Ford plans to invest $50 billion in electric vehicles and increase software services
2023-06-20
On June 15, 2023, the Deutsche Bank Global Automotive Conference was held, featuring John Lawler, the CFO of Ford Motor Company (F). Emmanuel Rosner, the lead U.S. autos and auto tech Analyst at Deutsche Bank, moderated the call.
During the call, the management expressed optimism about the market outlook, citing inventories being in a good spot and increasing demand in some sectors due to new products. They anticipate a significant increase in total volume driven by the growth in Battery Electric Vehicles (BEVs). The Blue segment is expected to experience growth in the near-term, along with strength in Bronco, F Series, and Super Duty. The management also foresees growth in Internal Combustion Engine (ICE) for the next few years before reaching the tipping point, and they do not expect ICE to start coming down in the next couple of years. Overall, the management is optimistic about the market outlook and expects growth in various segments.
The company's key drivers of the business are understanding consumer values and usage, reducing costs, design optimization, and scaling the business. The company is also focused on optimizing their supply base, reducing battery costs, and collaborating with suppliers to optimize their cost structure.
The company's plans for product/service expansion include working with dealers to design a pickup and delivery model to improve the Net Promoter Score for customers, launching in 2027 and onboarding additional dealers at that time. They are also expanding their software and services offerings, including fleet management, connected NAV, safety and security, and predictive diagnostics. The company plans to increase subscription rates and attach rates, and expects software and services to reach 20% of the segment EBIT by 2026. Additionally, they mention their Advanced Driver Assistance Systems (ADAS) software strategy and their decision to pivot away from L4.
The company discussed progress on several strategic initiatives during the meeting. One of the initiatives is the pickup and delivery model, which aims to improve the Net Promoter Score for customers. The company is partnering with dealers to implement this initiative. Another initiative is the software opportunity, which includes over 500,000 paid subscriptions and 175,000 Blue Cruise users. The company plans to migrate the Blue Cruise model to a subscription model. The company's software and services include fleet management, connected NAV users, safety and security, and predictive diagnostics. The company aims to reach 20% segment EBIT in 2026 through software services, chemical services, and sales. The company also expects connected vehicle rates to grow and attach rates to increase. The company's ADAS software strategy involves pivoting away from L4 and outsourcing some development while keeping some in-house.
The company plans to invest about $50 billion on electric vehicles, with 60% of this investment being Capital Expenditure (CapEx). They plan to increase their CapEx spending to $10 billion to $11 billion in 2024 as they launch the second generation of vehicles. The company is focused on capital efficiency and generating strong free cash flows, with 40% to 50% of them being returned to shareholders through dividends. They are also targeting a plus 20% return on invested capital.
Although the text does not provide a clear outlook for the quarter/year, the company's growth projections for the year 2026 were discussed, with a focus on the BEV segment. There was also mention of inventories being in a good spot and increasing demand in some sectors and places, but no clear discussion of the company's outlook for the current quarter or year.
In conclusion, the call provided insights into Ford's market outlook, strategic initiatives, and plans for product/service expansion. The company's focus on understanding consumer values and usage, reducing costs, design optimization, and scaling the business, along with their plans for software and services expansion, demonstrate their commitment to growth and innovation. Additionally, their significant investment in electric vehicles and focus on generating strong free cash flows and returning value to shareholders highlight their commitment to capital efficiency.