Ford at Bernstein Conference: Strategic Shifts in Electrification

On Wednesday, 28 May 2025, Ford Motor Company (NYSE:F) outlined its strategic vision at the Bernstein 41st Annual Strategic Decisions Conference 2025. Vice Chair John Lawler discussed Ford’s proactive approach to industry changes, emphasizing cost management and quality improvement. While optimistic about long-term growth, Lawler acknowledged challenges such as a flattening EV adoption curve and increasing competition from Chinese automakers.

Key Takeaways

• Ford is adjusting its EV strategy to focus on smaller, more affordable models and hybrid technologies.
• The company is leveraging Ford Pro’s strong market presence to drive growth through high-margin software and services.
• Partnerships and alliances are key to Ford’s strategy, aiming to reduce capital expenditure and accelerate innovation.
• Ford is committed to improving cost and quality, with a focus on long-term profitability and brand strength.
• The company is navigating potential impacts from tariffs and policy changes, emphasizing its competitive advantage as a major American automaker.

Strategy and Transformation

Ford is navigating a significant industry transformation driven by electrification and intelligent connected vehicles. The company is focusing on a 3-5 year horizon to improve cost and quality, ensuring strategic positioning in the evolving automotive landscape. Ford Pro plays a crucial role, with software and services growing at a 20% rate and a strong market share in North America.

Electrification and Future Vehicles

Lawler noted a shift in Ford’s EV strategy due to a slower adoption curve, focusing on affordable EVs and hybrid technologies. In Europe, Ford is investing to meet strict CO2 requirements. The company targets EBIT-positive next-generation EV platforms within 12 months of launch, with new products expected in 2027-2028. Ford also aims to compete with Chinese automakers, who have a significant global presence.

Software and Technology

Ford is enhancing its software capabilities, aiming for control over software on modules and a centralized compute architecture. With 675,000 paid subscriptions, software revenue is a growing focus, particularly in fleet management and telematics. The company is innovating with offerings like BlueCruise, enhancing security and connectivity features.

Industry Dynamics and Partnerships

Ford sees low probability for industry consolidation but values partnerships to share components and technology. The company is open to collaborations on plug-in technology, aiming for win-win outcomes. Vertical integration is shifting supplier relationships, with increased control over software and module design.

Tariffs and Policy

Ford is mitigating the $2.5 billion gross impact from tariffs by pushing for USMCA compliance and onshoring parts. The company maintains a competitive advantage as a leading American automaker, despite de-emphasizing the EV transition in policy discussions.

Future Outlook

By 2027-2028, Ford aims to achieve best-in-class cost and quality, with Ford Pro driving growth through software and services. The company plans to launch next-generation EVs, develop an industrial system focusing on speed and capability, and continue leading in hybrid technologies.

For a more detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

Unidentified speaker, Interviewer: All right. Good afternoon, everybody. Thanks very much for spending this hour with us and not having cocktails yet. I know that you have to whiz off right after, so you’ll miss that part. But ladies and gentlemen, welcome to our fireside chat with John Lawler, vice chair of Ford.

John, thanks very much for being here today.

John Lawler, Vice Chair, Ford: Thanks for having me.

Unidentified speaker, Interviewer: It was a long day, so I appreciate you sticking around for us to have have this discussion. And maybe what I’d like to start with, you’ve fairly recently switched roles as Ford. What’s on your agenda now? How’s your day changed? What are you looking at now?

John Lawler, Vice Chair, Ford: Yeah. So I think the industry at this time is going through one of the most important transitions we’ve had potentially ever. And what I’m doing is I’m spending my time working with Jim and the executive leadership team and how we best position Ford to win coming out of this transformation of the industry. And so that’s heavily rooted in strategy, some in policy, and leveraging the thirty five years of experience I have at Ford and globally to help do that. So if you step back and you look at what’s happening across the industry, it’s the confluence of many different factors.

And if you think about it, electrification has come in and changed the industry quite a bit. But the ice tail is gonna be much longer. The development of multi energy vehicles, that’s gonna have a long tail. You’ve got distributed electrical architectures. You’ve got the intelligent connected vehicle.

You have autonomous driving technology all coming together at the same time. And all of that is going to require the OEMs to think about how you position yourself for success going forward differently. Everybody can’t do all of that on their own.

Unidentified speaker, Interviewer: When I listened to you explain that, it sounds a lot like this is a job that doesn’t tackle the next quarter, not even the next year. And so what’s the time frame really you’re thinking about as you approach this role?

John Lawler, Vice Chair, Ford: Well, one of the nice things about our structure and our company is that, of course, we have to make our quarters. Of course, we focus on that. And as you know, I spent a lot of time over my career in that space. And so this is a nice shift for me. But we do have a long term horizon.

And so we’re talking about the next three to five years and setting ourselves up to be successful coming out of that. We have a lot of work to do in the near term and none of that’s changed. Our focus on cost and quality is at the top of the list. Every day as a team, we’re focusing on those two deliverables because we know that is an enabler that’s going to allow us to do what we need to do strategically to position ourselves to win. And so although that’s not a big part of my rebut any longer moving from CFO to vice chair, everybody, everybody in the company is involved in that with Jim and the leadership team every week, just about every day.

So we’re still involved in that and then I hope I can contribute to that as well positively and support Sherry and those efforts and the rest of the team. But it’s a three to five year horizon. It’s about the future and setting ourselves up.

Unidentified speaker, Interviewer: And Ford over the past couple of months, past two years, has done already some major changes, resets. You’ve repositioned some of the EV programs. You just repositioned kind of the digital SCV architecture that you want to go for. You’ve

John Lawler, Vice Chair, Ford: talked a lot about capital discipline.

Unidentified speaker, Interviewer: What key elements of the original Ford plus plan kind of are still in place and where have you had to made adjustments?

John Lawler, Vice Chair, Ford: Yeah, I would say that the changes that we’ve made really come about because our strategy is a series of decisions, decisions you need to make and we’ve adjusted it and made different decisions based on how the consumers changed or how the marketplace has changed. But if you step back and look at the priorities that we have, they haven’t fundamentally changed but how we’re approaching them may have changed a bit. So cost and quality is still number one as I just said, we have to get that right. But when you look at it, the segmentation is proving, I believe, to have been a smart move. Because pro is a very important part of what we need to do and that’s going to continue to be a very core element of our strategy and positioning ourselves for success.

And with Pro, it’s a it’s a business and an opportunity that no one else can match. We have a 40% market share in North America here relative to vehicles. And with those vehicles comes along the ability to sell software services as well as physical services. And when you step back and you look at it, when we look at our strategy and we look at the areas that we’re focused in on and you look at the industry and the transformation, our industry has been plagued with very low margins. You all know that.

And so why is that? Well, we haven’t had a lot of top line growth. Our margins are relatively thin compared to best in class industrials. Our capital efficiency is not very good. And we’re very cyclical.

We’re not a durable business. Peak to trough is quite extreme. And every time there’s a recession, the conversations come about about well, who potentially is going to run out of cash and go bankrupt. And that’s unfortunate. And those are the things that we need to solve.

And when you look at pro, it addresses many of those. The margins are better than what we’ve seen. We’ve proven that the last couple years. Right? Mid teens is where we’re targeting and we’ve done pretty well with that.

It’s a growing business. Software and services in the pro business are growing at a 20% clip. And so our paid subscriptions are over 675,000 customers right now. Our ARPU is growing. And when you look at that, those software services have margins of over 50%.

So that’s counter cyclical. Those aren’t going to go away in a recession. Those are going to continue. And then physical services, that’s growing as well. We have about a 35 attach rate.

Every point we grow in physical services is worth 30,000,000 of EBIT. And again, that’s counter cyclical. Higher margins, gross margins of 30% plus. So in Ford Pro, I think that is the definition of how the business needs to change to address those four issues. And then capital efficiencies there as well as we’ve run through and with the platforms that we have in the commercial business.

So it’s a great business for us. So that’s gonna be important. Software defined vehicles that the intelligent connected vehicle is going to be a critical part of the transformation in this industry. We’re seeing it in other parts of the world and we’re seeing it accelerating. And it needs to happen with us very quickly.

That’s a key part. Growing our service business is a key part of that. And so that strategy all remains the same. We’re gonna stay in EVs. We’re gonna continue to invest in our advanced electrical development team out in California.

There’s a lot of benefits that are coming from that. That’s not changing, but we’ve adjusted based on the customer feedback we had being in the marketplace early to what types of vehicles are actually going to resonate with customers and how do we make them more affordable so that we can attract a larger cohort of of of customers? Because large vehicles are not the right form factor for EVs. You’re gonna we’re gonna have some of them, but they require large batteries. And batteries are the largest cost in electric vehicle.

So if you go with a smaller vehicle, you have a smaller battery. It’s more affordable. And we believe that’s gonna be a competitive advantage for us, with the way we’re developing those. And we can talk about that a bit later. So it’s it’s all the parts again, pro, software defined vehicles, the digital electrical architecture, intelligent connected vehicle.

It’s the the electrification. And then, of course, we’re gonna continue to leverage our strength in ICE vehicles and the great nameplates and brands that we have anywhere from F Series to Super Duty to Bronco to Expedition, Explorer. We’re still very strong in all those segments and we’re gonna continue to grow there and continue to build out the competitive we have and competitive advantage we have in powertrain of choice. And providing multi energy vehicles. I mean, have the number one and the number two hybrid vehicles with our pickups.

So those are the areas that we’re gonna continue to focus on. But how we go about executing those strategies to work on those four elements I talked about, speed, capital efficiency, margin, and durable business. It’s changing.

Unidentified speaker, Interviewer: If you think about the original thinking around Ford plus and where you’re now, how have your investment priorities changed? We think about the r and d budget. Is it as simple as dividing it in four pieces and saying it’s ICEV hybrid and software? Or how would you kind of frame that for investors?

John Lawler, Vice Chair, Ford: No. It’s where can we get the best return and do we have the ability for accretive growth? It’s really a top down approach. Honestly, in the past, a lot of times when we did the capital allocation, it was more of a bottoms up product driven process. Now we’re starting to look at it because we have the four business units and we have the ability to think about things over a longer arc when we’re doing our strategic planning process.

And then we’re allocating capital into the growth areas and we’re doing it based on the higher order of return. And so every one of the business units that we have has a hurdle rate. Every one of the business units has to come into the capital committee and demonstrate the use of their capital, return that they’re gonna get on that capital. And then we’re making the decisions as a team as to where we wanna grow and how we wanna allocate that capital to grow.

Unidentified speaker, Interviewer: I’m gonna, before we get into more of the strategy, add in kind of the necessity to talk about tariffs.

John Lawler, Vice Chair, Ford: And I’m going phrase

Unidentified speaker, Interviewer: it slightly differently and ask, with what’s going on right now, are there any opportunities for Ford in the next twelve, twenty four months if we kind of continue with the framework we’re seeing right now?

John Lawler, Vice Chair, Ford: Well, think we do have a competitive advantage because we are the most American. Right? We employ more workers. We build more vehicles in The US. So we do have that competitive advantage given just the structure of of what we have from a footprint standpoint.

You know, we guided to what from a tariff standpoint that the gross impact was 2 and a half billions and that was 1 and a half billion. We’re continuing to work on that and understand that. But at this point, there’s not much that’s changed and so there’s no material change versus what we guided. But we’re continuing to leverage our competitive advantage and our footprint to try to identify opportunities for us over the next twelve to twenty four months where we can take advantage of the shifting environment.

Unidentified speaker, Interviewer: If the current tariffs were to stay kind of in the rough shape they’re in now, do you think there’s incremental opportunity for you over the next one or two years to kind of even reduce that net headwind you talked about in your guidance? And what are kind of some of the drivers within that?

John Lawler, Vice Chair, Ford: Well, I think so. Know, part of that is when you look at the parts, pushing more of those parts to be USMCA compliant, that’s a tact we can take. We can onshore parts that aren’t onshore today, although a large percentage of parts are. So those are different tactics that we can take working with the supply base to minimize some of that impact. So we’re going to continue to work on all of the levers that we have around the exposures and reduce those.

And then we’ll also have to look at the go to market end of it as well. And are there going to be additional opportunities there beyond what we’ve identified so far? And a lot of that also is going to be the reactions of counter tariffs and other things that happened there. And what does that mean for us and then how will we adjust to that? So it’s a dynamic environment.

Things are changing. I think that in that there’s going to be additional opportunities both on the top line as well as on the cost side and then in the footprint and how we optimize that.

Unidentified speaker, Interviewer: The second big part of the change the new administration has brought along is kind of a deemphasizing of the EV transition to some degree. We’re potentially facing the phase out of incentives. Towards the end of the year, there’s been conversations around changing EPA targets. We’ve seen the CARB waiver being challenged. Has that changed your long term ambition in terms of electrification?

John Lawler, Vice Chair, Ford: You know, electrification, it’s the way we talk about it, it’s not if, it’s how fast. And I think we shifted twelve to twenty four months twelve to eighteen months ago about how fast that adoption curve is gonna happen. You know, coming out of COVID with the early adopters, there was a false signal across the industry that EVs were going to ramp much quicker. Well, we’ve seen that curve flatten out quite a bit. We’ve all adjusted.

We’re adjusting, continuing to adjust our footprint, our investment levels, and and pull back on the capital going into EVs, but we’re not pulling back completely on investing. So they’re going to come. And we’re really excited about the advanced EV team in California and what they’re developing for us, for our next generation of EVs. And we think those are going to be a game changer. So we’re excited about that.

But we’re also leaning into our hybrid technologies and that’s an opportunity as well as a bridge into full electrification. And some of these hybrid technologies really do address some of the concerns that the early majority have about EV adoption, range anxiety, affordability, things along those lines. And so I think that as we ramp that up, that’s an opportunity for us. It’s a bridge into EVs. We believe that where we’re shifting our focus on EVs to small, more affordable mainstream products versus what others and and what the industry has leaned into so far when it comes to EVs.

We think those are all opportunities for us and that, you know, the EV horizon although it’s flattened out, it’s still gonna it’s gonna shift. It’s gonna happen. It’s just gonna take longer.

Unidentified speaker, Interviewer: How does this look in Europe for Ford?

John Lawler, Vice Chair, Ford: In Europe, we just launched the two products we just launched out of Cologne. I think adoption in Europe, they’re not experienced the potentially the same pullback necessarily on c o two requirements. I think they’re gonna still be pretty strict. So again, as a global player, we’re gonna have to make sure that we can meet the requirements of the EU and the emissions requirements and we’re gonna continue to have investments there. And again, with the new platform that we have, we believe it’s the right platform to allow us to compete competitively in that space.

Unidentified speaker, Interviewer: What does compete competitively mean for your bottom line?

John Lawler, Vice Chair, Ford: Yeah. So that’s that’s a great question. When you look at EVs and the development of EVs, when you look at California, there’s basically two development processes in the world. There’s the traditional linear waterfall process that we’ve been using for a hundred and twenty years. And then there’s a more agile iterative process that’s being used with many of the EV startups, or the Chinese and with the team in California.

And that process is allowing us to engineer and design the vehicle to be much lower cost and to be much faster. The process will eventually be much faster than what we’ve had in the past. So we’ll be able to change quicker. And that’s going to allow us, we believe, to be competitive with the Chinese built in Mexico. And we think that’s gonna be a game changer for us.

And we really believe that those segments that will be in, the mainstream segments are where we’ll attract customers because they’re more inclined to buy an electric vehicle.

Unidentified speaker, Interviewer: And that’s kind of a 2728 timeline? 2728

John Lawler, Vice Chair, Ford: timeline where we’ll be launching those products. Yeah.

Unidentified speaker, Interviewer: Is there any hope for gross profit breakeven between now and then?

John Lawler, Vice Chair, Ford: So when we get to our next generation, our next platforms, what we’ve said is that those will be positive, EBIT positive within twelve months. We’re still working to take the cost down in Model E today. We’re making progress. We’ve seen that. But I think overall, we’re going to continue to invest in EVs now and that investment is going to hit the bottom line today.

But it’s going to pay us dividends in the future as we launch the new platform and the new vehicles. And if

Unidentified speaker, Interviewer: you say kind of competitive with Chinese built in Mexico, we can kind of say, okay, this is kind of towards best in class EVs. How are you thinking about the rest of the field? So if you think about The US in three, five years time, about Europe in three, five years time, do you think there’ll be many companies next to you at that point? Or do you think you have an edge by going the route you’re going with the EV team in California?

John Lawler, Vice Chair, Ford: I think the EV team in California is going to give us an edge against most of the players. But if you look at the Chinese, I think the Chinese are gonna be a force to be reckoned with globally. Their development times are very fast, twenty four months from concept to production. Their cost structure is about 30% lower than anywhere else in the world. Their digital electrical architecture and their intelligent vehicles, their system, their software is developed at a faster pace than anywhere else around the world.

So I think that they’re going to continue to be a force we have to compete with. And we’re going to need to compete with them globally. They have roughly 10 to 11,000,000 units of excess capacity. They’re exporting from China. They’re growing in Asia outside of China.

They’re starting to enter into Europe. And I think that’s who we need to set our sights on and who we need to be competitive against. Not only from speed of development, software capability, electric architecture capability, and then just overall electrification capability. And that’s who we’re targeting and that’s who we’re looking to be competitive with.

Unidentified speaker, Interviewer: As you go into that next generation of vehicles, 28 following, how long does it take you to bring those advances in EVs in software architecture to the entire portfolio?

John Lawler, Vice Chair, Ford: So it’s gonna be a build out over time. One of the things that we’ve done recently and we announced this is we made an adjustment in our approach to our electrical architecture. Because what we’re finding is that since the ICE vehicles, internal combustion vehicles are going to be around longer, then we’re going to need to have the same capabilities or similar capabilities on those. So we’ve adjusted our approach on our advanced electrical architecture. We’ve adjusted that so that we can cover a broader range of our products quicker and that we can be competitive with that software defined vehicle, that intelligent connected vehicle across more of our portfolio.

And I think that’s a comp a complexity that traditional OEMs have relative to the pure EV place because they just have the the electrical architecture to support the EV propulsion system. Whereas us that’s a multiline manufacturer across both ICE and electrification have to do both. And we’ve made that adjustment and we’re going to bring that technology because we think it’s important, for our pro business, to be leading edge there on both ice and electrification, electric vehicles.

Unidentified speaker, Interviewer: Let’s dive into a bit this software bit of the story. Can you frame for us what are the different components you need to put in place to kind of get to where you wanna go? Mhmm.

John Lawler, Vice Chair, Ford: So it’s if you think about the industry, one of the things that we did back when we moved to analog to digital is we seeded most of the digital capability to the supply base. So they control the software and the modules and we all saw that come through significantly during COVID when we wanted to switch out chips and some of the modules that we have. You could be a wiper washer module or a window control module, you name it. And the software was controlled at the supply base and the software is pretty much common across many OEMs. It’s in the module.

You couldn’t make the change. Whereas those that had their own electrical architecture where they control the software with a central compute, They were able to change that. So it’s controlling the software on the modules. It’s having a central compute, distributed electrical architecture. So you need to control all of that.

And over time, we’ll control more of the modules on the vehicle and we’ll do that based on a centralized compute. And then we’ll have the digital experience within the cockpit will be software generated by us and it will be our experience that we’ll curate. Then when it comes to commercial vehicles, we’ll have the type of productivity software that will be important for them. So telematics, fleet management, security, connecting and engaging, those types of things. So those are the areas that we’re building out from a software standpoint that are gonna be important for the development of those capabilities over time.

Unidentified speaker, Interviewer: In four plus, you talked a lot about the recurring potential of software revenues across the different different aspects of the business. How much of that or where are you today and how much can you do in the current setup of the cars and technology?

John Lawler, Vice Chair, Ford: They’re becoming more and more capable. As I said, we have 675,000 paid subscriptions. The capability of the software in the commercial offerings is improving. One of the advantages that we have, if you think about fleet management, telematics, is that because we have control over the entire vehicle, we can do things with our software in the commercial space that others can’t. We can provide the ability to turn on the vehicle, turn off the vehicle.

We can provide the ability to adjust acceleration, right, your ability in the way you drive the vehicle. So there’s a lot of things that we can do in controlling the vehicle that the third parties can’t that gives us a competitive advantage and improves productivity for our commercial customers. And that’s something that they’re finding is accretive and additive, which we believe over time will allow us to capture a larger percentage of garage with the fleets because many of the fleets are mixed fleets. And so through the competitive advantage we’d have with the software, the types of things we can do to control the vehicle to improve productivity with an end to end solution that’ll drive not only software revenues, but it’ll also drive a higher attach rate and share of garage.

Unidentified speaker, Interviewer: Have you seen any good examples of recurring software on the consumer side? Not just a little bit, but substantial?

John Lawler, Vice Chair, Ford: Yeah. So we’re starting to you know, BlueCruise is one. We have 370,000,000 miles. It’s growing. It’s an l two offering.

You know, we’re working on our l three offering. So that’s probably on the retail side. The the largest software offering that we have. But we’re also starting to see a pull through from the commercial side into the retail side of things that we think the customer is really starting to understand that there’s value in that. So security is one example where the vehicle can be used from a secure standpoint to prevent theft.

You know, we’re developing the capability where you can leverage the cameras on the vehicle to monitor surroundings and to understand what’s happening. So security is an important element not only for commercial customers but for retail customers. And we’re starting to see some traction gain in that space as well. Connect and engage, we’re starting to see some some examples of of growth there on the retail side. And we’ve just brought in a new leader of the integrated services group that is really focused in on those features that are going to resonate and build out from a retail side.

So getting started in commercial, really ramping that up and growing. We’re starting to see some pull through on the retail side outside of driver assist technologies with BlueCruise. And I think there’ll be more to come over the next twelve to twenty four months about those services that are gonna be growing.

Unidentified speaker, Interviewer: How do you think about those software services strategically? Because for a lot of features that OEMs have put into cars in the past decades, there’s been a large degree of commoditization from window power windows down to the navigation system. Is that something you expect on the software side as well?

John Lawler, Vice Chair, Ford: Yeah. I think that’s gonna continue to happen. I don’t think it’s gonna unfold differently than that. So you’re gonna have to keep innovating and be out front.

Unidentified speaker, Interviewer: That’s gonna be the key. What are the pieces within Ford that give you confidence that you’ll out innovate the competitive landscape?

John Lawler, Vice Chair, Ford: Yeah. I think that one of the things is we have a strong team. Doug, who’s come from probably one of the best out there that’s the integration of software and hardware. So I think that we have a strong team. We’re building, even continuing to build that team out.

They’re attuned to the customers and understanding that space. I also think that we’re staying very close to those that are leading in this space. And, you know, we’re not being precious about or or, you know, conservative about the fact that we’re not the best in this space. And the industry traditionally has been the best. So we need to learn from other industries and we need to learn from those that are doing it well.

China is cutting edge. They’ve been a digital society much longer than we have and they’ve been innovating in the space within the vehicle and the in vehicle experience. And so we’re looking at them to learn as well. And so I think it’s that curiosity that we have that the space could be meaningful and that innovation is gonna be key and speed to market is gonna be key. So those are the types of things that we’re putting in place with the right team to be able to do that.

And I think we’re we’re building that out.

Unidentified speaker, Interviewer: In the past, we’ve talked about service revenues being able to offset some of the cyclicality and pushing some of the revenues into a less cyclical business with a higher GDP. But if it’s gonna be commoditized in the long term, that will require the industry to kind of shift the way you pay for a car to some degree. Otherwise, it all collapses back to the purchase price of the car, we’re back to where we started. And so do you see some recognition in the industry that that is a direction other people will wanna go to and will reach an equilibrium where there’s maybe less of a focus on the initial sale of the car and more on the kind of services that happen during the life cycle? And is that something that really helps with cyclicality in the end?

John Lawler, Vice Chair, Ford: I think eventually we’re going to get across the industry different models of vehicle ownership. But I don’t think that’s going to be in the next five years or so. I think it’s further out. I think it’s gonna take some time for us to get there. The capability of the vehicles, the capability of the software, you know, I think it’s probably more likely with EVs than it is with internal combustion vehicles.

But eventually I think that there will be new ownership models that will be more of a ability to leverage the vehicle based on a time based ownership.

Unidentified speaker, Interviewer: How long will it take you to get to that centralized compute that kind of seems to be somewhat of a nexus between the now and the future on software?

John Lawler, Vice Chair, Ford: So we’re, right now we’re doing it over time. We’ve increased our capabilities of vehicles today. OTA updates have been growing. Over the air updates have been growing. The capability of that system has been growing.

I think you’ll see a significant step function forward when we launch our advanced EV from the California team in 2027. That’s when you’ll see a step function change for us.

Unidentified speaker, Interviewer: And if you look at some of the leaders in China, also Tesla, there’s a lot of focus on what I’d call navigational autopilot going from a to b, not autonomous but well supported by your car and basically becoming a supervisor more than a driver. How far do you think that is away for Ford?

John Lawler, Vice Chair, Ford: Well, I mean, from BlueCrew standpoint, we have the highest rated driver assist technology today. If you’re talking L three, which is hands off, eyes off, I think we’re in a pretty good position on that technology. L four, I think, is another bet. And I don’t know. L four has been developing for what, the last ten to fifteen years and it always seems that it’s a year away from being ready to go and it just hasn’t gotten there.

So we’re watching that space very carefully with our Latitude team and we’re evaluating every one of the L4 systems that’s out there and understanding the progression they’re making, the safety around each of those systems, the capabilities, and what we think that inflection point is gonna be where we really do believe that it’s getting to the point where you’re gonna be able to launch that type of technology at scale.

Unidentified speaker, Interviewer: But even before that, I mean, if we follow the strain of Argo and then your development of ADAS, I wouldn’t even say a full l three, but maybe hands off eyes on. I get in my Ford, I press a button, and that’s it. For the next twenty minutes, the car kind of backs out the driveway, goes down wherever it needs to go, and pulls into the destination?

John Lawler, Vice Chair, Ford: Well, I think it’s gonna come through domains, you know, over time. So right now on highway, divided highway, we’re hands off, eyes on. And then, you know, on ramp to off ramp, you know, potentially will be the next step. So we’re we’re we’re building that out. And eventually, we’ll get to the point where, you know, you’ll be able to do that through the whole drive cycle that you have.

That’s gonna develop. And I think you’re gonna get to the point where potentially there’s L3 technology developing at the same time where it’s hands off, eyes off on divided highway and then that’ll continue to develop. And then as it becomes the earlier technology, we’ll start to commoditize and it’ll start to be like you just mentioned other technologies that we’ve had on the vehicle like power windows, etcetera, where it becomes an anti. It’s expected. It’s gonna be part of it like just regular cruise control was.

So those are gonna continue to develop. I think we’re on the edge of that. I think we’re not behind anybody else. Blue Cruise is I think a proof point to that. And as that starts to come out, no time frame has been announced.

But we’re going to continue to develop that and continue to expand the domain.

Unidentified speaker, Interviewer: If you think about your software spend today, how much of that is already recouped by recurring revenues? And how much is a true invest kind of and how does that balance change over the next couple of years in your mind?

John Lawler, Vice Chair, Ford: So we’re still in the invest mode for sure. As as we launch the next generation of architecture, then we’ll start to really ramp up the software and be able to recoup the investment that we’ve made on that. But that’s a long term investment. And I think it’s it’s something that, you know, is gonna continue to build. If you think about the industry for for the industry itself, one of the reasons why our capital efficiency or our returns are are low is because we spend billions of dollars creating the hardware and then we capture a very small percentage of the TAM generated off of that hardware.

So now with the software services, physical services have been there. We used to do a much better job of capturing that. I believe that that’s going to allow us to capture a larger percentage of the TAM generated from the vehicles, get a direct relationship with the customers, bring them into service more, grow that part of the business as well. And so that is an accretive action that’s gonna happen across time and it’s going to continue to build. And so that’s one of the things that we need to do as an industry and as a business is we need to capture more of the TAM generated off the vehicles.

And the intelligent vehicle, the software defined vehicle is going to allow us to do that.

Unidentified speaker, Interviewer: Maybe moving on a little bit to a broader view, other industries, especially asset heavy industry, low margin, rising costs, more challenges have often turned to consolidation. Maybe two part question. Number one, why hasn’t that already happened? So what’s been preventing the industry from consolidating more?

John Lawler, Vice Chair, Ford: Yeah, I think you’re right. If you look at any other industry with this makeup, they would have consolidated quite a while ago. I think there’s a lot of factors that limit that consolidation. It’s complex. It’s capital intensive.

You have a lot of players that you need to satisfy from dealers and unions. You have a lot of the companies have a lot of issues that need to be worked through. You have antitrust concerns in certain segments of the business that would limit that ability to consolidate. So I think there’s a lot of factors that have done that. The way we’re thinking about it is consolidation probability is low.

I don’t think you’re going to see a lot of consolidation, pure consolidation. I think some companies aren’t going to make it. I think that’s just the nature of how things are gonna shake out. But what I do think there’s an opportunity for is partnerships and alliances where we can work together on the investment that has to take place in many of these developing areas. And that we all don’t have to do it on our own.

We can do that in partnership. And that would reduce capital efficiency. It would increase speed to market. And it would allow us then to bring some of this forward from an industry standpoint when it comes to electrical architectures, software defined vehicles, even platform sharing. So I think that you’re gonna see more of that happen over time versus consolidation.

Just because of all the constraints that happen from a consolidation standpoint across this industry. It’s a tough thing to do.

Unidentified speaker, Interviewer: The industry has always been under pressure. And if we go back twenty years, I’m pretty sure the Bernstein reports would still say it’s margin challenge, low growth and difficult. Yet this alliance and partnership structure hasn’t really worked out that well. Or there are very few examples in global autos where there’s been a big alliance and a big partnership. And so what do you think you need to inject into those discussions to come to a different outcome?

John Lawler, Vice Chair, Ford: So we’ve seen some that have worked well and we’ve seen some that have died over time. And I’m not so sure that the partnerships or alliances that have gone away over time aren’t necessarily, it’s not necessarily a bad thing. Some of them are more transactional. Some of them are more long lasting. I mean, we’ve had a partnership with AutoSun for over twenty five years that’s been really strong.

So I think we need to look at it with the reality of is this short term, is this long term? Are we complementary in different areas around the world? And I think the other thing is it’s just going to be the necessity to allow us to get done what we need to get done with the speed that’s changing in this industry. You’re not going to be able to do it all on your own at the pace that it needs to take place and then the capital that’s gonna be required. You know, one of the fundamental shifts that’s happened in the industry, if you go back and look at the amount of capital that the Western OEMs have profit, they have taken out of China over the last ten to twelve years is 80 plus billion dollars.

That’s evaporating. That’s down what 40 to 50% over the last three years. That capital funded a lot of the investment that’s happened in the industry. With that being gone, everybody’s not gonna be able to do this on their own. And so there’s gonna be these forcing factors that are gonna push us into figuring out how we continue to stay competitive and that those that don’t are gonna be the ones that are gonna have a hard time keeping up.

Unidentified speaker, Interviewer: What would be some of the ideas either horizontal or vertically where you say that could be something you’d be interested in?

John Lawler, Vice Chair, Ford: It could be anywhere from things that don’t differentiate you versus your competitors. And that could be anywhere from sharing componentry, motors on on a battery electric vehicles. I think batteries is a good example where many of us have set up joint ventures and partnerships on batteries where those are going to commoditize over time. I don’t think they’re going to be differentiated. I think powertrains, ice powertrains over time are going to need to consolidate and they’re not gonna be differentiated.

I don’t think that consumers really think about powertrains the way they did thirty years ago where it defined what a vehicle was. The horsepower, the displacement, the torque and everything about the vehicle. I think a lot of that’s gone. And so does everybody need to develop the next four cylinder and six cylinder as that art comes? When it comes to technologies from a standpoint of multi energy, so HEVS, PEVS, EREVS, does everybody need to develop that or are there gonna be a few that have that where you’d partnership and you’d leverage their capacity.

It could come down to where you have platforms, where a vehicle platform and then you’re just putting a top hat on somebody else’s platform because there’s scale opportunities. It could come down to as certain emerging players want to grow globally, that they don’t invest in their own manufacturing facilities and you share a platform in those facilities. So I think there’s going to be a lot of change that’s going to happen over time relative to how we think about how precious things are that we’ve felt were precious in the past. I think what it’s going to come down to is the brand and your relationship with your customers and then services and the experiences that you give them. Those are gonna be the differentiating elements going forward versus the hardware.

Unidentified speaker, Interviewer: Let’s take plug ins because you’ve got quite an ace in the hole with your plug in technology, the gene. But it might be difficult for any other OEM to say, yes, I’m buying the plug in technology from Ford. Would you be willing to kind of split that out into something else to make that happen?

John Lawler, Vice Chair, Ford: I think that if there was a partnership where they thought that our plug in and hybrid technology was something that was that they wanted and we could figure out that there was a win for us with that company, we’d be willing to do that. Would we split it out into a separate business unit and sell it? I don’t see why that wouldn’t be an opportunity down the road for any of the OEMs. You could think about that from electrical architectures. Right?

And software enabled vehicles. You’re going have three electrical architectures around the world. You’re going to have the one in China. You’re going to have one in the West. And then you’re going to have one in emerging markets because of cost.

In China, they have the tech companies are heavily engaged. Huawei, Xiaomi, they’re heavily engaged. In the West, they’re not. Right? Could it be that and you’re starting to see a little bit of this, that those companies that have developed the electrical architectures that they’re willing to sell that electrical architecture to other OEMs because not everybody can develop that.

So I think you’re already starting to see that with some of the arrangements that have been made out there. Think you’re gonna start to see more of these types of things over time happen.

Unidentified speaker, Interviewer: What does it take internally to kind of jump over that ledge? Because as you said, we’ve seen some movements out of necessity or desperation to address shortages in electrode architecture. I think the majority of OEMs out there are still convinced they’re gonna build their own system at this point in time. How do you short circuit this to have a fast realization whether Ford or if you, you know, any OEM says, look, I’m gonna make this or I’m not gonna make this. It seems that a lot of people are still trying.

But the industry seems to depend on that realization happening rather sooner than later.

John Lawler, Vice Chair, Ford: Yeah. So what what I can say is that there are those working on it. And I think that the realities of the industry are just really starting to take shape across the industry. And I think that’s gonna drive and be the catalyst for that. But I don’t think there’s anything that’s happening that’s material across the industry right now that you’re hearing about or is on the verge of happening.

But I think we’re starting to gain momentum and I think the willingness to consider and the openness around potentially needing to do this, I’m starting to see more traction around that and I’m starting to see more folks talking about the fact that there is so much to do and things are changing so fast that there’s gonna be need to be a different approach.

Unidentified speaker, Interviewer: Another element you talked about is when you gain more control of the software, you gain more control of the modules and kind of that’s a little bit more vertical integration in terms of what is it that that you are actually designing for the car. How does that change the relationship with the suppliers?

John Lawler, Vice Chair, Ford: Dramatically. If you look at the the relationship with the suppliers, on the advanced EV team, it’s a whole different relationship. You know, a lot of what’s happening in the industry with the traditional OEMs and internal combustion, it’s a lot of project management where the suppliers are owning the engineering and and such. Whereas in the advanced electrification team, they’re owning the engineering and they’re working directly with the supply base on a real time basis for design changes. And that’s allowing us to not over design the vehicle.

That’s allowing us to really understand what the cost structure of that part should be, to work with that supplier on what a fair margin would be for them to produce that part, and then optimize the cost structure. And so I think the shift that’s going to happen with the OEMs, I think there’s going to be an equal or greater shift that’s gonna happen in the supply base. Especially with the Chinese, as you think about the Chinese, they have a 30% cost advantage in China. They understand that that cost advantage as they move outside of China, you know, can’t be sustained right now. So what they’re doing, what some of them are doing is they’re working to establish a lower cost supply base outside of China.

And is it going to be 30%? Probably not. But whichever Chinese OEM, whichever one of them can create that supply base or rebuild that supply base outside of China with the lowest cost, let’s say 20% lower than everybody else, 10% higher than China, they’ll be the winners. And I do know that several of them are trying to establish that supply base outside of China. And so what is that gonna do to the overall footprint of the supply base?

And if that happens, then those suppliers gonna be open up for business with other OEMs and potentially other OEMs would look to help certain Chinese OEMs develop that supply base and develop their ability to operate around the world.

Unidentified speaker, Interviewer: How do you think that interplays with the next couple of years in The US?

John Lawler, Vice Chair, Ford: I don’t think that it’s going to play in The US. Think, you know, I don’t think that honestly, I’m not I’m not sure that the Chinese are looking to come to The US. They know what the environment is. Right now, we basically, you know, closed it down to to them coming into The US. I think they’re gonna continue to work on Asia.

They’re gonna continue to work on Europe. I think they’re gonna continue to be a force to be reckoned with given that their speed, their cost structure, their nimbleness, and their ability to iterate very quickly. And so I think they’re gonna continue to build out their capabilities elsewhere around the world. And then eventually when they’ve established themselves, they’ll be looking to come to The US. So is that five years, ten years down the road?

I don’t know. Your guess is as good as mine, but eventually they’ll come just like the Japanese did and the Koreans did. And consumers will want the best product. You know? They’re gonna want the best product.

They’re not gonna say, no, I’m not gonna buy that because it’s from x y z. If it’s the lowest cost, highest quality, best features, we’re gonna want it. And that’s eventually gonna happen.

Unidentified speaker, Interviewer: If we zoom out and kind of tie this together, what does success look like for Ford in three years time in ’27 and ’28?

John Lawler, Vice Chair, Ford: I think it’s we’re approaching best in class and cost and quality. So we fixed that, checked that box, and we fixed that issue that we’ve had that we’ve talked about. We haven’t been shy about that. Ford Pro is gonna continue to be a growth engine for the company. You’re gonna see a higher attach on software services.

You’re gonna see our ARPUs growing and you’re gonna see the number of paid software subscriptions growing. We’re gonna see that being over 20% of pros profits. You’re gonna see between software and services, it’s gonna be over 20% of pros profits. You’re gonna see the launch of the next generation electric vehicles out of the advanced development team in California and they’re gonna be scaling and they’ll be successful. You’ll see the continued development of our industrial system around speed and capability.

You’ll see that we’ll have partnerships and alliances that we don’t have today that are gonna enable our ability to move quicker, be more capital efficient. And you’re going to see the fact that from a competitive standpoint, our hybrid technologies are gonna continue to lead and allow us to have that competitive advantage of customer choice from a powertrain standpoint. So I think what you’re going to see is the pieces that we’re developing now, you’re going to see the traction of that and you’re going to see a company that has higher growth, higher margins, more capital efficient and more durable, less cyclical because of the different types of revenue streams and profit streams that we’re developing. That’s what success is in three to five years.

Unidentified speaker, Interviewer: What would be your response to investors who says, but why should I then invest today?

John Lawler, Vice Chair, Ford: I think that from a standpoint of Ford, you’re seeing momentum, which is the biggest unlock in the near term around cost and quality. You’re seeing that there’s potential, still a ton of potential that we have around our commercial business and that’s growing with strong margins. You’re stepping back and you’re looking at a company that is being very thoughtful about our capital allocation and capital efficiency and we’re laying down the bets for that future. And I think what you’re finding is that from a brand standpoint, we’re still competitive around the world. And we’re meaning we mean something.

And we’re taking the Chinese on and we’re we’re starting to compete with them in a global standpoint. So I think there’s a lot of unlock for us in the near term, especially around cost and quality. And you’re starting to see that traction. It’s the third quarter in a row where we’ve improved our cost structure. Quality is getting better.

You’ve seen those quality improvements, third party, JD Power and such, those have shown that improvement. And that’s gonna continue to accelerate and that’s gonna allow us to continue to have strong margins in the near term. And then as we start to really gain traction on the other areas I talked about, there’s upside.

Unidentified speaker, Interviewer: Excellent. I think that’s a great note to leave it on. John, thanks very much for being here today. Thanks, gentlemen. John Holler.

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