Good day, eve ryone. My name is Gary, and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company Q3 2023 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 this time, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. At this time, I would like to turn the call over to Lynn Antipas Tyson, Executive Director of Investor Relations. Please go ahead. Thank you, Gary. Welcome to Ford Motor Company's Q3 2023 earnings call. With me today are Jim Farley, President and CEO, John Lawler, Chief Financial Officer, and Peter Stern, President, Ford Integrated Services. Also joining us for Q&A is Marion Harris, CEO of Ford Credit. Today's discussions include some non-GAAP references. The se 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. Our discussion also includes forward-looking statements about our expectations. Actual results may differ from those stated. The most significant factors that could cause results to differ are included on page 20. Unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS, and free cash flow are on an adj ust ed basis. Now, I'd like to turn the call ov er to Jim. Thank you, Lynn. Hello, everyone, and thanks for joining us today. I wanted to start by thanking the Ford team who worked tirelessly and creatively over the past several months to reach a tentative agreement with the United Auto Workers. I'm pleased, so pleased for our employees. This week, I was able to visit each of the struck plants. I was impressed by their preparation for startup, and the feeling I got is people just want to get back to work. Once the deal is ratified, we will provide all of you a deeper look at the contract and its impact on our business. Right now, we're focused on restarting three important assembly plants, calling back more than 20,000 Ford employees to work, supporting our suppliers as they restart, and shipping lots of Super Duties, Explorers, and Broncos to our customers. It's been a challenging situation for sure. Matter of fact, our business is never short of challenges, especially right now with the evolution of the EV market and new global competitors from China, as well as the technology disruptions. But I am more excited and motivated than ever. Our team is making tremendous progress every day towards building a Ford that thrives at the intersection of fantastic and iconic vehicles, terrific brands, and especially software and services. We are deep into the development of our future software platforms, which provide the foundation for rapid innovation and a profitable new software and services business, and constantly improving experiences for our customers. We believe Ford+ is the right strategy to win in this constantly evolving industry transformation. We're building a more dynamic and less cyclical company, and we are nowhere near peak profitability. We have the right team and talent, and we are in the process of building a culture of excellence and execution. In a moment, John will detail the quarter, which I would call mixed. The strength of our products and revenues and businesses definitely came through in our results. But at the same time, we were negatively impacted by the strike, and our cost and quality remain a drag on our business. Now, last week, we made some important leadership changes. Kumar Galhotra, as COO, will now control the key levers for transformative change in our industrial system: powertrain, ICE and hybrid products, vehicle hardware engineering, cycle plan, quality, supply chain, and manufacturing. He'll work in tandem, of course, with Doug Field, Chief EV, Digital and Design Officer, to move us forward. I believe this will accelerate our progress on cost and quality, and I hope we get into that in the Q&A. These are my top two priorities. Overall, we are seeing the clear benefits of creating three distinct growth businesses now with Ford Blue, Model e, and Pro. The story of Ford Blue comes down to product strength. Incredibly strong brands like Mustang and Bronco and Raptor, they have durable pricing power and real choice between gas and hybrid. Ford is America's best-selling brand now through three quarters, even with the effects of the strike, and we have a wave of new products coming in the next few months. The new F-150, the Ranger, a brand-new Explorer, an Expedition, and Navigator. In fact, close to 60% of our volume and revenues in th e U.S. will be new and refreshed next year. I am so thankful we've kept our foot on the gas to freshen our ICE and HEV products as we enter a changing market. In Europe, we bring out new versions of Puma and Kuga, our high-volume gas and hybrid SUVs. The Ranger pickup and our Everest SUV that's based on it continue to gain share in international markets. Bottom line, Ford Blue will be strong and a growing business for years to come. We also remain bullish on Model e and our EV future, but clearly, the market is a moving target. I'm optimistic because customers are smart, and they're rational, and for many of them, EVs are a great choice. I've been spending a ton of time in our product development center with both Doug Field and Alan Clarke, and you should see the Gen Two and Gen Three EVs we're working on. Our Gen Two all-new full-size pickup truck, for example, is one of the most thrilling vehicles I've ever seen in my career. Let me be specific. Stunning performance like no truck has ever performed. Stability and unexpected innovation for truck customers far beyond the normal truck attributes. A super flexible cabin that feels like a lounge or a tiny office. Take the wheels off this truck, and it's still a mind-blowing product. And a digital experience that totally is immersive and personalized. I'd take this truck seven days of the week over a Cybertruck. But great product is not enough in the EV business anymore. We have to be totally competitive on cost. Tesla actually gave us a huge gift with the laser focus on cost and scaling the Model Y. They set the standard, and we are now making real progress on our second and third cycle EVs that are in the midst of being developed today as we get closer to the introduction. While our Gen Two EVs were targeting a-- and to deliver an EBIT margin comparable to ICE in, by 2026, the dynamic changes in the market, pricing, adoption rates, regulations, are forcing us to further reduce the cost of our EVs. The key levers to deliver this competitive cost structure are scaling, vertical integration, and batteries. Let's double-click on each of these three. On scaling, this is much more than building new facilities or scaling high-quality batteries or thermal propagation. We're leveraging digital prognostic capabilities in our manufacturing lines to improve quality. We are also reducing complexity, and we are optimizing our vehicle design and engineering for manufacturability. Yep, we're designing this, these vehicles for our manufacturing team. On vertical integration, this is the most fundamental change. We are insourcing batteries, inverters, scaling production of our drive units and gearboxes, and designing and producing unicastings in-house at Ford. In addition, on our next-generation utility vehicles, vertical integration will increase by nearly 50%. This level of integration, along with the new zonal electric architecture and designing in-house modules and battery cell to structure, will allow us to significantly reduce material costs. Now, none of this will be easy and has some risk, and you've seen our competitors struggle as they build out and ramp up these capabilities. We are so glad we started years ago on this journey. Finally, batteries. They're the single biggest cost component of any EV. Our more energy-efficient Gen Two products will use extreme aero to get the very smallest batteries possible for a competitive range. With our LFP batteries, we'll have the lowest or one of the lowest-cost batteries assembled in the U.S. Our overall EV priorities are very clear. Disciplined capital allocation and investment that drives profitable, high-returning, and enduring EV business. We will constantly balance growth, scale, and profitability. These great EVs will be paired with modern shopping and buying experiences that are transparent, will have non-negotiated pricing, and a streamlined checkout and delivery that will come to life early in 2024. This is also a significant cost reduction. I saved Ford Pro for the last because it's a massive driver of Ford's growth and profitability. Our competitors seem to be trying to cut and paste our strategy, but the reality is the moats we've built over many decades for our Pro business won't be easy to cross. The network of literally thousands of local upfitters across Europe, North America, and China, and customer-driven engineering we have for vehicles like F-Series and Transit is formidable across all those regions. Our commercial order banks are healthy. This may be a surprise to everyone. We see a large backlog of infrastructure projects. Thank you, 5G and roadworks, and we have very loyal customers. Fleet orders, for example, for the 2024 Super Duty, are coming in faster than last year's orders, and we expect strong demand to continue as more customers recognize what Ford has to offer in total. In addition to the new Super Duty, we are preparing to launch the new Transit Custom in Europe. Think of this product as the Super Duty for Europe. It's the best-selling vehicle in the UK, not the best-selling commercial vehicle, the best-selling vehicle, and the leading one-ton van in Europe. And it's a key profit pillar for Europe and one of the reasons why we stayed there. When it comes to software and services, Ford Pro is the tip of our digital spear. Customers know and trust our vehicles, of course, and we're building on this with software-driven services that provide businesses with data, insights, vehicle access, even vehicle control, and functionality. This helps them drive productivity and efficiency in their fleet operations. And I've asked Ted Cannis to also lead our large and profitable after-sales business. His focus will increase our post-warranty service, business, and profitability. He's already adding mobile service capability and delivering an effortless experience to both commercial and retail customers. There is so much upside in this after-sales, parts, repair, and collision business, especially with Ted leading it and for Ford Pro. I want to briefly touch on China, where our strategy to turn our business around is gaining traction. The restructuring of EV business there is nearly complete, and the internal combustion engine business is now profitable. We are now expanding China's role to a profitable export hub, including Ford Pro. We've already exported a record number of vehicles so far from China to markets like Mexico, South America, and Asia. There is so much more opportunity ahead for us. Yes, the China market is extremely competitive in the middle, but Ford can succeed by staying asset light, partnering where it makes sense, and competing in very narrow segments where we can clearly win, like commercial vehicles, off-road vehicles, large SUVs, and Lincoln. Finally, I'm so pleased to have Peter Stern on today to share more about our newly formed Ford Integrated Services, which will create and market valuable software-enabled customer experiences across Blue, E, and Pro. Now, this is transformational because the cornerstone of Ford+, the plus in our plan, is creating incredible customer services and experiences enabled by not just hardware, but software. There's simply no one in the world better able than Peter, who is the driving force behind services at Apple, to build this strategically vital business for us. Peter, over to you. Thanks, Jim. I've spent my career creating new customer experiences and launching businesses at the intersection of hardware, software, and services. I came to Ford because this company puts that kind of innovation at the center of its long-term strategy. As you said, it's literally the plus in Ford+. Now, over two months in, I'm even more excited to be here and to be part of this exceptional team that's working together to bring the Ford+ plan to life for our customers, employees, and shareholders. Our vision for integrated services is to transform every aspect of the For d customer experience across our three segments. We're making our vehicles even more connected, convenient, productive, secure, and exhilarating. Over the past couple of months, we've identified a portfolio of services that will improve our customers' lives and businesses by building on our industry-leading early successes with Ford Pro Intelligence and BlueCruise. This portfolio will elevate the Ford brand and introduce us to millions of new customers who may have never considered a Ford before. It will drive new, high-margin, acyclical, recurring revenue streams for Ford and result in stronger relationships with our customers. We'll do this while adhering to the values that distinguish Ford from our competitors, like our respect for customer privacy, safety, and very importantly, choice. Whether you choose to add our services or not, you'll have an amazing vehicle. Our momentum around software and services is building fast. Here are three examples: First, Ford Pro Intelligence builds on Ford's industry-leading share in the commercial vehicle space by making the people who drive our vehicles even more productive and by reducing total cost of ownership. Adoption of vehicle telematics, fleet management, and charging optimization were up 20% sequentially in the Q3, and our average revenue per subscription was up nearly 10% over the past six months, both contributing to strong revenue growth. We're still in the early stages of our rollout. We ended the quarter with 476,000 paid subscriptions for our commercial solutions, a jump of nearly 50% year-over-year. We have an ambitious product roadmap for Pro. For example, over the next few weeks, we'll launch the Ford Pro Dashcam. This product uses machine vision and in-vehicle intelligence to detect in-cab and on-road events, simplify fleet operations, and encourage safer driving. While we're still early in our journey, Pro Intelligence is an area that will continue to expand and drive value for both our customers and Ford. Second, in September, we announced that the 2024 F-150 will be the first vehicle available in North America with Ford's Stolen Vehicle Services. This is a fully integrated theft prevention and recovery service that provides unique features like inclination and movement alerts, so you get notified if your truck is jacked up or moved while the engine is off. Third, BlueCruise is one of the most consequential consumer applications of artificial intelligence in the world today. Some of you experienced our last version at Capital Markets Day. If you haven't felt what it's like to take your hands off the wheel and your foot off the gas and let BlueCruise take over steering, acceleration, and braking, please visit a Ford dealer so we can demonstrate it. Launched to date, our vehicles have been driven hands-free for 125 million miles. That's the equivalent of 500 trips to the moon, which I imagine would be largely hands-free as well. Real-world driving data from Mustang Mach-E vehicles using BlueCruise shows a more than 10 times reduction in lane departures compared with unassisted driving. And for the second time in a row, BlueCruise was just rated the best hands-free system on the market, and this was based on BlueCruise 1.0. BlueCruise 1.3 is rolling out now and adds lane change support and other refinements that keep drivers in hands-free mode on average 5 times longer than version 1.0. Our technology team, led by my partner, Doug Field, is the best in the business, and BlueCruise is the proof. Despite these encouraging successes, what we're about to do in integrated services won't be easy. Our multi-year playbook depends on our next-generation vehicles that are even more connected. We must also round out our customer-centric portfolio of services and evolve our customer relationship management technologies. Our dealers are a key competitive advantage for Ford, and with them, we need to make it easier to become and stay a services customer. We need to build a relationship centered around the customer, not the vehicle, because in the services space, the sale of the vehicle should be the beginning of a beautiful long-term relationship with our customers. That necessitates not only new people, processes, and technologies, but also new measures of success. As we progress in our services evolution, you're going to hear us talk about key metrics like addressable units in operation, attach rates, and average revenue per subscription. As we move each of these levers in the context of a low variable cost, high-margin service business, it will have a multiplicative effect on profits. There's incredible value to be unlocked here for our customers and for Ford, and I'm proud to be a part of the team making that happen during this pivotal moment in our history. John, over to you. Thanks, Peter. Through the first three quarters, we delivered $9.4 billion in adjusted EBIT, a strong result that is indicative of our underlying run rate of the business. Now, given our year-to-date performance, we were on track to comfortably deliver our full-year adjusted EBIT guidance of $11 billion-$12 billion. Now, that said, the UAW strike created significant uncertainty regarding our full-year results, and even though we have reached a tentative agreement and our employees are starting to return to work, we have withdrawn our guidance for the year. This is in part because of the continued disruption in the industry with ongoing strikes, the follow-on impact to our shared supply base, the ramp-up of production in our plants and at our supplier partners, as well as other ancillary effects. Now, to provide some context, in the Q3, the strike had an EBIT impact of roughly $100 million, and so far, the strike has trimmed about 80,000 units from our plan. This would reduce 2023 EBIT by roughly $1.3 billion. Once we have a ratified agreement and begin to ramp operations, we will be in a better position to update you on our full-year guidance. Let me now turn to our Q3 results, which once again showed our Ford+ plan in action and the benefits of our diversified portfolio. Our leading Pro business and resilient ICE and hybrid products continued to deliver solid results that more than offset the investments we are making in our EV future. Our revenue remains strong, up 11%, reflecting a product lineup that resonates with customers, driving higher net pricing that remains resilient. Wholesales were flat, dampened by supply constraints affecting both F-Series and Transit production, additional unit holds for quality assurance, and the first UAW work stoppage for Ford in almost 50 years. Adjusted EBIT in the quarter was $2.2 billion, with a margin of 5%, both improved year-over-year. However, costs increased, underscoring the fact that we still have more work to do, especially on warranty expense and material cost. Adjusted free cash flow was $1.2 billion in the quarter, down year-over-year, driven by unfavorable working capital. Through the first 9 months, we generated $4.8 billion of adjusted free cash flow, resulting in a conversion rate of 51%, in line with our target range. Our disciplined capital allocation continues to drive strong free cash flow, which we will be critical as we adjust our spending to match the pace of EV adoption. We ended the quarter with over $29 billion in cash and $50 billion in liquidity, one of our strongest quarters ever, and this includes the new $4 billion contingent liquidity facility we put in place in August to help withstand uncertainties in the present environment.... Now turning to our customer-focused segments. Ford Pro generated EBIT of $1.7 billion and delivered a strong double-digit margin of 12%. Both metrics improved, driven by our Super Duty and Transit franchises that helped deliver a 16% improvement in revenue that's reflecting strong demand and continued pricing power. In addition, we are launching a new version of our flagship product in Europe, the Transit Custom, which along with the new Super Duty and F-150, will give Pro its freshest vehicle lineup in years. We also continue to see strong growth in both our new software subscriptions and mobile repair orders, up roughly 50% and 200%, respectively, for the quarter. Regarding Model e, our EV startup incurred $1.3 billion of losses in the quarter, reflecting continued investment in our next-generation products and a more challenging market for our Gen One products. Given the dynamic EV environment, we are being judicious about our production and adjusting future capacity to better match market demand. For example, we have taken out some Mustang Mach-E production, and we are also slowing down several investments, including making a decision with SK On to delay the second BlueOval SK JV battery plant in Kentucky. We have also said we are evaluating our BlueOval Battery Park Michigan plant to determine the best path forward. In fact, all told, we have pushed about $12 billion of EV spend, which includes CapEx, direct investment, and expense. The ultimate success of our EV transition will be driven by our Gen Two and Gen Three products, which will be cost-optimized and guided by the learnings of our first-generation vehicles that are currently in the market. Turning to Ford Blue. In the Q3, we delivered EBIT of $1.7 billion, up $300 million, driven by lower commodity costs and higher net pricing that more than offset higher warranty costs. The higher warranty was driven by recalls and higher per-unit repair costs due to inflation. Importantly, Blue continues to be profitable in all regions, with a strong, fresh portfolio poised for continued global success. Hybrids also continue to be a success, a strategy we've had in place now for almost 20 years. We are the clear leader of the hybrid pickup truck segment in the U.S., thanks to Maverick and F-150. We expect to extend this lead next year when we introduce our refreshed 2024 F-150 with more advanced technologies. The F-150 PowerBoost hybrid not only offers a 25% improvement in CO2 emissions, but on average, they have more pro-- they are more profitable than our highest volume gas powertrains. Hybrids aren't just limited to North America, as we are launching a PHEV Ranger for Europe and IMG next year. Ford Credit generated EBT of $358 million. As expected, our results were down year-over-year, reflecting lower lease residuals and financing margin, and the non-reoccurrence of derivatives market valuation gains. Credit loss performance remains strong and below our historical average, but continues to normalize. Auction values remain strong, but are down sequentially in line with our expectations. Finally, turning to software and services. We continue to see sustained quarter-over-quarter growth in subscriptions across all our business segments, and most importantly, at gross margins of around 50%. Our next-generation digital platform will enable a step function change in capability, allowing us to scale and deliver value to both our retail and commercial customers even faster. As Peter highlighted, as we continue to build out our capabilities here, we expect it to be a significant source of future value creation. In closing, there's obviously a tremendous amount going on in our business, but I'm confident in our Ford+ plan and the underlying run rate of our business. That wraps up our prepared remarks. We'll use the balance of the time to address what's on your minds. Thank you. Operator, please open the line for questions. We will now begin the question-and-answer session. To ask a question, you may press Star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press Star, then two. Our first question today is from Adam Jonas with Morgan Stanley. Please go ahead. Thanks, everybody. So, John, I know you pushed out the $12 billion of the direct and CapEx investment and other expenditure on EVs, but I guess what I'm saying, I'm interpreting that as just temporary, that you still plan on spending it. So my question is: How long can you keep allocating $10 billion a year, round number, to EVs? Yeah. So, Adam, we're gonna match, you know, demand and capital needed to meet that demand. You know, the first step here is, given the flatter growth curve that we're seeing relative to what the industry expected and we expected, we've made this decision to push out $12 billion of capital expenditures. But it doesn't mean that we'll actually go ahead and pull the trigger on it if we don't need to. And we're going to look at the overall EV business and be balanced about that. You know, there's a lot that's going to change between now and 2026 and 2030, and, you know, we're going to adjust appropriately. So, you know, it's something that's going to adjust as we move, and how that business develops, and we'll adjust that capital allocation appropriately, and, you know, we'll change our strategy and make different decisions as well. And one of the other things I'd say is that... Well, I'll pass it over to Jim, because Jim has something he wants to say. Hey, Adam. Hi, Jim. Thanks for your question. I just want to emphasize the importance of our Gen Two and Gen Three products, 'cause they're very transformation i-in our, our profitability in EV. Yeah, we've learned a lot in Gen One. We've reduced the material costs. We got the learning loop on the software. We learned how to scale batteries. We have the LFP battery now. We're starting to ship to customers. There's only so much we can do on Gen One. On Gen Two, as I said, we have a totally different approach from aero, vertical integration, design for manufacturability. There's a lot of other things we can do beyond allocating less capital to battery plants, for example. We've learned a lot about derivatives, like Rally. We're gonna push services a lot more, like Level Two plus, Level Three autonomy. We really plan on even redesign or improving the scale of our components by working with other companies. The other big breakthrough is gonna be, which we're designing in parallel, the Gen Three products, where we use the battery as a structural member of the vehicle. We go to low-cost sourcing, go to smaller vehicles. We maximize unicasting even more than we are, and radical re- cost reduction in our, in our distribution. I think the other thing that's important to understand about Ford's strategy on EVs is Pro. We actually followed a very different strategy for Pro, using a multi-energy platform. We didn't bet on pure electric vehicles for Transit, for example. We're now launching the Transit Custom in Europe, and that has diesel, gas, and it will have eventually hybrid and pure electric. That's a very different, very different bet on our Pro. We're even starting to export Pro vehicles from China to developing markets around the world that are pure electric. And that part won't change our product strategy. Appreciate that, Jim. Maybe just a follow-up. Hybrids, you point out in the prepared remarks, the growth there, and I think you've made comments that technology is something you want to lean in on more as a transition. Not that you won't continue to sell your Gen One EVs, but that there is just real demand for hybrids. Can you refresh us as you kind of- Sure. turn that dial back up on hybrids, categorically, how the margins on those products might compare to your ICE, you know, your normal ICE margins? Is it accretive? Is it kinda- Yep ... in the ballpark? I didn't know if there was any kind of sacrifice or gap there, between hybrid and the normal, pure, pure ICE. Thanks. Yeah. Yeah. You want me to jump in? Yep, yep. There's added costs, as you'd expect, you know, for the battery and the motors, et cetera. But if you look at... Let's just take F-Series, for example. If you take the hybrid on average, they're at—they have a higher margin than our highest volume gas versions because of the mix and what we have in the vehicle and the pricing we can get for the hybrid technology and the fuel efficiency that comes along with that. One of the things we learned about hybrid, because we're executing very differently than our first gen hybrids, is we have Pro Power Onboard. We have a lot of other attributes that people are willing to pay for, like, you know, like F-150 powering a job site or your house as backup energy. That's another advantage of having those batteries, that maybe some of our competitors haven't had the same pricing power. The F-150 now, a hybrid, is up 40% year-over-year, and we think the new F-150, new hybrid, will be 20% mix, and it may be the best-selling hybrid in the United States. So our hybrid strategy is a little different than our competitors because the work cycle for our products are different. But hybrid has a really big place. We're trying to challenge ourselves, Adam, to execute hybrids, so they do more than just propel the vehicle for pricing power. Thanks, Jim. Thanks, John. The next question is from John Murphy with Bank of America. Please go ahead. Good afternoon, guys. Just a first question, Jim, on warranty. And it accelerated or so a headwind on a year-over-year basis, accelerated a bit in the q uarter. Yep. If I look at, like, the full year, full year numbers even, you know, if we added back this, you know, I think it's slide 32, if we added back the $1.7 billion on warranty to the $9.4 billion in EBIT you've done year to date, it'd already even be in your range in the first three quarters of the $11 billion-$12 billion in EBIT you've been talking about before. I mean, it's a, it's a major, you know, issue here, you know, for the numbers and, and results and cash flow. You know, what's going on and, and, and how are you gonna get a handle on this and, and reverse this, hopefully, in the next year or two? Yeah. Adam, that's exactly right. One of the things we're seeing is that it's not just the quality issues, which are an important piece of this, and I think Jim wants to comment on that, but we're also seeing tremendous inflation from the dealers on the repair costs, and that's driving quite a bit of it. If you look at the increase that we had in the quarter for the warranty on a year-over-year, the $1.2 billion, I'd say that about $300 million of that was inflationary costs and roughly $900 million was the issue with warranties. That's what we're seeing there. You know, the issue around the quality, you know, that's something that Jim's gonna cover here. Hey, John. Again, thanks for your question. I wanna slow it down a little bit and explain kind of our operational headwinds, not just quality, but cost as well, and give a little bit of context and maybe highlight some of the stuff we've done, but the work we have to do. You know, a couple years ago when we started as a management team, the team that's doing cost and quality is the same team. And we have a lot of revenue power in the company, but we also have a lot of technology, and that technology that we rolled out, like cameras before our competitors, it puts a huge burden on that electrical architecture with a lot of extra modules and software. We definitely had the largest complexity, customer-facing, of any brand. We also ran the business on products instead of platforms and systems. Our engineers and supply chain team did not have competitive tools like IT systems and parts release, IT. We weren't cooperating with the suppliers the right way on cost reduction. We kinda negotiated them every year, but we weren't really getting into redesigning the parts and getting the complexity out of the supplier's manufacturing system. We didn't really use a lot of strategic sourcing, so we had a lot of concentration on our suppliers and a lack of leverage. We had inconsistent application within our manufacturing system for our QOS. So some plants were fantastic, like in China and Mexico. Other plants were completely uncompetitive and run differently. And we traveled hopefully on a lot of the launches. The gateways, we would have some issues, and the team had, you know, kind of a hero mentality to try to close them out at the end of the, end of the launch, and we would get in trouble. I'm really proud of the progress we made, like in the last 18 months, but it's maybe just the tip above the water and the, and the low-lying fruit. We now have to get after that systematic issue, and that's those issues that I mentioned. On complexity, we have reduced the new F-Series from 1.4 billion combinations to less than 1,000, and on our new SUVs, we reduced the customer-facing complexity by 90... over 90%. Our QOS execution's getting better. We're about 10% improvement in our problems at three months in service, which is a lot of progress for North America. The initial quality is getting better. We now have the talent, both the expertise, but also the execution talent. We're now starting to strategically source our EV components, which we now can apply to our ICE business. I'm really proud of the launch progress we made. We're now seeing launch spikes we've never seen in a decade at Ford. We are slowing down those launches, and in the case of Super Duty, it's cost us $1 billion. It was the right trade because it prevents a lot of recalls and issues down the road for the company. We have made progress on material. We have billions of dollars of opportunity next year, but we have to deliver and release the parts. I'm very confident that Kumar's new organization will be able to really get after the, the part of the iceberg that's below the water, that's been a problem at Ford for decades. Thank you for asking your question, and I just want to take a little extra time to give the full context. That's great. Can I maybe just sneak in one follow-up? You know, EV demand is not materializing quite as robustly as we were expecting this year. Pricing is a little bit down. Costs are gonna be up with labor. So I mean, you know, as you mentioned, EVs are gonna become more challenging going forward. But when you think about, like, a program like the... or a product like the Explorer that, you know, we have at least in Car Wars, launching in calendar 2026 as a twenty-five as a model year 2026, and you might disagree or agree with that, but that product's coming at some point soon. You know, that was an EV variant and an ICE variant, we had and we were expecting, and it would've been sort of, you know, an expectation that maybe you would've crossed out that ICE variant and just had an EV six months ago. But now- Yep. Actually, things have switched in the other direction. You might actually cross out the, the, the EV and just keep the ICE. I mean, how are you making these decisions right now with sort of these tectonic shifts going on? I mean, there's data, there's, you know, consumer groups and all sorts of stuff, but they're incredibly difficult and impactful decisions that you have to make. What is the process, Jim, that you're going through on these powertrain decisions as you're going through, where, you know, the product launches over the coming years and planning? Yeah, got it. So things are changing. You know, EVs are still in high demand. It's just, as you said, the pricing is much lower and, and there's a lot of overcapacity in the middle of the market. For us, I think we our EV strategy and our ICE strategy is to go after customers we know really well, and so on our ICE and hybrids, very much of a loyalty target, and in the case of EVs, this in many of the same segments, but a conquest strategy. And I would say we feel very confident on that strategy because Ford has a great reputation in those segments, like full size truck or pickups or vans, commercial vehicles, or three-row crossovers. Our products are not substitutional because the customers we're going after are different, but they are the same segment, so we know the use cycle really well, but the innovation will be pointed in different things. The F-150, I think, is probably the best example at Ford because we have world-class ICE, we have a hybrid that'll probably be 20% mix, and then we have Lightning and the next generation Lightning that we're working on right now. When you compare the ICE to the hybrid F-150 to the EV F-150, you will be surprised at how much more conquest-... the vehicle is executed. We believe that innovation will give us pricing power for those EV conquest customers. The first generation has helped us there. I think that's our strategy. As far as the changeability of that strategy or flexibility, we certainly have choice. But as John mentioned, we're really flexing the capital and the timing of the capital, especially around battery plants and overall manufacturing capacity. So we're not changing the product strategy, but we are flexing, and that's our bet, is that we will flex the capacity. From a product planning standpoint, we have made, I think, really good bets on the ICE and HEV side in case the EV market is not as fast as we thought. We have affordable Mavericks. We have a strong international business now with Ranger and Everest. Those markets won't go EV anytime soon. And the markets where we're in, like F-150, Super Duty, Pro, they're not duty cycles that are going to go EV, and we have really fresh product. So our bet is maybe different than others who just said, "Look, we're going to get rid of an ICE Explorer and go to an EV Explorer." That's n ot our strategy. That's very helpful. Thank you. The next question is from Dan Levy with Barclays. Please go ahead. Hi, good evening. Thank you for taking the question. I appreciate, Jim, the commentary that you gave on warranty and just cost more broadly, but wanted to ask the question maybe in a slightly different way. This is obviously, as you pointed out, it's a lingering issue. I think you said at the CMD earlier this year, it's a $7 billion cost gap versus your competitors for Blue. What exactly is the line of sight, or how confident are you that, you know, these issues can be turned around? Just because it's you know, these have been issues for some years, and specifically in the context of you're pivoting to new architectures here, where there's obviously going to be some uncertainty on your end. Now, what gives you the confidence or the line of sight to actually turning around these cost headwinds? Yeah. Well, maybe I'll start, Jim, and then- Yep. Hand it over to you. What I would say is that, there's a real focus now in the company, and Jim mentioned it in his remarks around excellence and, delivering, right? Execution. When you look at the real fundamental issues that we've had across the industrial platform, it's the way we work together, our focus of the work, and the structure of the work. And there have been those that have thought this has been an issue for years and others that haven't. And I think we're finally starting, not finally, as a team, we are coalesced around those root cause issues. We have great new talent in the company. Liz Door, from a supply chain standpoint, her domain expertise is outstanding. Bryce Currie, from a manufacturing standpoint, outstanding. And then in addition to having Doug, bringing Kumar back into the fold, who grew up in the system as a design and release engineer and understands the Ford system and understands the error states really well. Having them all together now, driving this foundational change is important. And as Jim said, it's the area under the iceberg, right? It's what's under the water, and it's the most important piece of it. And the progress isn't showing up as quickly as we would like, and the part you see above the water, but the change is being driven below the water. And it's the same root cause issues that are driving the quality problems as well as the cost structure, issues. It's the material cost at about $4 billion, and now we have, you know, warranties about $2 billion, and then you have manufacturing, et cetera, in there. So it's the talent, it's what we're attacking, it's the relentless focus on excellence, and it's the way we're working together as a team to go after these issues. And having the new team in place and having the new talent in place and watching what they're going after and how they're working together as an integrated team is what we need to get this done. And I would just complement that in two ways. On quality, our real test for our commitment, talent, all the things that John talked about, came together in the launches of our most important products, like Super Duty. And I am so confident in our tackling these systemic issues because of what happened on our recent launches. The team doubled down on testing. They did the extra work on supplier quality and readiness in the factory and really tested the vehicle for failure. And we did something that Ford maybe hasn't done in the past. We held the vehicle until it was right. And in the case of Super Duty, that was a $1 billion-plus decision. And that was proof to me this team understands that quality is our top priority. That message was sent throughout the company. Everyone got the me mo. On cost, on EV, I'm encouraged because- ... we're designing from scratch, and a lot of the talent we brought in approaches that. Cost is a pride point for them in designing it in. The real test for us as a leadership team, beyond quality, is gonna be bringing our material cost and negotiated parts price cost down on our carryover ICE vehicles. That is going to be the test, and we believe we have more than $1 billion of ideas already in the hopper for this year, for 2024. And we got to deliver it on those ideas. They'll test our standards from rust protection and NVH. They're gonna test our standards. They're gonna test our parts release process. It's gonna be, but, but it's us to exe cute. Great. Thank you. Just a follow-up quickly on pricing, which, I think has continued to outperform, beyond anyone's expectations. Maybe you can give a little bit of voice over on what you're seeing on pricing, especially in light of all the questions out there on affordability, and how long you think some of these pricing tailwinds can be sustained into next year? Yeah, I think it's different for each of the business segments, right? We're continuing to see incredible downward pressure on pricing this year on the EVs, right? Pro, really strong pricing power right now. As Jim mentioned in his prepared remarks, we've got really good strength in the orders coming in for the model year. You know, we're a good ways through the model year, and the pricing has held. When you look at the fresh lineup we have on Blue, we're continuing to see the pricing hold, for the most part. Now, are we starting to see, you know, that there's some pressure on pricing? Sure, and we said there would be, but it's been more resilient than we thought this year. That's for sure, especially through the Q3. But affordability, you know, we've talked about this before, affordability is an issue. Right now, it takes a consumer about 14% of their monthly disposable income for a vehicle. Pre-COVID and pre the inflation that we've seen, it was about 13%. So we think it's gonna revert back to that, and then we think it's gonna happen over the next 12-18 months. And so to do that, it would be about a net price reduction of $1,800. But we also believe that part of that's gonna come through the OEMs in lower prices, but it's also gonna come through dealer margins, because dealers are still transacting at a much higher percent of MSRP than they have in the past. And so it's gonna be both of those. Now, we expected some of that to occur, you know, throughout the year so far. It hasn't much, and so I think you're gonna start to see that come through, as we move into next year. The next question is from Rod Lache with Wolfe Research. Please go ahead. Hi, everybody. I wanted to ask a couple things on EVs. I think that, certainly, you—I mean, you're... I don't think. You, you've been saying that the deflation that you're seeing in EVs has been steeper than you assumed. Obviously, your original plan assumed some level of deflation through 2026. I think it was even price parity with ICE in some cases, and yet you assumed 8% margin in that time frame. Am I correct in those assumptions, that your ultimate view was that you would get to price parity with ICE? If that's the case, what do you need to do in order to push harder? Do you need to actually reduce prices even below ICE, in order to achieve your plan, or do you need to achieve even greater, a greater price premium? Yeah. Rod, John, exactly. If you look at our three-row SUV, the way we thought about that, our Gen Two product was, you know, it's gonna have the exterior size of an Explorer and the interior space of an Expedition. When we looked at that in setting the targets for the team in 2026, we said: Well, you know, we should start out with a revenue assumption that it would be priced on an ICE, you know, but as an ICE would be between those two vehicles. That's how we set up the affordable targets that we gave the team to design to. You know, a lot has changed, but the team is working diligently to try to deliver that. We are continuing to see pricing pressure in the EV segment, but right now there's still a premium to gas in many areas. I think what you're gonna find is, over time, that premium's going to reduce as we move forward, and that's what we're trying—we have built into our planning assumptions for our second generation vehicle and then as well for our third generation vehicle, that you're gonna see another step down on pricing so that these vehicles are affordable. That's all setting up our cost structure that we're targeting and going after, which was the basis of setting our 8% margin. Okay, so that's still your expectation, that you would get to an 8% margin and you would have a cost structure that reflects price parity with ICE? Yeah. That is the target that the team is going after. There's a lot that has changed, as you know, and the team is working through that. And, you know, the key three elements Jim went over is, you know, most importantly, the size of the battery, the efficiencies of watts, you know, needed to move the vehicle... the vertical integration, the partnering on, on what we would say are commodity parts of the business, things that aren't differentiating for additional opportunity there. The scaling and using the capabilities of the vehicle as we build out the manufacturing facilities to be as lean, as efficient as possible. You know, the team is pushing hard to get every save that we can through there to build out our Gen Two vehicles that are profitable and deliver ultimately the 8% target that we've set for them. Okay. And just secondly, I'm assuming that you still view vertical integration in batteries and LFP is critical to achieving your cost targets? Yes. Just given all the issues around that, can you just give... And, and some of the pauses or delays that you've got on some of these plans, can you just give us an update on what the trajectory is to achieving those lower costs and batteries? And how is your plan changing? Yeah. We're continuing to move forward with the vertical integration on the battery itself, working on the cell design, we're working on the chemistries. As we said, we have no real change to what we've put out forward before on BlueOval Battery Park Michigan, battery plant here in Michigan. LFP is definitely going to be part of our future EVs, and that is a very important cost reduction step in our path for the Gen Two vehicles. It's a combination of all of that. It's a combination of the battery size and the efficiency of the vehicle to get the lowest watts possible to hit the ranges that we're looking to hit. It's the vertical integration across the vehicle, the vertical integration across the battery, as well as the chemistries. All of that comes together to drive the cost reductions we need, and the team's working towards is that part of the vehicles target. Okay, thank you. Yep. Our final question today comes from Emmanuel Rosner with Deutsche Bank. Please go ahead. Oh, thank you very much. So I appreciate your candid assessment of the EV business and as well as all the actions that you detailed in terms of trying to reduce the investment and losses in the near term. At the same time, you rightly acknowledge that effecting change on the first generation is not gonna be, you know, the easiest. You know, more change would come in Gen Two, Gen Three. So any way you could just frame for us, how much improvement can we expect during this first generation? You are now running at something like a $5 billion annual loss, you know, on Model e. Not that long ago, a few months ago, you still had fairly near-term targets to bring that to, you know, EBITDA positive. Obviously, a lot has changed, but then you're addressing these changes with your actions. So, you know, where does it go from here? Does it get worse? Does it get better? Can something be done before Gen Two and Gen Three in terms of improving the losses? Yeah, so this... You're right, Emmanuel. Step function change is going to be on the Gen Twos, where, you know, we'll have more degrees of freedom to make the types of changes I just talked about. On the Gen Ones, we've seen the price come down much quicker than we had expected, of course, and that's showing up in our results. We're continuing to work very diligently on additional cost and design reductions on the Gen One products, and the team is also working very diligently to minimize the impact of the lower prices in the near term, in the next couple of years before Gen Two comes out. And so it's gonna be a battle between managing the top line as best we can, adjusting the supply of products relative to demand, so that we can balance the pricing from that standpoint, and then working like crazy to put whatever cost reductions we can on that Gen One vehicle through to the bottom line. So I think it's gonna be, you know, in the near term, it's gonna continue to be, you know, just that. It's gonna continue to be quarter to quarter, and the team working very diligently to hold as much revenue as we can and bring as much cost reduction through the product as we can. Thank you. And then, a quick follow-up on Ford Pro. Obviously extremely strong business and very solid quarter, but at the same time, there was a little bit of a pullback in both volume and mix, and margin, in the quarter. So can you just go over the factors that drove this and the prospects and timing for normalizing back up? Yeah. So when you, when you look at Pro, you know, the volume was down a bit. Part of that was, we had some disruptions or hiccups from some suppliers, which caused us to lose some F-150 commercial volume in the quarter. We had, you know, normal seasonality as well, like on motorhomes and things like that. And then when you look at Ranger in Europe, that was down a bit still because of the ramp that we have going on on the new Ranger. And then there was, you know, a little bit of improvement with Super Duty. So I think you saw some seasonality, you saw some fluctuations due to some supplier constraints and some mis sed volume in the quarter. And then, of course, you know, we, we continue to see the strength of the pricing on Super Duty, which is showing up with the higher revenues, yet the volumes were down a bit. So overall, I think it's not that we're seeing a significant reduction in the demand for our Pro vehicles. We're not. The order bank is very robust. We have a lot of demand for the model year, and, you know, I think Europe Pro is gonna continue to be, you know, performing at a high level as we move forward here. Thank you very much. This concludes the Ford Motor Company Q3 2023 earnings conference call. Thank you for your participation. You may now disco nnect.