Ford Motor Company

Moderator: Executives, Ford

February 3, 2022
05:00 PM ET

OPERATOR: This is Conference # 9318248

Operator: Good day, ladies and gentlemen. My name is Holly and I'll be your conference
operator today. At this time, I would like to welcome you to the Ford Motor
Company Fourth Quarter and Full Year 2021 Earnings Conference Call. All
lines have been placed on mute to prevent any background noise.

After the speaker's remarks there will be a question-and-answer session. If you

would like to ask a question during that time, please press star than one on
your telephone keypad. At this time, I would like to turn the call over to Lynn
Antipas Tyson, Executive Director of Investor Relations.

Lynn Antipas Thank you, Holly. Welcome to Ford Motor Company's Fourth Quarter 2021
Tyson: Earnings Call. With me today are Jim Farley our President and CEO; and John
Lawler our Chief Financial Officer. Also joining us for Q&A is Marion Harris
CEO of Ford Credit.

Today's discussions include some non-GAAP references. These are reconciled

to the most comparable U.S. GAAP measures in the appendix of our earnings
deck. You can find the deck along with the rest of our earnings materials and
other important content at shareholder.ford.com. Today's discussion also
includes forward-looking statements about our expectations. Actual results
may differ from the stated. The most significant factors that could cause actual
results to differ are included on Page 30.

Unless otherwise noted, all comparisons are year-over-year. Company EBIT,

EPS and free cash flow are on an adjusted basis. Product mix is volume
weighted. A quick update on our near-term IR events. On Tuesday February
8, John Murphy from Bank of America will host a fireside chat with John
Lawler and Kumar Galhotra who is President, Americas and International
Markets Group. On Wednesday February 23, Jim Farley will participate in a
fireside chat with Rod Lache at the Wolfe Global Auto Tech and Mobility
Conference. And on Thursday February 24, Bob Holycross our Vice President
Sustainability, Environment and Safety Engineering; and Dave Webb Ford's
Treasurer will participate in the RBC Global Environmental Social and
Governance Conference.
Ford Earnings Call February 3, 2022

Now I'll turn the call over to Jim Farley.

Jim Farley: Thanks Lynn. Hello everyone. Well, some may have described 2021 as a
breakthrough year for Ford, I would simply portray it as a year of important
progress for the company. We strengthened our base business last year and
now expect to deliver even stronger results this year. And just as critical we
started moving with real speed and ambition to build a modern Ford.

Our true breakthroughs are still ahead of us, like rapidly scaling production of
our popular new battery electric vehicles, like turning Ford Pro a new growth
engine for our commercial customers businesses and ours, like building our
intelligent software platform to revolutionize our customers' experience.

Even with the recent momentum I know some observers may remain skeptical
that a 118-year-old company like Ford will emerge as a winner in these
disruptive times in our industry. And I'm okay with that. We're going to
compete like a challenger, speak with our actions, prove ourselves overtime.
So let's dive into last year. As I mentioned we have significantly improved our
base business. In North America our largest market we have a very hot
portfolio of new vehicles. We've now won awards of North America Truck
and Utility of the Year for two years running. That's never happened by any
company.

The new Bronco, the Bronco Sport, the Maverick, the Mustang Mach-E all of
them brand-new name plates for our lineup all, of them kits. Last month we
launched E-Transit. In the spring, we're in the middle of launching F-150
Lighting. Few people ask us any more about why we phased out sedans and
many more asking when they could take delivery of the new Bronco or
Maverick or Lightning. So we're doing everything we can in our powers to
increase our production and break constraints. We don't like making our
customers wait and we're taking action to ensure that they don't pay
unreasonable markups.

We've also made progress outside of North America and this is very important.
Ford has been a one-legged stool for too long. We stayed in Europe and South
America and other regions, because we really believe we can create
sustainably strong businesses in those markets. And we want to serve these
customers with better, more connected and electric products and services. The
deep restructuring in Europe and South America have put us in a position to
grow profitability going forward. In China, we're now set up to play a much
bigger role in the EV boom going on there. We've quietly grown Lincoln into
a strong contender in the world's largest luxury vehicle market. In fact, China
is now the number one Lincoln market globally.

Our international markets group is profitable and we're now preparing for the
important launch of our next-generation Ranger pickup this year. While we
remain in the teeth of the COVID crisis and semiconductor shortages, our
overall business is still in great shape. And at the same time, we're rapidly
making progress on key aspects of the Ford+ plan. And for customers that
means more distinctive products and solutions, more always on relationships

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with our brands and adding ever-improving user experiences. Now to deliver
these things, we're building new muscles and that certainly includes scaling
up our production of electric vehicles as I mentioned. We under-called the
demand for our first wave of EVs. The Mustang Mach-E, the E-Transit, the F-
150 Lighting.

In the past six months, we doubled our 2023 planned capacity for EVs to
600,000 units a year. Now this required everything from working with SK and
LG to increase battery supplies to knocking down walls at our Rouge electric
vehicle center, while the mortar was still wet to make room to improve and
build more Lightnings. Our team knows how to scale manufacturing and we're
now harnessing that capability to ramp up production of EVs. We also have a
task force dedicated to lowering the bill of materials for our bets above and
beyond just the usual declines in material costs. For example, on Mustang
Mach-E in just the last month, our team found $1000 of opportunity per
vehicle. And that's delivered through design simplification, vertical
integration and leveraging our scale with supply chain as we ramp up
production. And that team is just getting started.

We plan to take full advantage of our first-mover position in the fully electric
pickup truck market starting with Lightning. But there's much more to come.
In the coming months, we'll break ground on the Blue Oval City electric truck
plant in Tennessee. It will be the largest, the most advanced manufacturing
complex in our history and it will produce Ford's second generation of a full-
sized electric pickup in high volumes starting in 2025. And at the same time,
we have three large-scale battery plants in Tennessee and Kentucky, which
will be coming on stream with capacity to produce enough battery cells for
more than 1 million vehicles a year. This is in addition to our battery sourcing
in China and Europe.

We are well on our way to achieve at least a 40% mix of BEVs by 2030 with
strong margins and equal to our higher market share in the key high-profit
high-volume segments we compete. For example, the F-150 Lightning, if we
had full production today to meet our current demand we would rival the
Model Y as the leading BEV nameplate in the US market. We can't grow a
profitable BEV business without a very healthy ICE business. And to do this
we're reducing complexity everywhere, while increasing, leveraging the
benefits of our connectivity.

Now this includes things like fewer top hats guided by customer demand and
a judicious approach to vehicle content based on deep insights generated from
that same vehicle data. We're also being disciplined with capital as we deploy
that to our ICE products recognizing that as a mix of BEVs increases, we will
continue to manufacture ICE vehicles but with a focus on optimizing cash
returns. So our goal is to continue to improve our automotive EBIT margins.
Let me say that again. Our goal is to continue to improve our auto EBIT
margins even as we ramp up the mix of BEVs.

In 2021, we began to bring our vision of an always on experience for retail

and commercial customers to life. Our customers are realizing the benefits of
our over-the-air software updates. But that's just the beginning. We're using

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our hubs in places like Palo Alto to attract more and more great software
engineers and technology specialists. And we're fundamentally changing the
culture of engineering inside Ford. The hardware will always be important but
the software and the embedded systems will define the next generation of our
vehicles' experiences.

I think customers will be amazed at the benefits as we move to central compute

rather than the distributed compute we have across all the supplier-provided
modules today. Our human-centered interface professionals are now in one
single organization with authority over the in-car digital experiences,
interfaces, screens and controls. And we're committed to providing an
environment where software engineers can do the very best work of their
careers.

Before I turn it over to John, let me close, the velocity of change at Ford is
increasing. We're not seeking half measures. Fear of change and risk has never
served legacy automakers well in the past couple of decades. We're done with
incremental change. We have a clear plan, a bias fraction and whatever-it-
takes mindset.

We're confident our strong base business will generate the capital we need to
fund a very exciting future. We're recruiting incredible talent from outside the
company to work with the best people from Ford. As excited as our customers
are for that great portfolio we have in the market today, we can't wait to show
them what's coming in the future.

Now I'll turn it over to John, who will take you through the results for the
quarter and our expectations for this year.

John Lawler: Thank you, Jim. In the face of ongoing challenges with semiconductor
constraints, and industry-wide supply chain disruptions, we executed our
Ford+ plan, including closing out our global redesign, strengthening our
product portfolio and investing in exciting new opportunities fundamental to
growth and value creation.

For the year, we posted $10 billion in adjusted EBIT, with a margin of 7.3%.
That's our strongest performance since 2016. We delivered right at the
midpoint of our guidance range adjusting for the re-class of our first quarter
Rivian game to a special item. And despite a 6% decline in wholesale, our
automotive business posted its strongest EBIT margin since 2016.

North America delivered an 8.4% EBIT margin and is firmly on the glide path
to a 10% EBIT margin. In addition, our operations outside the US collectively
posted their best results since 2017.

I'm very proud of the team's hard work, the resiliency last year as we rose to
the challenge and optimized constrained production to protect customer
orders, new launches, our electrification strategy, and our most profitable
vehicles. We also remain highly disciplined with our incentive spend, and mix

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management, which combined with improvement in warranty costs, more than

offset commodity headwinds and supply chain-related production losses.

Ford Credit, whose profits and dividends are an important source of capital
for us delivered a strong year. EBT was $4.7 billion, as auction values were at
record highs and credit losses were near record lows. Free cash flow was $4.6
billion, and we ended the year with strong cash and liquidity more than $36
billion and $52 billion respectively, which now includes our stake in Rivian
valued at $10.6 billion at the end of the year.

In 2021, we continue to advance our capital strategy given the improvements

we're seeing in the underlying business. We reinstated the regular dividend at
$0.10 per share in the fourth quarter as we continue to focus on creating value
for our shareholders. We also further strengthened our balance sheet by
repurchasing $7.6 billion of high-cost debt, deleveraging the balance sheet and
significantly reducing our ongoing interest expense.

We introduced the industry's first fully integrated sustainable financing

framework covering both an auto OEM and its captive finance company. And
in November, following the launch of the framework we completed our
inaugural $2.5 billion green bond issuance, which was met with incredible
investor demand and will help fund our exciting BEV portfolio. Our strong
balance sheet including cash, provides a solid foundation to continue to invest
in our Ford+ priorities.

So let me briefly touch on the fourth quarter. With a margin of 5.4%, adjusted
EBIT was $2 billion and we generated $2.3 billion in free cash flow. Some
modeled stronger EBIT for us in this quarter. We know that was largely driven
by higher volume expectations relative to the 10% sequential increase, we
guided to in October and lower corporate other expenses.

North America delivered $1.8 billion of profit with a margin of 7.1%. Volume
was up 10% on a sequential basis, as supply chain constraints eased and
custom demand for our products remained strong. South America delivered a
modest profit for the second consecutive quarter and the business is now set
up to deliver sustainable profitability.

With restructuring of the legacy business complete, the region is now focused
on strengthening Ford's position in the truck market, growing its new
commercial vehicle business and enriching customer experiences.

In Europe, the underlying trajectory of our business continues to accelerate

towards a 6% EBIT margin. However, the adverse effect of near-term supply
chain disruption continues to mask that improvement. Importantly we were
the number one commercial vehicle brand in Europe for the seventh
consecutive year and transit continues to have an extremely healthy order
bank. Mustang Lockheed sales in the region are off to a strong start with the
order bank building momentum as we accelerate the transition to BEV.

In China, Lincoln continues to be a real bright spot and gain share in the highly
profitable and growing premium segment. In the fourth quarter, we achieved

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record sales of the brand in China, contributing to an almost 50% increase for
the year. We are expanding the Lincoln portfolio in 2022 with the launch of
the all-new Zephyr. The order bank for that vehicle opened recently and is off
to a fast start.

In the fourth quarter we also achieved an important electrification milestone

in China as we began local production and customer deliveries of the Mustang
Mach-E. Our direct-to-customer model for Mach-E allows people to order
online and through 25 Ford select city stores.

Our international markets group performed well in the fourth quarter and had
a record year playing to its strengths especially from our flagship Ranger
pickup, which delivered full year segment share of 14.9% up 1.1 percentage
points year-over-year. We also announced major investments in both South
Africa and Thailand to modernize production and launch the next-generation
Ranger from four assembly plants later this year.

And in mobility, we've made steady progress towards the scaled

commercialization of moving people and moving goods and we are confident
in Argo's progress in delivering a Level 4 autonomous vehicle solution. And
in addition, we are rationalizing our investment portfolio and focusing on
autonomous development.

Now, I'll share with you our current thinking about 2022. We expect supply
constraints to remain fluid throughout the year, reflecting a variety of factors
including semiconductors and COVID. Based on what we see now, we believe
our full year wholesales will be up about 10% to 15% in 2022 with a high
single to low digit decline in the first quarter, reflecting supplier shortages
related to Omicron shutdown and semiconductors.

For the full year, we expect to earn between $11.5 billion and $12.5 billion in
adjusted EBIT and that's up 15% to 25% versus 2021. And the high end of the
range equates to an adjusted company EBIT margin of 8% and our North
America business at 10% EBIT margin, which if we achieve would be one
year earlier than the target we shared with you last May.

Now turning to GAAP results for a minute. It's important to point out that each
quarter we will mark-to-market our investment in Rivian, which sits in cash
and marketable securities on our balance sheet. This is not something we can
forecast. The mark-to-market may cause volatility in our quarterly GAAP net
income and EPS results.

So looking at how our adjusted EBIT guidance rolls up. Our range assumes
significantly higher profits in North America and collected profitability
outside of North America, as we realize the full benefits of our global redesign
efforts. We also expect Ford Credit EBT to be strong, but lower than 2021
profits, and we expect mobility and corporate other EBIT to be roughly flat.

Lastly, we expect to generate adjusted free cash flow of between $5.5 billion
and $6.5 billion. Now, other assumptions we factored into our guidance
include. First, we expect customer demand enthusiasm to remain strong for

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our new and iconic nameplates. We will have a full year of production of the
award-winning Bronco and Maverick, in addition to a robust BEV lineup, with
Mustang Mach-E, E-Transit and F-150 Lightning all in production.

Second, with wholesales up about 10% to 15%, we anticipate the pricing

environment to remain strong, although the interplay between volume and
pricing will remain dynamic. Third, we expect commodity headwinds of about
$1.5 billion to $2 billion. Fourth, we anticipate other inflationary pressures,
which will impact a broad range of costs. And fifth, at Ford Credit, we expect
auction values to remain strong in 2022, as supply constraints persist.
However, as I mentioned, we anticipate lower EBT reflecting primarily non-
recurrence of reserve releases, fewer returned off-lease vehicles and more
normalized credit losses.

Most importantly, we're committed to our Ford+ plan and we'll continue to
invest aggressively to drive growth and value creation. This includes devoting
resources to customer-facing technology, connectivity, our always on
relationships with customers and electrification. We are confident the long-
term payback from those investments will be substantial.

So that wraps up our prepared remarks. We'll use the balance of the time to
hear and address what's on your mind. Thank you. Operator, please open the
line for questions.

Operator: Thank you. And as a reminder, if you would like to ask a question, please
press star than one on your telephone keypad. If you would like to withdraw
your question press the pound key. In order to allow as many callers as
possible a chance to ask a question, please limit yourself to one question,
thank you. And our first question is going to come from the line of John
Murphy with Bank of America.

John Murphy: Good evening, everybody. Thanks for the time tonight. Just a first question.
Jim, there's been a lot of speculation that you might consider spinning a
portion of the future car business whether it be EV or AV with Argo. But
there's also the backside of that that might make more sense to spin some of
your legacy ICE assets and have the entire company become a more pure-play
EV/AV company in totality. So I mean, how do you think about this and what
would you be your motivations either way? And how you -- I mean how are
you strategizing this?

Jim Farley: Thanks, John. Yes, I don't want to speculate on rumours or speculate on the
speculation in the press. But I will go back to something we said, and I've said
over and over again which is, running a successful ICE business and the
successful BEV business are not the same. The customers are different. We
think the go-to-market is going to have to be different. The product
development process and the kinds of products we develop are different. The

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procurement supply chain is all different. The talent is different. The level of
in-sourcing is different. And actually, the rhythm of the business is different -
- fundamentally different.

So, I'm not going to talk about speculation in the press, but I will tell you that
the way we're operating the businesses acknowledges those differences. And
I'm really excited about the company's commitment to operate the businesses
as they should be.

Operator: Thank you. Our next question will come from the line of Rod Lache with
Wolfe Research.

Rod Lache: Hi, everybody. I wanted to ask you a little bit about margins. As John said, it
looks like you guys will hit 8% if you hit the high end of your target range.
And Jim you said that you're targeting improving margins from here. So
maybe you can give us a little bit more colour on that how we should think
about it?

I'm not sure that 8% is the benchmark anymore, just given how many years
ago that's been and how many changes there are to the business. You're
ramping up a lot of spending on engineering and spending up in EV
infrastructure, but you're also going to grow the Ford Pro business. So maybe
you can just give us some of the puts and takes how to think about it? And as
part of it, if you might just give us a data point on where Ford Pro stood in
2021.

John Lawler: Yes. Hi, Rod, it's John. So I guess I would say that -- as Jim just said that,
we're looking at the ICE business and the BEV business and we're managing
both differently. When you look at the ICE transition, I think there are still a
lot of opportunities for us to improve that business.

We're very focused on reducing our structural costs. We've done a lot already,
but there's a lot more that we think we can do there. We're looking at operating
with much lower stock levels as our business continues to develop. So we'll
operate at leaner inventories than we have in the past which will help our top
line and continue to strengthen that top line.

We're improving our quality which is important. We saw that come through
this year from a year-over-year warranty standpoint it was down roughly $1.4
billion. And we want to be at the top in quality in every segment and that's
going to have opportunity for the business.

We're also working to revitalize our business through our digital capabilities,
leveraging what we have from the connected vehicle to improve warranty

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even further, as well as improve what we're doing from a manufacturing

standpoint and leverage that technology to bring those types of cost down.

There's opportunities in maximizing our parts business and we're going to

lower our distribution costs. There's opportunity there. So we see that over
time, as we manage the ICE business, there's opportunity to improve margins
even further from there.

And then when you talk about BEV, so as we've talked about in past calls our
BEV margins are not where we intend it to be. We have opportunity, but we
need to do that through scaling them, right?

We're not going to chase top hats. We're going to look at scale. We're going
to want to have a strong lineup where we can lean into it with key vehicles in
high-volume segments like we are today with Mustang Mach-E, the Lightning
and in our commercial vehicles with the Transit.

We're going to reduce complexity, right? We know that one of the things that
we need to do on our vehicles and we saw that, as Jim talked about, with the
team finding $1,000 a unit on Mach-E and they just got started is that, we need
to approach the design of these vehicles differently.

And that's what's really important about having the first-mover advantage
there. We're on the road with these. We're in production with these. We
understand what we need to do in that second generation and we're off doing
that right now improving what we have on the road today and really bringing
that knowledge into our second-generation design.

And then as I said earlier on the ICE business, we're going to leverage the
compute on the vehicles to really lower our manufacturing costs and leverage
that compute to simplify what we do coming down the line and bring that
down to the bottom line of the vehicle. And then distribution.

We all know the difference in the distribution cost for the legacy system that's
out there versus what we see with other manufacturers. So that's an
opportunity for us to work with our partners to improve that. So on both of
those we see opportunities.

And then as you said Rod there's opportunities to grow our business and lean
into our leading position in commercial vehicles with Ford Pro. And we're
looking to grow that business to $45 billion in revenues by 2025. And so I
think there's opportunities across both of our key segments and with Ford Pro
to improve the business as we move forward beyond the 8%. And now we
need to stay extremely focused and relentless on that execution.

Operator: Thank you. And our next question is going to come from the line of Sam Levy
with Credit Suisse.

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Dan Levy: Hi. Thank you. It’s Dan Levy with Credit Suisse. I'd like to ask about your JV
with GlobalFoundries, and just broadly about what you're trying to do with
electronic components and sort of the notion of simplification, which you've
talked more about. So we've heard that with GlobalFoundries, I think, Hau
Thai-Tang mentioned, you'd like to control more of the sub-sourcing to
suppliers. You'd like to dictate more of the design of some of the electronic
products that in the past have been handled by the suppliers. Maybe you could
help us unpack this.

How significant of a change is this in your operating model where you frankly
focused on just the core vehicle itself and outsourcing where you can? How
achievable is this especially given you're concurrently undergoing this
transition to EV? And broadly how should we think of the financial
implications given you're going from what's been more of a just-in-time
approach on inventory and components to now more of a just in case and
deeper in the supply chain? Thank you.

Jim Farley: Thank you for your question. Perhaps the biggest gift for all the pain we're
going through now in semiconductors is that we have very painfully learned
the lesson that we cannot manage the supply chain for these key components
as we have.

In fact you could argue that in the change of transition to these digital electric
vehicles that supply chain could be one of the biggest advantages a particular
company has or doesn't have. The way we look at it is the key electric
components memory chips semiconductors. I would break semiconductors
into two types. I'll come back with GlobalFoundries in a second. Feature-rich
chips that we still use a lot. A window regulator doesn't need to have a 4-
nanometer chip. And the advance -- but we also have sensors power
electronics for our inverters, the batteries themselves all the way back to the
mine, the inverters of different battery. Chemistries itself have different raw
materials and kind of ecosystems that support them.

So this is a very important topic for the company. How different it is? It's
really different. We need different talent at the company. We need physical
inspection of the actual producers. We need direct contracts with them. We
need to design the SoC ourselves. We need to direct in the case -- in some
cases to even direct prefer build to print or actually use supplier XYZ to get
out of where we've been. And this takes talent. It takes a different approach.
It takes more resources.

On GlobalFoundries, it's kind of the first big bet, but there'll be many, many
more coming for us. We're very dependent on TSMC for our feature-rich
nodes. Obviously, the capacity is at risk over time as the industry moves to
more advanced nodes including us.

And as I said we're going to need feature-rich nodes for many years to come.
GlobalFoundries knows how to build them. They know to build them in the
United States. We can partner with the government depending on the CHIPS

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Act to capacitize here. It will be a few years until we benefit from that but it's
a really big thing to descale ourselves on the feature-rich chips from the
current ecosystem that we depend on around the world. And I think
GlobalFoundries is a really interesting deal when we get into the details.

We have to put cash up when we participate. Those feature-rich semis will be

used by other companies industrial companies, not just Ford. It's a really
interesting deal. And I was talking to the US company. You can expect the
same kind of thing on advanced nodes and all the other components I
mentioned including more deals on the raw material for various types of
battery chemistry. And this is a culture change at Ford. As I said this is part of
the rhythm change between ICE and BEV.

Operator: Thank you. Our next question will come from the line of Ryan Brinkman with
JPMorgan.

Ryan Brinkman: Hi, thanks for taking my question. Slide 20 shows you with $36.5 billion of
cash and investments which might be a record, but it is certainly the most that
I can remember and compares to I think like five-plus years ago you used to
talk about wanting to have cash of something closer to in excess of $20 billion
with like another $10 billion or $13 billion of more liquidity on top of that.

I get that there's more uncertainty now with the pandemic and the chip
shortage. And of course you're investing heavily for electrification. Despite
those investments though, I mean you're still calling for $5.5 billion to $6.5
billion of FCF this year versus the dividend costs like $1.5 billion or $1.6
billion.

So, with the current trajectory it seems like the record cash pile should only
grow bigger in 2022. I'm just curious what your thoughts are on this whether
you have any updated thoughts on the optimal capital structure over what time
or under what conditions you might move towards that more optimal capital
structure. And it being so far above the earlier targeted cash balance might
influence how you go about deciding what to do with the Rivian stake once
the lockup expires.

John Lawler: Thanks Ryan. So, yes we're really pleased with the position we have from a
cash standpoint because it gives us the flexibility to invest in the business as
we go. We've talked about the investments we'll be making in BEVs. We'll be
breaking capacity contains and we're going to continue to focus on scaling as
quickly as we can.

The other thing we need to think about is the supply chain for our BEVs.
There's opportunities potentially for vertical integration. There's opportunities
for looking beyond as we move into these connected vehicles with more
advanced electronics, potentially leveraging capital to secure supply chain
there. So, there's a lot of opportunities as we move forward to leverage this
cash to improve the business. We're also focused on our shareholders. And of

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course, total shareholder returns is important as well. So we're going to

continue to provide dividends to our consumers -- to our shareholders, which
is important for us as we move forward given our shareholder base. So I think
what you'll see is that, that cash balance is going to be a benefit for us, as we
look to grow the business, as we look to expand, as we look to vertically
integrate, as we look to secure our supply chain and we continue to develop
our Ford+ plan.

Ryan Brinkman: Very interesting. Thank you.

Operator: Our next question will come from the line of Emmanuel Rosner with Deutsche
Bank.

Emmanuel Thank you, very much. Good evening. I wanted to ask you a little bit more
Rosner: detail related to two items in the 2022 outlook. The first one is your volume
and mix assumption. In the fourth quarter when I look at the North American
walk, your wholesale were up something like 60,000 units year-over-year, but
the volume mix piece of your North American bridge was up only $100
million and that's despite what F-150 may be up like 34% year-over-year, if
[Indiscernible] is right. And so just curious what's going on in terms of mix
and why that contribution didn't really flow through to the EBIT. And how do
you think about, as you grow your volume 10% to 15% in 2022, what kind of
EBIT contribution can we expect from this? That's the first item. And then the
second one is in terms of additional investment costs, so you've quantified a
step-up in CapEx for 2022. I'm just curious if there are things in the income
statement that you're able to quantify in terms of additional investments in
technology that we should think about as we model 2022?

John Lawler: So let me focus on 2022 first. So looking at the walk for 2022, you have to
think about the 10% to 15% in the volume growth, but mix is also a strong
part of that on a year-over-year basis. We expect to see continued strong mix.
Pricing, as I said in my remarks, we do expect the continued strong pricing
environment. So when you look at volume mix and pricing, we expect that to
be up about $5.5 billion to $6.5 billion. And so I'll just walk through what --
where we see that on the bridge to 2022. We are continuing to invest in
modernization and that was along with our product related spending, as we're
continuing to build out our BEV business. That's about $1.5 billion headwind,
but that's broadly offset with other efficiencies that we're working on. You
also see that commodities are going to be a headwind next year of about $1.5
billion to $2 billion. And then Ford Credit is going to be strong, but we do
expect them to be down about $1.5 billion. And then of course, we've got
lower net pension income. So we expect the top line to be strong with the
volume increase. We continue to expect to have strong mix. And then we
expect pricing to be a strength as well on a year-over-year basis.

Operator: All right. And our next…

Jim Farley: Sorry, what's nice about what we're seeing this year or our forecast this year
is, we're seeing good profit leverage from that incremental top line. And I

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think that's very encouraging. We have lost statistics about how that compares
in the past, but that hasn't always been the case at Ford. It's great to see that
top line flow into our profitability increase.

Operator: Thank you. And our next question is going to come from the line of Colin
Langan with Wells Fargo.

Colin Langan: Great. Thanks for taking my questions. Just following up on the walk. If I
actually annualize Q4, you're running at only $8 billion. What was particularly
weaker about this quarter as a sort of starting point? It's also sort of down
sequentially on higher sales. Is that seasonality, higher commodity costs
hitting worse this quarter? Any colour there?

John Lawler: From a quarter-over-quarter basis and what – how the quarter developed, we
hit the midpoint of the guidance. And one of the things is I think some
expected volumes to be up higher than what we had guided. And just we had
supply chain constraints hitting us this quarter.

Omicron disrupted several of our key suppliers. They couldn't produce. They
couldn't get us products. But net-net when you look at the fourth quarter
relative to where we were third quarter, let's say as a proxy, volume and mix
was up slightly. It was up about six-tenths. But then we had additional
headwinds on commodities. We had some modernization costs that came
through, specifically around our IT as well as connectivity as we're investing
in those growth areas.

And then we saw costs come through from inflation. We saw costs come
through on transportation, on fuel, et cetera. So we're seeing some of those
headwinds were hitting us in the fourth quarter. But demand was strong. If we
could have met the demand and the production without the disruptions, you
would have seen a stronger quarter.

And so as we go into 2022, as we see those supply constraints ease, as we see

the demand for our really strong product line-up, we see the top line growing.
We see continued improvement in mix. We see continued improvement in
price. And that's going to be much more of a tailwind versus some of the
headwinds we're seeing [Inaudible]

Colin Langan: And just following up on the mix. Any colour on how the Lightning will
impact as it runs in obviously, pretty large battery there? Is that going to be
dilutive as we think about the second half as that starts to ramp?

John Lawler: No. I don't think that as we ramp up at the start with the launch this year that
it's going to have a significant impact on what we see from a standpoint of our
profits in North America. And then coming back I think one of the questions
Colin you had asked that, I didn't touch upon was the fourth quarter or maybe
it was Emmanuel earlier on the mix side is we did have lower Super Duty mix
in the quarter and that was again driven by supply chain disruptions. There
were vehicles that we weren't able to build and complete because of certain

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commodities that weren't coming through to get those vehicles down the line
and done.

Operator: Our next question will come from Brian Johnson with Barclays.

Brian Johnson: Yes, good afternoon. I want to talk a little bit about dealer pricing versus your
pricing. The Detroit Press ran some articles in January on taking action in
some of the more egregious markups on EV. Yet if I look at the broader lineup,
I see that per J.D. Power your revenue per unit is up about 3-point – 3,800,
which clips to your $7.6 billion pricing you cited. Yet the transaction prices
are up 5,600, meaning you're leaving about $1,850 of profit in the dealers'
hands which would be about another $3.6 billion of profit. So just wondering
kind of as you kind of go forward as the dealers, especially move to this
simplified inventory model you're looking at how you're thinking about the
balance between your invoice your revenue per vehicle and the actual
transaction prices at the dealer level?

Jim Farley: Thank you. I would say, the answer to your question for ICE and BEV would
be slightly different. We have about 10% of our dealers last year in the supply-
constrained environment that, we're charging above MSRP to our best of our
knowledge. We have very good knowledge of who they are. And their future
allocation of product will be directly impacted because of that policy. And
we've seen really quick action by our team.

On the BEV side, this is quite an important topic, because the margins that we
want to build to in BEV are going to be heavily dependent on a different go-
to-market and customer experience. I won't go into any more than that, but
this is a quite important lesson for us of the franchise system, and the way we
will manage going forward. But I'm very optimistic now that our team has the
intelligence in the market that we put an allocation trigger in for those dealers
who choose to price that way. But it's inefficiency no doubt about it.

Operator: Thank you. Our next question is going to come from the line of Mark Delaney
with Goldman Sachs.

Mark Delaney: Yes. Thanks very much for taking the call. So maybe you could help us better
understand the linearity of reaching the 600,000 annualized EV capacity
target, and what kind of visibility you have into securing the necessary supply
to do that both in terms of things like semiconductors as well as batteries?

Jim Farley: Thank you. So we've been hard at work at this for quite some time actually.
We knew we were oversubscribed pretty early in the process and the team has
been at it. We have been working. Really, the primary lift for us is battery
availability. So we've actually been securing extra batteries for quite some
time now. We have some manning options for Mach-E. So we will move close
to 100000 units this year on Mach-E. That will be our big move this year.

Next year, our big move will be Lightning going to 150000 units. I won't get
into battery chemistries and all the details, but I'm really excited about the
progress we've made so far in securing batteries. On the F-150 Lightning, we
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actually had a physical capacity constraint of the facility. And so we took the
decision already to again redesign the facility so that we can accommodate the
150,000 units. We have great capacity on F-150 for the nonelectric
components. So this is just a matter of the Mach-E getting the labor in place
and getting the batteries, and the F-150 getting the batteries out of Georgia
and redesigning the facility so we can get the final assembly done. As far as
chips are concerned these battery electric vehicles and the supply chain are a
strategic advantage for our company. So we will protect in the constraint
where we will protect our battery electric supply production.

Operator: Thank you. Our next question will come from the line of Joseph Spak with
RBC Capital Markets.

Joseph Spak: Thank you. Jim, it's really refreshing to hear you talk about the two different
businesses and how you're managing them and running them and planning for
them separately. I guess so to the -- and it's also good to hear you think you
would have more to wring out of the ICE business. But I guess the question
is, as CEO of Ford which is managing those two businesses like to the extent,
you are able to wring more out of ICE, does that give you leeway to accelerate
or increase your investment in the EV business? Like how do you think about
combining the two businesses back together in terms of the investment spend?

Jim Farley: Absolutely. Absolutely. The profitability of ICE is very important because it
gives us optionality, not only of scaling BEV, but also vertically integrating
BEV which is increasingly becoming important for a profit lever. So we
definitely want to push our ICE business as fast as far as we can. We're going
into this transition with the freshest ICE line-up, I can think of any of our
competitors not just in the US, globally.

But we think there's, as John said, a ton of other levers that we can pull to
improve the margins of our ICE business. We see our ICE business
increasingly in kind of specialty groupings of passion brands like, Bronco and
Mustang. And our pickup truck customers, retail side using those for
recreation and for everything they use them for. And so look at the success of
Maverick we've had for example.

So, we're really excited about this opportunity for BEV. And you bet you, it
gives us all sorts of optionality as a company to really continue to invest in
high growth business but also focus -- allow us to focus our cash and our
investment in building the margin for the high growth business through things
like vertical integration and new customer experiences, accelerating our
physical experiences to the dealers on both businesses.

Operator: Thank you. Our next question is going to come from the line of Itay Michaeli
with Citi.

Itay Michaeli: Great. Thanks. Good evening, everybody. I was hoping to go back and get an
update on Mach-E profitability. I think a couple of quarters ago you mentioned
you were already positive EBIT. It seems like pricing has been really strong
in the last few quarters. You talked about taking out maybe $1000 of cost

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going forward. And of course, you're cutting up volume. I was hoping maybe
you could give an update on kind of where you see Mach-E profitability this
year versus your original expectation that maybe even relative to ICE vehicles
perhaps like the Edge.

John Lawler: Yes. Thanks. It's John here. So, when we look at our Mach-E profitability as
we said, we are profitable from a Mach-E standpoint. We're seeing great
demand. We're seeing strong mix. So, we've seen the profits improve.
Importantly what else we're seeing is opportunities to continue to reduce the
cost and reduce the complexity. So we're very focused on improving those
margins.

But overall, as we said in the past, our fab margins are not yet quite where we
like them to be especially relative to our more profitable ICE vehicles. And
so, we have to continue to do work there primarily around scaling, reducing
the complexity as we move forward.

So we're encouraged by what we're seeing on Mach-E so far, especially with

the strong demand and the mix but there's other work that we need to do as
well to continue to further improve those margins. And our expectation is that
we're fully competitive on our BEV margins as we move forward and that's
what we need to work towards.

Jim Farley: Just to complement John's input. I'm struck -- throughout my career I'm struck
at how different the rhythm of this digital BEV business is versus ICE. We all
grew up in a business where you kind of launched the vehicle and then you
work on a minor change or a next model. I certainly grew up in that model.
And what we're finding with ICE, thank goodness we're scaling now, because
what we're finding in Mach-E is that actually most of the exciting work starts
after job one. That's when the OTAs really make a customer impact.

But on the cost side and the profit side, I guess we have learned so much about
the lack of integration in our engineering operations as we compared our
engineering on Mach-E to others that are best-in-class. And we are finding
lots of profit opportunities as we get after that integration between engineering
supply chain and manufacturing even within engineering. If I showed you our
cooling system for Mach-E it has four motors probably needs to be two. It has
60 or 70 hoses probably needs to be one-third of that. And those are the
opportunities we're going after. And we are not going to wait for next year.
We're not going to wait for a minor change. We are going to reengineer that
vehicle now and then use that expertise for Lightning, E-Transit and of course
our all electric platforms.

And I just -- I'm really excited about this opportunity. Being in the industry as
long as I have, I haven't felt this chance to take out so much cost after job one
both from the customers' use of the vehicle off the data as well as actually all
these integration opportunities.

And the other thing is the vehicles are much more simple than we thought.
The F-150 has one cab, one box. And we -- for the same kind of ICE offering,

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it's like 40 configurations. So they're much simpler. And I'm really excited
about -- I guess what I'm saying is we're at the very beginning of this journey.
And it is -- it's already very exciting on the profit improvement as John said.
And I haven't seen this kind of opportunity in the past in my career.

Operator: Thank you. Our next question is going to come from the line of Anindya Das
with Nomura. Your line is open. Okay. Our next question will come from the
line of Jeoffrey Lambujon with Tudor Pickering.

Jeoffrey Good afternoon. Thanks for squeezing me in. I just wanted to go back to the
Lambujon: regional discussion as we think about the thoughts you shared on margins in
North America that are embedded in the upper end of the full year 2022 EBIT
guide. I wonder if you could just give us a sense for how you're thinking about
the trajectory of margin improvement in Europe and IMG specifically. Just
thinking about the semiconductor shortfall evolving over time the focus on
Ford Pro and new product launches potentially helping to accelerate some
margin recovery in Europe, and then the continued focus on Ranger and new
products in IMG?

John Lawler: In Europe, we expect profit improvement. We expect them to be meaningfully

profitable in this year in 2022. And we're still committed and Europe is on
track to deliver the 6% EBIT margin by 2023. They're continuing to move
forward. They're seeing favorable pricing environment continue.

They're accelerating into the BEV. The Mach-E is a very strong product for
them. And again, commercial vehicles, it's a strength of ours and we continue
to see that grow next year and be a pillar for Europe, a strength for Europe.

With IMG as you go into 2022, International Markets Group, we expect them
to be down year-over-year but profitable. And that's going to be driven by two
key things: the India transition and what we see there as well as the fact that
our Ranger volumes are going to be down year-over-year as we launch the
new Ranger.

And so it's a transition year for us in the International Markets Group. So

they'll be down year-over-year but profitable. And then from there with the
new Ranger, we're really excited about that product and what we can leverage
with that product as we move forward in our International Markets Group.

Operator: Thank you. And with that, we will conclude today's Ford Motor Company
Fourth Quarter and Full Year 2021 Earnings Conference Call. You may now
disconnect.

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