Good day, ladies and gentlemen. My name is Holly, and I'll be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company Fourth Quarter and Full Year 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. 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. Presenting today are Jim Farley, our President and CEO; and John Lawler, our Chief Financial Officer. Also joining us for Q&A is Marion Harris, CEO of Ford Credit. Jim will make opening comments. John will talk about our fourth quarter and full year results and then we’ll turn to Q&A. Today’s discussion will include some non-GAAP references. These are reconciled to the most comparable US GAAP measures in the appendix of our earnings deck, which can be found along with the rest of our earnings materials at shareholder.ford.com. Today’s discussion includes forward-looking statements about our expectations. Actual results may differ from those stated. The most significant factors that could cause actual results to differ are included on Slide 30. Unless otherwise noted, all comparisons are year-over-year, company EBIT, EPS and free cash flow are on an adjusted basis, and product mix is volume weighted. A quick update on our upcoming IR events. On Tuesday, February 9, JP Morgan will host our pre -- post earnings fireside chat, featuring Hau Thai-Tang, Chief Product Platform and Operations Officer; and John Lawler. On February 24, Jim Farley will keynote at the Wolfe Global Auto, Auto Tech and Mobility Conference. On February 25th, Bob Holycross, Vice President of Sustainability, Environment and Safety Engineering, will speak at RBC’s inaugural ESG conference, highlighting how our achievements in sustainability will benefit our customers, the planet and create a competitive advantage. On March 10, Stuart Rowley, President of Ford Europe; and Hans Schep, General Manager, Commercial Vehicles for Ford Europe will participate in the Jefferies Auto Conference. And on March 23, Bob Holycross will speak about clean technology at JP Morgan’s Global ESG conference. Lastly, we continue to target late spring for our Capital Markets Day and we’ll provide more details on that later. Now, I’d like to turn the call over to Jim Farley. Jim?

Thank you, Lynn, and thanks everyone for joining us today. Last year was like no other, with COVID dramatically and often tragically affecting all of us. But tough times can bring out the best in people. And boy, was that true at Ford? I’m really proud of how our people mobilized with speed and resolve to respond to this crisis. We harnessed our capabilities and we developed a lot of new ones. Our team members put others above themselves in both returning to work, but also to make life-saving equipment. And I’d like to share just a few highlights of our pandemic response, including our new Finish Strong initiative to help limit the spread of the virus and save as many lives as possible until this pandemic is under control. To-date, Ford has manufactured 55 million medical-grade masks. And by mid-year, we will have donated 100 million masks. In partnership with UAW, we’ve also produced 20 million face shields, 50,000 patient ventilators, more than 32,000 powered respirators in collaboration with 3M and 1.4 million washable isolation gowns. More to the point of today’s call, we relied on the same grit and resourcefulness to deliver a very strong year financially under difficult circumstances. We improved our execution, while putting in place a specific and compelling plan, backed by some important early actions that are transforming Ford into a far stronger company, a company that competes and wins on behalf of our customers and other stakeholders in this exciting new landscape, which will be defined by electrification and connected customer experiences. After safely and smoothly restarting our manufacturing production in May, following last year’s shutdown, we sharply rebounded in the second half of the year as we rebuilt our inventories to meet strong pent-up demand. In fact, we more than doubled our…

Thanks, Jim. So, when you analyze our fourth quarter results, or even our second half performance last year, it’s important to key in on the durable changes we’ve made to our underlying earnings power, including in automotive business increasingly positioned to sustainably generate strong free cash flow. Right now, our year-end liquidity of nearly $47 billion provides the financial flexibility to opportunistically invest and grow and even accelerate investments if we choose to in key areas like electrification, in connected services and in our 8% company-adjusted EBIT margin, the target that we’re aiming for, we believe we can generate healthy annual free cash flow to fuel our growth. When we initially set our 8% target, the secular forces accelerating today were still in their infancy. EV penetration at scale was years out, connectivity and digital services were still nascent, and autonomous vehicles, well, they were still largely in labs. So, you fast forward to 2021 and the landscape is vastly different and so are the calls on our capital. Our goal remains to hit the 8% margin and, in doing so, to reallocate profit and capital from a far healthier core business to exciting growth opportunities that will unlock long-term value. Let’s take a look at the fourth quarter performance. In automotive, both wholesales and revenue declined by 9%, while a lower industry influenced both of these metrics, so did the planned changeover in North America to launch our all-new 2021 F-150. Our initial estimate was for a decline of 100,000 units, and we came in right on that number. Fourth quarter revenue benefited from broad-based gains in net pricing and product and series mix, especially in North America and Europe. Let’s take a look at our individual regions in a bit more detail, starting with North America. The North…

[Operator Instructions] And our first question is going to come from the line of Ryan Brinkman with JPMorgan.

It looks like even after adjusting for the Rivian gain, you're guiding to 2021 profits well above consensus, presumably helped by the volume, pricing and mix benefits of a number of highly anticipated new products, including the new F-150, the Bronco, Bronco Sport and Mustang Mach-E. I know you have a lot of confidence in these vehicles. But are there any objective measures that you can share with investors as to why they should also be confident in the profit contribution of these models? So I know it's early days. But do you have any anecdotes about how quickly the vehicles are turning on dealer lots? How the pricing has been trending for the new F-150, what the earlier customer reaction has been to the Mach-E? Or you're doing a lot of test drives? And I realize the Bronco still has yet to even launch. So maybe there are fewer metrics there. But maybe you could tell us a bit more about the waitlist, for example, whether it continues to grow or how trim levels or options have been tracking relative to expectation or what the general community response has been?

Thanks for your question. Just really quick on the F-150, some of the metrics -- objective metrics, we see that give us encouragement is, obviously, we're starting the year at a day supply level that we haven't seen for a long time. That's one thing. So a lot of opportunity to build wholesale and dealer inventory into the year. We're starting the year with 53 days supply. The mix of high series, which is always a big indicator of demand for the vehicle, is about 20 points higher than we normally see in the outgoing model. So, Lariat plus mix is extremely strong. You also look at the super duty demand. Super duty was up 14%. It had a great improved vehicle, but I think the F-150 improvement is even bigger. And even during the sell-down and the start-up of the new truck, that demand is -- we're turning vehicles in 6 days, the F-150. If you turn to the Mach-E, really good demand so far. We have about 70% of the customers are new to Ford. So we have new to Ford being they haven't owned a Ford for 15 years. The cross-shop vehicles are Porsche Boxster, Porsche 911, Mercedes E Class. We're also seeing in the reservations as we turn them into orders. High all-wheel drive mix more than we thought. The extended battery is much more popular than we expected. And don't forget, we have 127,000 federal tax credits that are each worth $7,500 each, and that is a big advantage on the pricing side. So really strong demand, early orders for Mach-E. On Bronco, obviously, the Bronco Sport is turning, I think, in like 6 days. We sold every one we wholesaled to dealers in the fourth quarter. I think we sold over 5,000. It's just like the F-Series turning incredibly fast, Ryan. And I would say the Bronco, we're now just shy of 200,000 reservations, and we're now starting -- in a little bit, we'll turn those into orders. The encouraging thing about Bronco is just the interest. Not only do we have a lot of orders and confident in reservation, but the mix is stronger than we thought. It's encouraging to see the 2-door B3 a third but the Ford orders, very, very strong mix. And the demand is at the dealership levels or even our reservation system are really, really strong. And I think we could pass some Bronco Sport in January. I think we passed 8,000 units. So I mean -- and that's a brand-new model to our lineup. So that gives you a picture for the demand side. And maybe, John, any comments about the rest of performance?

Yes. I'd just say, Ryan, that when you look at it, Jim went through the portfolio transformation, but the global redesign is really starting to take hold in de-risking the business. We're starting to see some strength in China. The localization of key project -- of products there, Lincoln, for sure, improving our cost structure there by localizing. We're leveraging capacity at the JVs to build Lincolns and commercial vehicles. Our partnering to share investments and improve scale, you saw that with the South Africa announcement we had building the Ranger and a VW pickup now in that facility. So I think we're starting to see strength across all the areas we've been talking about. But we're also focusing on the basics of the business, right? We've renewed our focus on our quality improvement. We're leveraging all of our connected vehicles to identify issues faster, improve our warranty expense, improve our ownership experiences. We're also leaning into electrification now, as Jim said, with Mach-E being on the road, the E-Transit coming, the F-150 BEV next year. And we're really transforming the team as well. We're bringing in new talent. We're organizing ourselves to grow our core businesses and expand that through connectivity and digital services. And so when you look at all of that across the business and you start to see some of the strength take hold, it gives us confidence in the year, and it allows us to move forward with the confidence we're projecting. So I think there's a lot of good things going on here.

And our next question is going to come from the line of John Murphy with Bank of America.

I just wanted to ask a question, Jim, just around the transition to EVs and maybe using F-150 as an example, to maybe talk around. I mean, when do you think sort of the tipping point is for the consumers, where they see enough EVs on the road that your ICE vehicles become somewhat obsolete and [depresses rigids] [ph]. And how do you kind of work through that transition? And specifically also around the F-150, I mean, can you position this as a performance enhancement, particularly around torque for trucks that you can actually get paid a tremendous amount of money for kind of like you did with EcoBoost, I mean you can joke on an EcoBoost, it wasn't really fuel economy that people love, it was a low end torque, right? I mean -- so I mean, just what's the tipping point where you kind of get hit a little bit on your rigids, on your outgoing ICE vehicles? How do you manage that transition? And how do you think about your position in EVs?

Thank you for your question. It's stunning how fast the industry is changing. I watch the market really carefully in Europe and 10% in December. Pure battery electric is amazing. Our time is now at Ford. We're not talking about aspirations. We committed to California and Paris Accord and carbon neutrality a long time ago when it wasn't easy, and I'm very proud of that. This year, as you mentioned, we're launching Mach-Es in the market now. We think it's a real competitor to Tesla and their stronghold part of their price market. The F-150 electric is a lot of inbound interest from our loyal customers. We sold 780,000 F-150s last year. We are going to find, and we are finding, within that, a duty cycle that matches electric for some of those customers. It's such a large scale. In Transit Electric, the inbounds on that vehicle are really high. This is our turf. And we're not just going to have 1 delivery vehicle. We're going to have 3 lengths, 2-wheel bases, 3 roof heights, a cut through, a cabin chassis and a van and we're not done. So we are the leader in the Transit business. We have the body builder connections. 100% of our transits get updated. And we know every one of those of updaters. So -- and we are getting more inbound for that. So how do we manage the move? I think it's a really good question. I don't know if any of us have the answer. The costs are coming down quickly. But for me and the team, the move to electric is not about batteries and motors. It's about digital vehicle and a new customer experience. And that is universal, whether it's F-150, ICE or a battery electric, that digital experience that we're talking about, we have 130,000 commercial solution customers now. We have 9 million Ford Pass customers, that is universal. So that's goodness that we'll get back in all of our business. We just have to be very flexible, which we have those large commercial vehicle manufacturing facilities that are very flexible. And we'll invest in both. And we'll flex with the customers. So I think we're ready. This is our year. We're going to have great offers. And I think it's really on us. The real proof point to me is not going to be how many we sell in the first year. It will be how much better the vehicle is a year or 2 after we launch it with the same customer.

And our next question is going to come from the line of Rod Lache with Wolf Research.

So $22 billion is a pretty huge commitment to EVs. I was hoping you can talk about the level of volumes you're aspiring towards. It sounds kind of like a similar commitment to another company that's targeting about 1 million units. Can you talk about your Ford's cost competitiveness and the trajectory of costs for EVs? Do you agree with these expectations of cost per kilowatt hour declining to the $55 to $80 range in 5 years? And then lastly, in the context of what you said earlier, Jim, about allocating capital towards businesses that have strong returns. Do you think that by 2025, you can achieve similar profitability and returns in EVs that you achieve in ICE?

Hi, Rod. Well, clearly, we need to see improvements in cost structure, similar to what you've been talking about in that 55 to 80 kilowatt hour for the pack. And that's going to happen over time, and we definitely are pushing in that direction. And that's going to be required. We're going to see the ICE and the BEV converge as they transition. And yes, we do see them being profitable. In fact, Mustang is profitable today, the Mach-E. So it's going to transition over time. We're deeply focused on driving that cost structure down on our BEV vehicles. We're leaning into our strengths where we see some synergies and taking advantage of that. So it's definitely a focus we have. From a standpoint of the $22 billion commitment to EV, as Jim said, as we lean into our strengths, we're focused on BEV. We're focused on expanding that growth. We're focused on the digital experience and the customer experience with those vehicles. And as that transition takes hold, over time, we're going after the larger segments, right? These are segments that we lead in. There's a strong customer base. And with that, as Jim said, there's duty cycles. There's specific needs for these customers with these vehicles. And we're going to continue to work with them to give them the solutions they need from a battery electric standpoint. But at this point, we're not going to guide on a number of volume and by when at this point.

And Rod, I think just a compliment, John, expect us to be a lot more specific in spring as we move on. It's just -- this is not the right venue to go over specifics. But please rest assured, we are really excited to share all the specifics of our BEV plan. We just want to give you an idea of how we're allocating the capital.

And our next question will come from the line of Joseph Spak with RBC Capital Markets.

Just one question. You mentioned a couple of times the landscape is quite different now than when you first laid out that timeline for 8% EBIT margins. And now you're significantly stepping up investment, which is objectively a good thing. So I know you're still targeting that level. But is the timeline shifting?

Yes. What I can say is that we are continuously putting pressure on ourselves to pull that timeline ahead as quickly as possible. And so it is shifting. We're focused on it. We're focused on improving the business as quickly as we can and continuing to invest in our growth areas. We see a stepped-up improvement in 2021. You saw that in the guidance and outside of the chip issue. And we're going to continue to work that. And as we do move closer to that 8%, we achieve those targets, we're generating good healthy free cash flows that we're going to invest in the business. So yes, we are putting tremendous pressure on the team to move that forward and achieve that as quickly as we can.

And our next question will come from the line of Dan Levy with Credit Suisse.

Jim, I'd like to ask a question on partnership because if we think about the tenure of Jim Hackett, it seems like one of the core focus is really on building out partnerships, and I think we saw with VW, Mahindra, Zotye [plug-in]. But when we look at how things have played out in recent months, I know we've seen you terminate plans with Mahindra and Zotye. It seems like vehicle with Rivian has sort of been deemphasized. But on the flip side, we also see you forming this partnership with Google. So all in, wondering how you expect to use partnership as you're setting your agenda? And specifically, I'd be curious for that view as it relates to EV?

Thank you so much for your question. This is a fundamental approach that we all committed to and continue to be committed to. We love what RJ is doing at Rivian. It's a strategic investment. It's not a transactional investment for this or that. And so we'll keep you updated. But that's a very fundamental bet and it looks like the market is liking what he's doing, too, which is good for Ford. The partnership with Google is very fundamental. It goes far beyond -- we want our team working on things that will differentiate us. Google has got a great platform for navigation and content delivery, and we can co-create on top of that. And their -- the system is great, but we're going to use Amazon Voice, and we're going to work hard with Apple on CarPlay. And we're going to have a great relationship with Microsoft on commercial vehicles, which we will tell you about some other day. But our partnerships in the technology area, including the Chinese partner -- technology firms, is just going to get deeper and deeper and deeper. And as far as our relationships, our partnerships, they will change with electrification. And you should expect more work in that regard. Anyways, I don't think you're going to have to wait too long to hear more about that actually. So it's a fundamental approach. The technology partners are becoming more and more important for us to deliver that digital experience, but also to build the capability inside the company for large-scale AI/ML deployment to our industrial system, the customer experience, using that data off the vehicles for quality improvement. And we don't have all the answers. And these companies can really help us, and we can help them. I hope that makes sense to you.

Our next question is going to come from the line of Emmanuel Rosner with Deutsche Bank.

So one follow-up question on the increased spending in -- towards electrification. I understand you're not prepared to give specifics, But directionally speaking, I'm curious if you can give us color on what you were trying to achieve with it? I guess, how will this be spent? And what is the goal here? Are you developing a dedicated, flexible architecture for all your electric vehicles? Are you accelerating the rollout of electric vehicles? I guess, I'm just curious how this will be used? And a point of clarification on this as well. So your slide into -- and your presentation implies that you will focus on the areas that where you lead all these pickups, your sales from commercial vehicle seem to have some sort of commercial angle to it. Will your electrification strategy be mostly aimed at commercial customers? Or will you have also high-volume passenger vehicles?

So thank you for your question. The answer is absolutely. This accelerated spending on products and industrializing those products. And we recognize in the guidance for explaining that, that there's more spending to come on our battery vertical integration decisions. We just don't have anything announced today. We have -- I'm not going to get into it, but we have 2 battery electric dedicated platforms. They will include high-volume passenger cars. But as we've always said, we're going to invest in the segments where we're the strongest. And you can imagine what those nameplates are and what those segments are. And we will have a great lineup of commercial battery electric vehicles. And as well, importantly for me, is the investment in the digital experiences and the physical services to make that work. We've learned over all these years that Ford’s strength in commercial is far beyond the product. In fact, the product is often regulated to be defined as it is. Our strength is our distribution network. Our ability to keep vehicles on the road. Our upfitters, our bailment policies, and all of those strengths will come to bear as we electrify those lineup. And we have more ambitions, as you can see with the FCS software business. That business is growing very fast. It's a telematics and commercial services business. And that's a good example of the kind of investments we're making beyond the four-walls of the product. So as we electrify, we're not just going to bring more products, we're going to get more digital and we're going to get into physical services and digital services as well. But they'll be in the nameplates in the segments that we have a great reputation. As John said, we have a good owner base.

And our next question is going to come from the line of Adam Jonas with Morgan Stanley.

Jim, so first off, I just have to say the Mach-E kicks ass. I've rolled up -- and Lynn can tell you, she shamed me. I rolled up in my Y, I spent a half hour in the saying, I got back in the Y and I have to admit I have some regrets. I miss it. This thing is going to sell superfast, so bravo to the team. My question is on cell supply. What's your latest thinking on making your own cells or JVing with someone or pure outsourcing? And I ask this, Jim, because as you can understand, many of us on this call, right, can see a situation where we have a potentially dramatic misalignment between -- basically where demand massively exceeds supply of cells, and this really could threaten the commercial targets of an OEM’s EV volumes unless you get this sorted out. Please tell me we don't have to wait until late spring for that. But let me know where your head is.

All right. Appreciate the feedback on the product. And to me, the real test for our fitness on Mach-E will be, as I said, how that product performs, its range, its capability, its quality, a year or 2 from now for that same customer.

It's got a lot of character. It was a ride. And I wasn't even driving the GT. It was a lot of fun.

Oh, that's the key. I was just going to say where do you see the GT. Look, our first inning -- if this is a 9-inning ball game, our first inning, I think we played it about right, which is to buy the best technology at the lowest price out there during what you could argue in this first inning was an excess supply batteries. But now the game is changing. And the next step is going to be a much more aggressive electrification plan and the subsequent impact on our battery strategy, and we cannot afford to be in the situation we are with semiconductors right now, which is a good metaphor for what you're bringing up. So you can expect from Ford, follow-on this battery electric commitment, more news on our vertical integration plans. And there are options. We could do it ourselves. We can go to a JV and as well out there, not too far away, it's a solid-state technology moving very quickly. There's a lot of bets to be made. This company -- this team is in the midst of making those. And we'll let you know as soon as we can. But we get it. We want to lock it up. We want to make sure it's not a constraint. And we also want to pick the right technologies and the right partners at the time and have the flexibility as well as the technology changes, like solid state. I don't know -- we can't give you a date right now, whether that will be the spring or tomorrow. But please understand, we totally get the issue and the opportunity.

Our last question for the day will come from the line of Philippe Houchois with Jefferies.

I've got 2 questions, 1 for Jim and 1 for John. Jim, on this alliance with our relationship with Google is interesting, and we had Renault do a similar arrangement 2 weeks ago in Europe. If I stepped back a few years ago, I remember Google being seen as the enemy and the company that carmakers had to stay away from the -- avoid seeing Google getting to the car. What has changed? Is it just simply that you looked at the cost of developing software and you feel like it's too complicate too costly and then Google is a better solution to bring that connectivity to your customers? Or has the willingness to find commercial arrangements with Google improve in terms of revenue sharing, for example, that made working with Google maybe less threatening than it might have been a few years ago? And then for John, I was just wondering, if -- you're the first OEM to give us some guidance on the impact of semiconductor shortage on earnings, and thank you for that. I'm just trying to understand, you guide for the impact -- what the impact could be in the first half. Let's assume things normalize from the third quarter. How much of that negative impact in the first half would you be able to make up in the second half? Or should we think there's a net loss that we should take into account into our earnings forecast based on what you've given in terms of guidance?

So to be really direct about your question, probably 3 things really changed our mind -- or not changed our mind but got us to where we were. First of all, it's not an exclusive relationship. So we want CarPlay to work great in all of the vehicles. We want Amazon Voice products to work great in our vehicles. But the Google, 3 things really changed to answer your question or evolved. The first one was, we just -- the money we were spending to keep competitive on a generic experience in the vehicle versus what they could offer in a stable, robust platform, the economics just work better. And we could take our team and instead of doing generic capabilities, we could put them on really differentiation. And we found that in Mach-E. If you use the Mach-E, we call it the Menlo systems, we really started to understand that if we had a stable digital platform inside the vehicle, we could really out co-create and create better, deeper experiences for a Bronco customer or Mach-E or a commercial customer. So basically, it was their commitment to build and to dedicate resources to a really good digital ecosystem in the vehicle. The second one is that we really started to feel a lot more comfortable with our customers' data and how that would be protected. And that's really important. Ford is a very trusted brand. All the data will be held and managed by Ford, Google won't have access to the Ford customer data in the cloud. The third thing was their cloud. We're trying to move our enterprise and a lot of our compute into the cloud very quickly for cost and capability. And we think their cloud is really competitive, but so is Amazon’s, those Microsoft’s. But we also saw that they were willing to make a commitment on AI and ML, I mean we are already using AI and ML throughout our company, but we need to really accelerate that. And they have real resources, and we're willing to make the commitment. So those are kind of the things that really swayed us. I hope that makes sense. But it's not necessarily exclusive. And we really are excited about the subscription business and the digital experience that could come off of this and all the other bets we're making with the technology companies. John?

Yes. Thanks. So the scenario we laid out is based on the discussions we've been having with the supply base over the last couple of weeks, and it's very fluid. And we know that it's an industry impact. And what we see is that we could lose between 10% and 20% of the planned first half production. And so when you take that on an annual basis, the impact of that full year could be between $1 billion and $2.5 billion. And like we do, and we did -- like we do and like we did with COVID, we've assumed in there some reasonable cost recoveries and our ability to recover some of the production in the second half. And so the net impact on the year would be between $1 billion and $2.5 billion, depending on where this falls out, relative to the production disruption in the first half. And that's why we tried to frame it up to give a scenario around what it could be because it's very fluid right now. And as we get through this quarter, in April, we'll be able to share more details. We think we'll have a lot more understanding of exactly how this is going to fall out.

Thank you. At this time, we would like to thank you for dialing in for today's Ford Motor Company Fourth Quarter and Full Year 2020 Earnings Conference Call. We appreciate your participation and ask that you please disconnect.