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00:00Just a few minutes ago, we learned that Ford is undergoing a sweeping overhaul of its electric
00:04vehicle business. It's going to amount to about $19.5 billion in charges. It's also going to
00:10include scrapping its next generation electric F-series truck as it shift gears to a hybrid.
00:16Joining us right now to talk a little bit more about this is the host of Bloomberg's Open
00:20Interest, Matt Miller, and he brings along with him the CEO of Ford, Jim Farley.
00:24Jim, thanks very much for joining us. This is a major pivot, to say the least,
00:29but I think we could all see it coming because the consumer basically helped make this decision
00:35for you. Tell us what's driven these plans. Well, as you said, it was really the customer
00:42changing their decision. We saw hybrids really take off the last couple of years, like last month
00:48about, well, we had a 30% increase in our hybrid sales. We're now number three in our, I think
00:54we're 80% hybrid market share in trucks. So we saw this happening. We also saw the more expensive
01:00EVs, you know, really suffer in the market and the more affordable EVs to do better.
01:06And then the last couple of months, it really was remarkable. The EV market in the U.S. went from
01:1212% of the industry to only five. And that really, in the end, was the big decider for us. But look,
01:19we're going to 50% electric. It's going to be hybrids and E-REVs and electric. It won't be just
01:25pure electrics.
01:26So, you know, every good trader knows you got to cut your losses when you recognize there's an
01:32issue. You're doing that in this sense with the F-150 Lightning, as we now know it, and the T3
01:38project, the next generation truck that would have been built in Tennessee. But you're able to, I
01:44guess, salvage some assets. And as a result, you've raised your profitability forecast from six to six
01:51and a half billion dollars for this year in terms of EBIT to seven billion dollars. Where are you
01:56gaining an opportunity from this, Jim?
02:00Well, great question. This year, in the short term, it's really our cost of our company.
02:04Our quality is getting better, and so our costs are much more competitive. In fact, the Novellis
02:09aluminum has cost us more like two billion, but we're still raising guidance. Look, for this
02:13announcement, Matt, it's really about moving to more profitable vehicles. You know, we're going to make
02:18in Tennessee now an affordable pickup truck. I think it's going to really surprise the market.
02:24These are customers we know. Not a lot of guesswork in terms of the revenue, the cost we need to get
02:29at, and a more affordable van in Ohio. So these are going to be better investments for the company
02:34profit. And all those hybrid sales, you know, those are really profitable vehicles for us as we
02:40basically deploy hybrid across our lineup. But we're also going into the energy storage business
02:46to 20 gigawatt hour. You know, that's a big move. We're going to convert our battery plants
02:52from automotive batteries to energy storage batteries using LFP. That's also a big pivot
02:58that is profit positive for the company. Jim, with regards to that pivot and the energy storage side
03:05of it, do you anticipate any concerns by the White House, by the administration here in the U.S.,
03:09that you are partnering effectively with the Chinese company in order to do that?
03:13Mm-hmm. Well, look, it's our plant. It's our people. And we designed it that way. We have a
03:21licensing agreement, but we feel like it's better to build these batteries in the United States with
03:26American workers, with our own Ford workers, and understand the IP than to import them like they're
03:32being done today. The best way to compete with the Chinese is to get close to the IP and then run
03:38the plants at Ford. When Ford knows how to build things, we know how to do this. So I think this
03:44is much better than for America. We're talking about thousands of incremental jobs versus importing
03:50batteries like we say today. Much better for America. Well, to continue on the energy storage
03:56business, you mentioned that this will be profit positive for the company. And when it comes specifically
04:01to that new business line, how long would you expect before that alone becomes profitable?
04:08Yeah, great question. Well, we're busy now. We have to move very, this business moves much faster
04:13than the auto business. We're converting our Michigan plant as we speak with all new equipment
04:19to make energy storage, which is slightly different than automotive with the LFP. And then we're building
04:24a whole new plant converting Kentucky 1 to 20 gigawatt hours. And that will be landing in late 27.
04:31We're going to be selling and servicing batteries, not just the cells as a contract manufacturer. We're
04:36actually going to be selling the huge storage containers to utility companies and the AI data
04:42center companies in 27. We're already out there quoting this business now. We know what kind of price
04:48points we need to get to for it to be profitable. And this is not our first rodeo as a manufacturing
04:54company. It looks like, Jim, that we've gotten new regulations or seen older regulations scrapped,
05:01both here and overseas, right, in terms of what's necessary. I'm wondering if the administration
05:08here in the U.S. and the EU have helped you and other car makers really serve customer needs better,
05:14because we're seeing your rivals also bring back products that were previously canceled,
05:20like the Hemi over at Stellantis that customers wanted.
05:25Well, look, I think, you know, I was at the White House of the president. He announced the revised
05:30CAFE standard. You know, anything we can do to get the regulations look more like customer demands.
05:36Look, we're going to 50 percent electric. There are no gas guzzlers in our future at Ford,
05:40but we want to offer customers choice. I think that's what the president is trying to do is just to give
05:46people choice. We're going to have this affordable electric vehicle built in Kentucky. I think it's
05:51going to be a huge hit with Americans, but it's going to be part of a broader portfolio with choice.
05:57And we're seeing the same thing in Europe. We're seeing the same thing around the world. Look,
06:02we all want to lower our CO2 footprint as industry. That's what Ford's going to do going 50 percent
06:07electric. But we need to give customers choice and then use our manufacturing flexibility
06:13to go with where the customers are. And that's what this announcement is about,
06:18having optionality. Jim, though, it's not only about powertrains, right? I mean,
06:23one of the other things customers want is repairability. And I wonder if, because you
06:27already make the F-150 in Kentucky, you make it in Kansas City. My Raptor was born in Dearborn,
06:35where I was happy to pick it up years ago. But the new trucks are aluminum bodied. Are you going to be
06:41able to build steel trucks, for example, at the Tennessee plant?
06:46Oh, that's a good question. Well, I'm not going to give, because if I tell you, Matt,
06:51I'm telling all my competitors, I'm not going to do that today. All I would say is we are coming out
06:56with affordable vans and pickups that Americans are going to love. And we're the number one brand
07:02for both those segments. And they are going to love these new products. And they're going to fit
07:06into what Americans are buying today. And they're going to be low CO2. And they're going to be more
07:11affordable. That's all I can say, Matt. I'm not going to give anything to my competitors.
07:16All right. You don't have to give anything to your competitors, Jim. But I am curious if you
07:19can just speak a little bit more to investors. First, about the $19.5 billion charge.
07:24Sure.
07:24But also, I mean, obviously, it's huge. And we talk about this idea as to whether this will be it or
07:30whether investors should anticipate potentially more costs associated with the ON1.
07:36Well, look, we're unique from our competitors. We don't have plants that are electric. We have
07:40a whole business that are electric. So we looked at that whole business and evaluated the valuation
07:45of the assets. And we made these decisions on the future products. The bottom line is the cash
07:50subset of that is about $5.5 billion of the $19 billion. And the ROI on that $5.5 billion is very
07:58attractive. These are great products. They're affordable. That's where the market is today.
08:04And we're going to have great powertrains for them. And they're going to be able to buy more
08:09affordable Ford trucks and vans than we have today. And we know those are going to be a profitable
08:15business for those out there. So this is a better allocation of capital. That $5.5 billion of cash
08:21is going to be a great investment. It didn't make sense to keep plowing billions into products that
08:26we knew would not make money. We had to make this choice.
08:30I hear what you're saying there. And certainly the market spoke. But what gives you the confidence
08:35that you think about 2029, the goal to have a profitable EV business? You've been losing
08:40billions in losses on EVs. What gives you the confidence that you'll be able to turn that around
08:45by 2029? Well, we think to make that business profitable, we have to get to a BYD cost.
08:54And so this Gunk Works project called the Universal Electric Vehicle that we're making in Kentucky,
08:59that is designed to match the BYD cost in like a Mexico. And we really believe we have that
09:05delivered. We've sourced all the parts now. We're testing prototypes. We're starting to run the
09:11production line. And so we have real confidence that we can do that. And that's why we're telling
09:17people that we think we'll be profitable. We've worked hard for the last couple of years on this
09:22EV project. And we have fully competitive costs with the Chinese. Now it's our chance to bring a
09:28pickup truck with that low cost EV to Americans. We think it's going to be a big hit.
09:33Hey, I want to ask about the Chinese because while I love it when companies go back to steel and V8s
09:41and stick shifts and handbrakes, obviously many people are betting the future is on EVs, autonomous
09:48vehicles. And the Chinese are certainly making real strides there. As you make this pivot back to sort
09:57of the classic American pickup truck, what will you do to keep up with the Chinese as they continue to
10:03make strides forward? Make no mistake. Our strategy as a company is to give people choice. Part of that
10:13choice is to have fully competitive costs with BYD localized in North America. Matt, we are going to
10:19have a fully competitive BYD EV built here in America for Americans that we believe are going to
10:27be profitable. And to do that, we had to massively innovate, bring LFP to the United States, reduce the
10:35manufacturing content of the vehicle radically, redesign the whole assembly process, engineer the
10:41vehicle with all new suppliers. It's a whole different approach on the whole engineering in
10:46that vehicle. We are here to compete globally. We're not going to cede our future to the Chinese.
10:51And we're the most American car company. But even for us as the most American car company,
10:56we're a global company. And that UEV product is the heart and soul of our competitiveness for the
11:01future. But the Chinese don't know the truck customers like we do. And we know customers want
11:07E-Revs and they want hybrids and they want Raptors like you have. It's a diversity of all that lineup
11:12that makes sense for us to compete and win against them.
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