Ford: ‘We’re right on track to produce’ 2 million EVs by 2026, CFO says

Ford CFO John Lawler joins Yahoo Finance Live to discuss splitting earnings into three categories, EV production, investor sentiment, profit growth, and the outlook for Ford.

Video Transcript

BRAD SMITH: Ford is changing up its financial reporting, now splitting earnings into three categories-- Ford Blue, Ford Model E, and Ford Pro. But as the automaker doubles down on EV production, its predicted $3 billion loss in 2023 for its electric vehicle sector is raising some concerns for its CFO. John Lawler joins us now, alongside Yahoo Finance's executive editor Brian Sozzi. John, always a pleasure to speak with you. You're down there on the floor of the New York Stock Exchange. Tell us some of those traders to move to the side, so we got a clear shot of you.

But at the end of the day, when we think about this new reporting structure, this is something that you teased, you talked about, and really kicked off the conversation around last year this time. And so now, even as this formally goes into place, how should the investors who are watching, how should the Street be evaluating these different sectors as standalones?

JOHN LAWLER: Yeah, well, this is really about us refounding Ford, and that's going to enable us to deliver our Ford+ plan, right? So this is all about increasing our focus, speed, and accountability across the three business segments. And we'll be providing our investors transparency that they haven't had before, transparency into how each business segment is running, really focused on the products and services we're providing the customers, how we're growing each of these business segments.

And when you look at it, you think about it, the EV business was a startup buried inside Ford. And then we have our commercial business that is a gem that not many people got to see in depth. And now they'll be able to see that.

BRIAN SOZZI: John, Brian here. Good to see you. What's the biggest challenge Ford is up against in reaching profitability in that EV business?

JOHN LAWLER: Well, I think it's a startup. And like all startups, as you're scaling and growing, you have losses there. For us, the key thing is going to be scaling-- that's going to be a big lever for us to get there-- our second and third generation of vehicles where we have a clean sheet design, and then, of course, what we're doing with our batteries to drive efficiency and get better designs there.

Now, when you think about it, we were a first mover. Last year, in the US, we were number two in EVs. We've got three vehicles on the road. 60% of those customers are new to Ford. And it's giving us tremendous insight and data into what those customers need, how to scale battery production, et cetera, as we then move into our second generation of vehicles mid-decade.

JULIE HYMAN: John, as we talk about the path to profitability, I mean, it is a startup, but it's a startup with Ford behind it, where you already have production lines. You already have institutional knowledge in place, et cetera, some of the barriers that a typical startup wouldn't have. So do you think, then, that the push to profitability, now that it's not quite as tethered to the rest of the business, does it happen more quickly?

JOHN LAWLER: So we have profitability, and we have a margin growth of 8%, which we committed to by 2026. But you're exactly right. It's the best of both worlds. We have the manufacturing and the development knowledge of Ford behind now with Model E, that startup approach, the agile approach of developing those vehicles. So we see it as the best of both worlds. And that's going to allow us to accelerate towards profitability and deliver our commitments in 2026.

BRIAN SOZZI: John, Brian again. How much in terms of costs will you have to take out of that legacy auto business to fund profitability in the EV business?

JOHN LAWLER: You know, we've been very transparent about the fact that our cost structure is not competitive. So we know that we're about $7 to $8 billion that we need-- that we could take out and improve our competitiveness. And you'll see that start to take hold as we get through the rest of this year into '24 and beyond. So we're very, very focused on improving our cost structure and bringing that to the bottom line and using that to invest in both Pro and E.

BRAD SMITH: Does the continued improvement of the cost structure mean that there are going to be continued headcount reconsiderations at Ford, considering the segments now that are officially rolling out their own reporting?

JOHN LAWLER: Well, each of the segments will approach it differently. But the most important thing that we can do to work on our costs in Blue and in other areas, as well, is to really focus on efficiency, getting the waste out of the system, simplification, less complexity, a lot of commonality and re-use across parts that the customers don't see. There's a lot of opportunity for us to drive those cost improvements over the next couple of years.

BRIAN SOZZI: John, I was talking to one CFO at dinner the other night, and I asked him how they're managing through the current banking crisis. And my takeaway was it sounded like they were putting boards over their house and really battening down the hatches for a potential economic storm. What has been your approach over at Ford the past two weeks?

JOHN LAWLER: So we've planned for this year that we would have potentially a moderate recession in Europe, a minor recession here in the US. We said that we were going to see some price compression across the industry as we go through the year. So we're focused in on controlling the levers that we can control, really working and focusing on taking cost out, and managing this environment as best we can. And so we're very focused on cost structure because that's what you do in an environment like this. You focus on your costs, you drive productivity, and you work every lever that you can.

BRAD SMITH: John, you've said that within this growth opportunity for EVs, you're excited, about 2 million vehicles by 2026. Do you believe that Ford is ahead of or behind reaching that target?

JOHN LAWLER: I think we're right on track to reach that target. At the end of this year, we'll be able to produce at a run rate of 600,000 units. And as we said previously, we were number two in the US last year in EV sales. We have three great products on the road today. Demand is very strong. And so we think we're right on track to meet those objectives.

JULIE HYMAN: John, great to catch up with you this morning. Thanks a lot for joining us. John Lawler, Ford chief financial officer. Thank you.