to be an issue, and we continue to work the issues. But I don't know if at some point, this is going to be a larger issue for us.

The second thing you mentioned is federal reimbursements for some of the costs on tariffs. Like can you just maybe at a high level, very simplicity, like talk about like -- how is that sort of functionally working? I don't think you're necessarily getting some of those sort of cash payments today. But like -- maybe just walk us through a simple example like what you have to do, the process that needs to go through and sort of when you expect to actually get cash reimbursements for some of those offsets?

A lot of that is being defined real-time and the timing of the reimbursements, I don't completely know. So you're paying the tariffs now. I think it's very possible that there will be a delay in getting those offsets. I'm talking about the parts offset. It could be by a quarter, it could be by a couple of quarters. But all of you that are looking at our financials in Q2, Q3, Q4, are going to have to know that it's going to be a bit lumpy. You might have more expense before you actually get the money reimbursed.

I guess just maybe to close out tariffs, and this is -- if we think about the goals of the policy and sort of reshoring manufacturing back to the U.S. And you already -- as you've highlighted, numerous times, we think -- you think you have a get sort of a competitive manufacturing footprint in U.S. But the supply base is more spread out. It does seem like when you think about this policy, there's an opportunity for you to work with your suppliers to wring out efficiencies while they maybe resource some parts there. So can you just talk a little bit about: a, what you think can move, can't move; and b, what really are those conversations you're having with suppliers about commitments and need to sort of move stuff back with the goal of, right, having it really be a win-win for both sides?

Right. So I'll start with the basics. And as you said, 80% of what we sell in the United States, we manufacture in the U.S. 80% of what we manufacture in the U.S. has USMCA compliant parts. So that means on the vehicles that we're manufacturing in the U.S., 20% is coming in from outside. So that is the piece that right now, there's a part offset for 15% what our -- not 15% of the 20%, but basically 75% of that 20% is covered.

In terms of our supplier relationships, they're our partners. And so as we face the tariff situation, we face it together and the types of conversations we are having are around, do you have additional capacity in the U.S.? Could you move to the U.S.? What types of investments might help you get there? But when we look at how we interact with the suppliers, it's a very complex and nuanced situation. So deciding which suppliers you're working with in these matters might depend on the quality that they've provided in the past. Do they have the leading IT? Are they a good cost provider? How have they performed for us over the last year? So we look at all of these things also when we're working with them. But on an individual basis, we're deciding whether or not it makes sense to make some of these changes. I don't have anything to announce with you right now. But of course, you would look at some of your higher-priced components. First, items that affect more vehicles, that would be the order of operations.

Perfect. Maybe we can just talk a little bit about the marketplace, specifically in the U.S. because right part of your guidance also sort of was this market factors. And I know there wasn't a lot of specifics as sort of where there would be price or volume and market share gains, but it could be either or and it could be, I think, probably dependent on which vehicle or segment we're talking about. But I want to sort of get your temperature on how you think things are evolving relative to what you internally expected when you sort of last spoke to us on earnings. We got the sales data for May yesterday [ in Ford ]. The market overall, obviously, slowed a little bit from the past couple of months where I think we would -- we could all agree, there was at least some level of pre-buy ahead of price increases. But Ford performed I thought pretty well, very well. And it seems like some of the marketing and the messaging with employee pricing and Made in America seems to be resonating. But I want to get your sense for what you're seeing in the marketplace for Ford vehicles right now?

Yes. So let me start at the industry level and then I'll get into Ford. So at the industry level, I would say our view is unchanged from what we said at earnings, which is we were seeing significant increase in SAAR through Q1 and Q2, and that we believe that there will be a drop off in Q3 and Q4 as we thought there may have been pull ahead. We do believe that a lot of these imported vehicles will have to take some sort of pricing either through incentives or top line. And we think that takes some time to work through. So we were expecting more of those effects to be happening in Q3 and Q4. And so we had talked about an industry level believing that pricing might be up 1% to 1.5%. So as you get to Ford, our From America For America program that goes from now -- it's been ongoing. It goes through July 7, has been outstanding. I mean it truly has given our dealers and customers something to get excited about, something to come to the showroom about. We were able to, in May, enjoy 16% sales increase across Ford and Lincoln retail and commercial on a year-over-year basis for May. And year-to-date, we are up over 6%. So we are definitely seeing the impact of solid volume, solid demand for our products. We have a brand-new Navigator and Expedition as well. We've got a great lineup. And we've seen pricing resiliency. So when you kind of think about the P x Q, we've been very solid is what we've been able to experience thus far. And we'll talk more about that as we get to Q2.

I want to turn the conversation to cost because this is obviously a big part of sort of the forward investment case. In the past, you've highlighted that $7 billion gap versus competitors. I'm curious sort of how you assess that now given that there have been some changes, like part of that was definitely footprint, but -- and maybe that gap has narrowed not because of anything you did to improve because some of your competitors have additional costs. So I don't know if you have sort of an update of where that stands. And then maybe if you think about the three broad areas you talked about, which is the structural, the warranty and the materials. Just an update on what you've done, what can be done in the near term, what can be done over the long term? What are things that Kumar and his team are doing to further reduce costs over time and make it more competitive?

Yes. So we've looked at the competitive cost gap. First off, we've been very transparent about it. We think it's good for our business. We think it's good for the investors to know where we stand. We also see cost reduction as the biggest value unlock for our business. And something that differentiates us, I would say in a positive way because we have upside in front of us. We did look at this at the end of the year. And we did see before all this impact of footprint and tariffs, we saw a material difference in terms of us closing the gap. And that was coming through a material cost and kind of the industrial system costs of the business. It is a challenging thing to estimate. So you do have to look at mix. You have to make a lot of assumptions. But even when you put all that aside, you could see that there is a marked change in our performance. I agree that there will be additional benefits based on our footprint, it's now going to put us in a more advantaged position. If you look at something like our F-Series trucks, 100% of them are made in the United States. On our competitors, it might be 50% to 60% with a large amount being imported. That's a difference. It's an advantage for us. All of our profit pillars, by the way, are manufactured in the U.S. So in terms of progress that we've had over time, we looked at that gap, that $7 billion gap that you referenced, and we said, what are the two biggest things that we could go after immediately and go after in a detailed, thoughtful, systematic way, and we picked warranty material cost. And we got a running start as we went into 2025. We brought in a consultant. We took 4 months of really studying and looking at the benchmark, the best-in-class benchmarks. Again, not moving incrementally, moving and thinking transformationally -- difference.

When we did that, we saw that there were 5 different things that we should win both material cost and in warranty to really move the needle. And I'm happy to say that we're seeing that happen. We just had 3 straight quarters of year-over-year cost improvement, and that's because of this work. And I'm hoping and expecting that we're going to continue to see that. How we're breaking it is that it is dedicated, focused, transparent work. We put a spotlight on this at the executive leadership team level. Everybody is motivated. We talk about the performance milestones that we're hitting with the -- in our all hands. Our bonuses are tied to this happening as well. And so you've got a team that is just very focused on making the change.

Now as we go forward, I see lots of other areas for opportunity. If somebody knew that's coming in and coming from not a resource-rich environment, I've been 7 years with start-ups to coming into this, I see opportunity everywhere. And so I am very excited. And I think if you talk to me in a year, you're going to hear me talking more about investment efficiency, about engineering spend, about SG&A spend, and we are eager to get after all of that as well.

Yes. We have the open invite to come back next year. So follow up. But -- maybe just a good segue to one of the things you just mentioned in investment efficiency. And I think one of the things that a lot of people are sort of circling here. Right now, even though to be fair, nothing is set in stone yet, but it does seem like emission policy is moving more in one direction than another, whether that's California, whether that's EPA. You've in the past talked about a certain level of your capital expenditures going towards electrification efforts. But I think listening to Jim speak recently, it also sounds like you really want to be more guided by the consumer and that's why you're sort of offering the different types of powertrain options. How does that impact your future investment in things like electrification? Not to say it doesn't ever have to be spent because I think most of us or at least I would argue that we are sort of going to trend towards electrification over time, which is a question of sort of the slope. So maybe it does get spent at a later point in time. But can you

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is there a net lowering of spending? Or does some of that capital get redeployed into other efforts?

So I would say that we're already making decisions like that. And you've seen the evidence of it, when you saw that we decided to cease the 3-row BEV that we were going to be producing in Oakville. And instead, we decided to bring Super Duties there. So that's a decision that we made based on watching what was happening in the market. In terms of surprise, you talked about surprise at the outset, I was surprised that the business made a decision like that because there was a lot already done, get supply chain set up, you're approaching getting ready for production. And we said, no, this doesn't make sense. What makes sense for the business, the signals we're seeing is we need to make this move. So I think it's important for you to know that Ford Motor Company has the courage to make those tough decisions, and they will make them if they think that it's right.

So as we look forward, I agree with your thesis that electrification is the future. I also agree with that. But I do believe that customers are taking their time in some cases to get there. And the consumer sentiment is ramping more slowly. So the hybrids that we just now had close to 25% increase on a year-over-year basis in hybrid sales is really taking off. And that type of a continued investment is going to be important for the business in the near term. How we're managing this differently than we did in the past, to be more nimble and to be more thoughtful as we developed an internal capital committee. And now that we have the different segments, we have different hurdle rates for each of the three segments. And so we're looking at the investment and what the return on the investment is going to be in order to make that decision.

The other thing we're looking at are the services, the physical services, the software services, some of the enablers. When you look at our services and you look at the Pro EBIT, we are now in the mid-teens percent of the EBIT is from physical services and the software and digital services, and we think that's only going to increase. So there's also a case to be made. When you look at our Ford+ Plan, one of the items is durability to be putting more of our money into areas like that, that have great margins and a lot less investment to get it showing up in your EBIT. So those are types of things that we're also focused on as a business. But I would say, more nimble, more thoughtful in a very strategic by-segment way are some of the key takeaways.

Great. Why don't we see if there's anything in the audience from investors. I think there's a mic somewhere. But if not -- if not, we can keep going on stage. Anything from the audience? Okay. Just going back to maybe some of the comments you made earlier on metals and steel and aluminum. I understand we're not going to get sort of the specifics on the dollar. But can you just remind us, right, like how your steel and aluminum buy works? Because I think it's sort of tranched out in terms of duration and some is contract and some is more spots. So how does that sort of play out?

Yes. So I would say, first off, 100% of our sheet aluminum is purchased in the U.S. 85% of the steel is purchased in the U.S. So when we even talk about tariff impacts, they're small for us on a direct basis, okay? Where we see a lot of the increase come through is the increase in prices. So that's the nature of -- and just making sure everybody's got a baseline on the kind of the situation. How we manage that as a business is we manage it through fixed contracts, and we also manage it through hedging. On the fixed contracts, they don't happen just once a year. They happen throughout the year. So you're in a constant situation on a quarter or a 4-month basis in which an old contract is rolling off and a new contract is being brought on. So when all of this hit, there is a delayed impact and the -- if you believe that prices are going to rise, there would be increasing costs over time. But we also have seen even recently that there has been some settling that's been happening. So you've got that offset as well.

I guess one other thing that comes up a lot, and we talked a little bit about investment efficiency. But just overall sort of capital efficiency, not just at Ford, but really this industry. And I don't think Ford officially comment on this, but there were media reports about a partnership with Nissan for batteries. I'm not sure what you're able to sort of say about that. But I'm just thinking bigger picture, like how do you, as CFO, think about partnerships with potentially competitors, but to sort of share resources, share capital that -- where there's sort of a win-win for all parties involved here?

I think as a business, you have to first start with thinking about where do you want your core competencies to be. What are going to be your strategic elements that you are providing to the customer? Whether it be brand or differentiation or certain types of IP, what we're doing in the advanced EV development center, for instance, really important in terms of differentiating. But then as you look at a very competitive global landscape with differentiated needs in software and in vehicle sizing, as you go around the world, it could make sense. It does make sense to be thinking about should you partner in order to get more efficiency on things that you don't either have to be #1 in, or perhaps you and your partner are going to be #1 in, but you're just offering it through a different brand experience. And so we are absolutely open to doing that. I think we will continue to do that. You see that we've got some great partnerships already. We have partnerships with Volkswagen. We've got a couple of them in China, for instance. And I think we will do more of that. Because in this day and age, in the pace of change that is happening, the pace of development is accelerating, you're going to need to do that. You don't have to do everything but do what's most important.

I guess the follow-up question is it seems like as an industry and sort of if you look at what the consumer wants for the car, like what the consumer values in the car is changing. We're certainly versus 5 years ago, 10 years ago, 20 years ago. So what are some examples of what Ford views as that sort of core competency that you feel you need to own versus sort of an area where you might be willing to look to some sort of partnership?

Well, some of the in-cabin experiences, some of what you might be referencing in terms of software expectations, but that's still going to be regionally defined. So we might decide hypothetically that in the U.S., we define more of that. But in other areas of the world in Asia, maybe we've got a partner that's helping us to define more of that. So I think you've got to look at it on a regional basis and make that determination of where you want to be. I like the fact that we have the advanced EV development center, not just for the customer elements of it, but also the cost efficiency that comes with more vertical integration and more simultaneous engineering by having hardware, software, procurement, manufacturing, all co-located.

Maybe just to close on Model e, which is obviously since you've segmented, it's been quite obvious to investors sort of the loss there. You talked a little bit about this in the first quarter and sort of not to sort of extrapolate, but how should we think about Model e sort of progressing through the year, maybe into next year? And then time back in one of the points we talked about earlier, which is if there is slower demand for EVs, at least in the U.S. and potentially less of a need to from a regulatory perspective to sell them. Shouldn't that in and of itself be a little bit of a tailwind to the loss since there is sort of a variable loss right now for those vehicles?

Yes. So let me start at the beginning. So we were very early to market with the Lightning in Mach-E, and those are continuing to sell very well, particularly the Mach-E. We're still having increasing sales of the Mach-E. I just took delivery one by the way on Friday, and I love it. It is Bright red, black wheels, and it's really fun to drive. So I highly recommend it. But that product continues to do really well. Yes, there are losses there. Yes, we are continuing to work those. And we're making some important changes like we're changing where the battery is going to be sourced to bring down the cost. But with that, you have some launch expenses as you do it. So these things take time to work out. Our Gen 2 kind of in 3, we've got the European launches. So we're now going to be benefiting from the full year effect of the Capri, the Explorer, the brand-new Puma that's in Europe. And those are better from a cost performance basis than the model than the Mach-E and the Lightning. Then the third, even better, more profitable, larger scale is what's going to be coming out of the advanced EV development center starting in 2027, and we are spending money now on that. So when I talked about the losses for this year, $1 billion of that is spent on the new. And that new is going to have a nice return on investment. So you need to kind of put that in context when you're thinking about the spend this year and its impact on the future to get us to more profitable, more affordable vehicles for our customers. So I think that's very important.

Now the other thing you talked about, as you talked about the regulatory environment, it might that shift or change? Yes, it might. I think this is where Ford's strategy of having the hybrids and the ICE and the powertrain is really powerful. And so might, we have more flexibility that we don't have to manage just a compliance, but we can maybe manage more to the real-time signals that we're seeing in the market from customers and maybe able to do a little bit more maneuvering that could be more profitable? Yes, I think that that's a real possible upside for us.

And maybe just one rapid fire as we close. The over $4 billion of commitments that you've disclosed in the K to buy credits and just to confirm, there are provisions that allow you not to have to [ make those ] purposes if the...

If the rights change, that's right.

Perfect. Great. Well, Sherry, thanks so much for joining us. Really appreciate the conversation.

It was great to be with you. Thank you so much.

Thanks.

All right. Good afternoon, everybody. Thanks very much for spending this hour with us and not having cocktails yet. I know that you have to whiz off right after. So you'll miss that part. Ladies and gentlemen, welcome to our fireside chat with John Lawler, Vice Chair of Ford.

John, thanks very much for being here today.

Thanks for having me.

It was a long day. So I appreciate you sticking around for us to have this discussion.

And maybe what I'd like to start with, you've recently -- fairly recently switched roles at Ford. What's on your agenda now? How has your day changed? Kind of what are you looking at now?

Yes. So I think the industry at this time is going through one of the most important transitions we've had potentially ever. And what I'm doing is I'm spending my time working with Jim and the executive leadership team on how we best position Ford to win coming out of this transformation of the industry. And so that's heavily rooted in strategy, some in policy and leveraging the 35 years of experience I have at Ford and globally to help do that.

So if you step back and you look at what's happening across the industry, it's the confluence of many different factors. And if you think about it, electrification has come in and changed the industry quite a bit. But the ICE tail is going to be much longer. The development of multi-energy vehicles, that's going to have a long tail. You've got distributed electrical architectures. You've got an intelligent connected vehicle. You have autonomous driving technology. All coming together at the same time, and all of that is going to require the OEMs to think about how you position yourself for success going forward differently. Everybody can't do all of that on their own.

When I listen to you explain that, it sounds a lot like this is a job that doesn't tackle the next quarter, not even the next year. And so what's the time frame really you're thinking about as you approach this role?

Well, one of the nice things about our structure and our company is that, of course, we have to make our quarters. Of course, we focus on that. And as you know, I spent a lot of time over my career in that space. And so this is a nice shift for me. But we do have a long-term horizon. And so we're talking about the next 3 to 5 years and setting ourselves up to be successful coming out of that.

We have a lot of work to do in the near term, and none of that's changed. Our focus on cost and quality is at the top of the list. Every day as a team, we're focusing on those 2 deliverables because we know that as an enabler, that's going to allow us to do what we need to do strategically to position ourselves to win.

And so although that's not a big part of my remit any longer moving from CFO to Vice Chair, everybody, everybody in the company is involved in that with Jim and the leadership team every week, just about every day. So we're still involved in that, and then I hope I can contribute to that as well positively and support Sherry in those efforts and the rest of the team. But it's a 3- to 5-year horizon. It's about the future and setting ourselves up.

And Ford over the past couple of months, the past 2 years, has done already some major changes, resets. You've repositioned some of the EV programs. You just repositioned kind of the digital SUV architecture that you want to go for. You've talked a lot about capital discipline. What key elements of the original Ford+ plan kind of are still in place? And where have you had to make adjustments?

Yes. I would say that the changes that we've made really come about because our strategy is a series of decisions, the decisions you need to make. And we've adjusted and made different decisions based on how the consumer has changed or how the marketplace has changed. But if you step back and look at the priorities that we have, they haven't fundamentally changed, but how we're approaching them may have changed a bit.

So cost and quality is still number one, as I just said. We have to get that right. But when you look at it, the segmentation is proving, I believe, to have been a smart move because Pro is a very important part of what we need to do. And that's going to continue to be a very core element of our strategy and positioning ourselves for success. And with Pro, it's a business and an opportunity that no one else can match. We have a 40% market share in North America here relative to vehicles. And then with those vehicles comes along the ability to sell software services as well as physical services.

And when you step back and you look at it, when we look at our strategy and we look at the areas that we're focused in on and you look at the industry and the transformation, our industry has been plagued with very low margins. You all know that. And so why is that? Well, we haven't had a lot of top line growth. Our margins are relatively thin compared to best-in-class industrials. Our capital efficiency is not very good. And we're very cyclical. We're not a durable business. Peak to trough is quite extreme. And every time there's a recession, the conversations come about, about, well, who potentially is going to run out of cash and go bankrupt.

And that's fortunate. And those are the things that we need to solve. And when you look at Pro, it addresses many of those. The margins are better than what we've seen. We've proven that the last couple of years, right? Mid-teens is where we're targeting, and we've done pretty well with that. It's a growing business. Software and services in the Pro business are growing at a 20% clip. And so our paid subscriptions are over 675,000 customers right now. Our ARPU is growing. And when you look at that, those software services have margins of over 50%.

So that's countercyclical. Those aren't going to go away in a recession. Those are going to continue. And then physical services, that's growing as well. We have about a 35% attach rate. Every point we grow in physical services is worth $30 million of EBIT. And again, that's countercyclical, higher margins, gross margins of 30% plus. So in Ford Pro, I think that is the definition of how the business needs to change to address those 4 issues and then capital efficiencies there as well as we run through and with the platforms that we have in the commercial business.

So it's a great business for us. So that's going to be important. Software-defined vehicles. The intelligent connected vehicle is going to be a critical part of the transformation in this industry. We're seeing it in other parts of the world, and we're seeing it accelerating, and it needs to happen with us very quickly. That's a key part. Growing our service business is a key part of that.

And so that strategy all remains the same. We're going to stay in EVs. We're going to continue to invest in our advanced electrical development team out in California. There's a lot of benefits that are coming from that. That's not changing, but we've adjusted based on the customer feedback we had being in the marketplace early to what types of vehicles are actually going to resonate with customers and how do we make them more affordable so that we can attract a larger cohort of customers because large vehicles are not the right form factor for EVs. You're going to -- we're going to have some of them, but they require large batteries. And batteries are the largest cost in electric vehicle.

So if you go with a smaller vehicle, you have a smaller battery. It's more affordable, and we believe that's going to be a competitive advantage for us, especially with the way we're developing those, and we can talk about that a bit later. So it's all the parts, again, Pro, software-defined vehicles, the digital electrical architecture, intelligent connected vehicle. It's the electrification.

And then, of course, we're going to continue to leverage our strength in ICE vehicles and the great nameplates and brands that we have, anywhere from F-Series, to Super Duty, to Bronco, to Expedition, Explore. We're still very strong in all those segments, and we're going to continue to grow there and continue to build out the competitive we have in -- competitive advantage we have in powertrain of choice and providing multi-energy vehicles.

I mean we have the #1 and the #2 hybrid vehicles with our pickups. So those are the areas that we're going to continue to focus on, but how we go about executing those strategies to work on those 4 elements I talked about, speed, capital efficiency, margin and durable business, it's changing.

If you think about the original thinking around Ford+ and where you're now, how have your investment priorities changed? When we think about the R&D budget, is it as simple as dividing it in 4 pieces and saying it's ICE, EV, hybrid and software? Or how would you kind of frame that for investors?

No, it's where can we get the best return and do we have the ability for accretive growth. It's really a top-down approach. Honestly, in the past, a lot of times when we did the capital allocation, it was more of a bottoms-up product-driven process. Now we're starting to look at it because we have the 4 business units and we have the ability to think about things over a longer arc when we're doing our strategic planning process. And then we're allocating capital into the growth areas, and we're doing it based on the higher order of return.

And so every one of the business units that we have has a hurdle rate. Every one of the business units have to come into the capital committee and demonstrate the use of their capital, the return that they're going to get on that capital, and then we're making the decisions as a team as to where we want to grow and how we want to allocate that capital to grow.

I'm going to, before we get into more of the strategy, add in kind of the necessity to talk about tariffs. And I'm going to phrase slightly differently and ask, with what's going on right now, are there any opportunities for Ford in the next 12, 24 months if we kind of continue with the framework we're seeing right now?

Well, I think we do have a competitive advantage because we are the most American, right? We employ more workers. We built more vehicles in the U.S. So we do have that competitive advantage given just the structure of what we have from a footprint standpoint. We guided, what, from a tariff standpoint that the gross impact was $2.5 billion, and net was $1.5 billion. We're continuing to work on that and understand that. But at this point, there's not much that's changed, and so there's no material change versus we guided. But we're continuing to leverage our competitive advantage in our footprint to try to identify opportunities for us over the next 12 to 24 months where we can take advantage of the shifting environment.