Ford CFO John Lawler sits down with Yahoo Finance's Pras Subramanian from the company's capital markets day to talk EVs, China, and what the automaker is hearing regarding consumer demand.
Video Transcript
SEANA SMITH: Ford's capital markets day kicking off in Michigan featuring updates on the company's strategy as it looks to redefine customer value and achieve new financial targets. Pras Subramanian joins us now live from the event with Ford CFO John Lawler. Pras.
PRAS SUBRAMANIAN: Hey, thanks, Seana. So yeah, a lot going on today talking about profitability, mining, and resources, things like that. But let's talk to John Lawler, CFO here. He's joining me today. From your point of view, big picture stuff here, what should investors focus on from a profitability point of view?
JOHN LAWLER: Well, I think what they should understand is that we have three incredible businesses buried within Ford Motor Company. We have our Ford Blue business, which is our internal combustion engine business, iconic brands like Broncos, Raptors, F-Series, you know, really strong nameplates, Mustang. Then you also have a start-up business with our Model e business, which is electrification.
It's BEVs. It's electric vehicles. And then you have what we call our secret weapon, our commercial business in Ford Pro, which has incredible market share penetration and is also a services, as well as a hardware platform vehicle company.
PRAS SUBRAMANIAN: So that Model e electric vehicle business right now, not profitable. But by 2026, you guys want to hit that 8% EBIT margin. I think some on Wall Street are skeptical on that. What do you want to say to them about that?
JOHN LAWLER: Well, I would say that we have an incredible team and it first starts with talent. You know, you've often heard people say, you bet on the team. Well, we have some of the best in the industry. The people leading our electric vehicle team, they've done it before, right? They've created profitable EVs.
And if investors today, if they watch what we did, they'll see that our approach is uniquely different and is about low complexity. It's about really giving the consumers what they need. It's about efficiency at every turn. And that's the secret formula to create profitable EVs and that's what we're executing with our gen two vehicles.
PRAS SUBRAMANIAN: Right, so the gen two vehicles. Now, what's the secret sauce behind that? What's going to make those to drive those costs down for EVs?
JOHN LAWLER: Well, there's three key levers. There's scale, of course, as we grow. And then there is the clean sheet design. It's a clean sheet design and that we can start with a very simplified, low-complexity architecture where we can optimize for cost.
And then, of course it's optimizing batteries. Efficiency in your design to get the smallest battery for the longest distance. And it's also about chemistries and battery efficiency.
PRAS SUBRAMANIAN: So talking about batteries, a few big deals today announced by the company. I know that's not your area of the business, but what does it tell you from a cost point of view about driving down those costs for the EVs?
JOHN LAWLER: Well, one of the key elements of the cost reductions is vertical integration. And so now we're vertically integrating all the way down to the mines to get the minerals that we need to produce the batteries for these vehicles. And we announced three key relationships today with us going straight into the mines. And that's going to allow us then to be compliant for all of the IRA benefits that are out there.
PRAS SUBRAMANIAN: And I know that the mining with the materials is you're trying to not be in places like China so much these days, even though right now most of the industry is reliant on Chinese resources. So speaking of China, Ford, sort of, cutting costs there. You saw the JV in operation, that joint venture. Is China still a-- strategic point of view for Ford is that are you are you looking at China as not so much a business venture anymore?
JOHN LAWLER: Well, we're restructuring our business in China and we know the playbook. We've done it in India. We've done it in South America.
We know what we need to do. Asset light, rely on our partners to make sure that we're getting a return on our invested capital. So we're going to take the same playbook that's been successful elsewhere around the world.
PRAS SUBRAMANIAN: So last question here. I want to talk to you about customers. Higher prices are, sort of, the norm here, higher finance payments. What are customers telling you not just for the high margin derivative vehicles like the Raptors and things like that, but also just the regular F-150s, the regular Escapes, things like that? What are they saying to you?
JOHN LAWLER: Well, we've been pretty consistent in saying that we believe, as we go through the second half of this year into next year, you're going to see prices normalize, you're going to see them come down as supply and demand come back into balance. Plus, there's a bit of an affordability issue there in that we look at income-to-payment ratios and that's increased over the last couple of years. And we think that'll go back to more of the normal run rate before COVID and that's going to happen over the next 18 to 24 months.
PRAS SUBRAMANIAN: So potentially more cars, lower payments, hopefully, people, and more options for those middle American customers. John Lawler, thanks so much. Akiko, back over to you.
AKIKO FUJITA: All right, Pas Subramanian on the ground for us there. And our thanks to Ford CFO John Lawler.
