Yahoo Finance anchor Brad Smith talks with Ford CFO John Lawler about the company’s Ford+ plan, supply chain challenges, and production of electric vehicles.
Video Transcript
BRAD SMITH: Ford announcing the initiation of new internal business units. Ford Model E, which will be dedicated to the electric vehicle business, and Ford Blue whose mission is to deliver a more profitable internal combustion engine business, all in addition to the existing Ford Pro and Ford Drive platforms. The company also reaffirmed guidance for 2022 of $11.5 billion to $12.5 billion in adjusted earnings before interest and taxes.
The chief financial officer of Ford, John Lawler, joins us now. And John, thanks so much for taking the time here today. Why was right now the right time to create the distinction, and reporting breakout even, over at Ford?
JOHN LAWLER: Well, it’s about the next phase in our Ford+ plan and accelerating the Ford+ plan. And we feel now is the time to create these different divisions. We’re going to create the electric vehicle division as well as the internal combustion engine division so that our teams can have incredible focus on driving what’s unique for each of those businesses and creating really exciting, outstanding products for our customers.
And as we’ve been developing our Ford+ plan, and as we’ve been moving the business forward, we think this focus and clarity for each of these teams is going to take us to the next level.
BRAD SMITH: And specifically, when you think about the production, you’re targeting annual production of more than two million electric vehicles by 2026. How did these moves today help make Ford even more competitive in the electric vehicle landscape against some of the other players like GM here in the US and even like Tesla that has had the head start largely on this space?
JOHN LAWLER: Yeah, as you said, two million EVs by 2026. Overall, the company is going to move to a 10% adjusted EBIT margin in 2026. And we should see margins on our electric vehicles in that time frame in 2026 greater than 8%. So you know, it’s really about accelerating and being a first mover in this space.
The focus of our EV team that we’re creating, they’re going to have the spirit of a startup. They’re going to be focused. They’re going to have the speed of a startup. They’re going to look at breaking constraints. And they’re going to look at creating the most incredible EV vehicles at scale.
And when you think about at scale, you have to think about the strengths we have in Ford Motor Company. We have an incredible team that understands how to create those body engineering and the structures and the chassis that many of the EV startups would love to have, and then, manufacturing at scale.
So when you combine the capabilities of Ford Blue, and you can combine the capabilities of what we’re experts at from an engineering standpoint, and with the spirit of a startup and a clean sheet of paper for our EV vehicles, you take those two things together, we think we have a winning combination. And that’s going to allow us to beat not only the EV startups but some of the traditional OEMs as well.
BRAD SMITH: This announcement, it comes after the Ford+ plan was unveiled last May. What’s the biggest difference that you hope to drive in the customer experience?
JOHN LAWLER: Well, the customer experience for our EV vehicles, that is progressing. And it’s about simplicity. It’s about the ease of the purchase process. But we’re also thinking about the next phase of that, right? So after they purchase the vehicle and how it’s much easier from a customer standpoint there, what happens to them in ownership? And we’ll have a great partnership with our dealers. They’ll have dealers that they can go to if they have a fender bender or if they need, you know, parts that have worn out to be replaced.
And one of the things we’ve noticed is that the net promoter score, the way consumers feel, how positive they are about their vehicle, are really strong at the start for the new EV companies. But they taper off over time. And we think this new customer experience that we’re creating is going to allow us to have that really strong customer experience at the start.
But then, with the benefit of having our dealer network and with our dealer partners, that net promoter score will continue to be strong as they own the vehicle over time. So we think we’ve got a really good combination here and a way to satisfy our customers not only at the start but over time as well as they own the vehicle.
BRAD SMITH: The creation of Ford Model E, as you put it in today’s announcement, it was informed by the success of small, mission-driven Ford teams that developed the Ford GT, Mustang Mach-E SUV, the F-150 Lightning pickup, as well as Ford’s dedicated EV division in China. I’m wondering, considering the customer experience that you were mentioning a moment ago, what type of delta have you seen in average selling price with the electrification of some of the brand’s most well-known models?
JOHN LAWLER: Well, I think what we’re finding is the demand for these vehicles– the Mach-E, the Lightning, and even our electric transit van– has been much greater than what we had anticipated. And we’re attracting new customers to Ford. 70% of those customers are new to the brand. And so we see this as a growth opportunity. And that’s why we’re excited about the two million vehicles in 2026 and the growth potential for that. And that’s why we’re doing this– creating great products for our consumers, providing them the types of products that they’re demanding, and growing our business.
BRAD SMITH: You expect EVs to represent half of your global volume by 2030. You also received a specific mention during the State of the Union address by President Biden. Is there a percentage of the financial forecasts that you calculate to be annexed through anticipated government spending on EV supportive measures and infrastructure?
JOHN LAWLER: Now, we’re looking at this as our business, and if those measures come down the road, that will be a benefit for us. But we’re not planning our business assuming that that’s going to happen. We’re going to build this business out. We’re going to create great products. We’re going to create value for our shareholders. And that’s what we’re focused on. If anything comes down from those means, that’ll be great. It’ll be good for our business. But we’re not planning on it at this point.
BRAD SMITH: Certainly, and investors are going to be paying close attention to some of those public sector moves as well. Where has the company found some flexibility in navigating costs through supply chain challenges, both in chips or even in raw materials?
JOHN LAWLER: So we are seeing headwinds from the raw material standpoint. We saw them last year. We’re seeing them again this year. The geopolitical issues are exacerbating that. And so that’s just something that we’re going to have to deal with and manage as a company. And that’s another reason why we think this move is really beneficial for us. Because when you look at our Ford Blue business, we’re talking about a lean operation. We’re talking about significant structural cost reductions, simplifying that business and driving value to our shareholders through higher margins and lower costs.
And so as we see some of those headwinds hit us, we’re going to have to offset those. And we’re focused on doing that. And that’s part of what we’re announcing today– significantly leaner business from in our ICE vehicles on Ford Blue.
BRAD SMITH: Leaner business, cost reductions. To clarify and perhaps for my own edification as well, do you anticipate that there will be any headcount reduction as a result of this restructuring?
JOHN LAWLER: Well, everything’s on the table. We’re going to look at every element of the income statement. And there’ll be some skill changes that we’ll need and new skills coming into the company for our Ford Model E team. And there’ll be some skills that will be phasing out over time at Ford Blue. So everything’s on the table. We’re looking at it very closely. We’ll work closely with our employees.
And it’s really about getting the right skills, having the right skills in the right place, so that we can have the most effective and efficient company that we can, not only in Model E but also in Ford Blue.
BRAD SMITH: And then, additionally, here– I mean, typically, a few years after financial results are broken out or new business units created or identified or streamlined, there is that higher probability for a further split of the business units. Is this the first step towards a spinoff in the future?
JOHN LAWLER: So what we’re focused on is we’re focused on creating the segments and splitting out the company. We’ll start reporting in 2023 by our five business units. That would be Ford Model E, Ford Blue, our Ford Pro business, our commercial vehicle business, of course, our credit business in Ford Credit, and then our mobility business, Ford Drive. So those will be the five segments that we’ll report.
We’re not talking right now about going to entities that are auditable and investable. And that’s where you’d have to go to split something out as you had referenced. So at this point, we’re talking about segmentation and reporting by segments. We’re not talking about a split or a spin at all.
BRAD SMITH: Understood. And then, just lastly here, when we consider, of course, coming back to where the consumer interest is navigating towards, where that demand is being generated, and even where there’s more talk in Capitol Hill about making sure that there are EV infrastructure measures that are being advanced, there’s been talk about two major US names in Ford and GM.
Tesla’s been left out of the conversation by President Biden. You know, I wonder how you kind of look at the competitive landscape right now and if there should be more of a welcoming of Tesla for the EV landscape and what they’ve done as of this point in time in tandem with the rest of the competitive markets to raise the– raise the height– raise the awareness rather of electric vehicles that should really come to the forefront too?
JOHN LAWLER: Well, what I can tell you is that, as a company, we look at all our competitors and respect every one of them. We benchmark them. We understand where their business models are as best as we can. We try to learn from every one of our competitors and use that information to make our business better. And that’s what we’re going to continue to focus on doing.
And we like our BEV growth plan. We like where we’re headed with that. And this move for us today, creating these divisions and separating our product development into our electric vehicle business and then our internal combustion business, we think that’s the way forward. We think that’s going to create value for all of our stakeholders. And that’s what we’re focused on.
BRAD SMITH: Chief Financial Officer of Ford John Lawler taking the time with us today. We appreciate the time, John. Exciting day of announcements for the company. And we’ll hope to check back in and keep the conversation going in the future too.
JOHN LAWLER: OK. Thank you.