FORD MOTOR CO Q3 FY2026 earnings call

• Strategic Pivot & Capital Efficiency: Management emphasized a shift toward a more profitable, capital-efficient Ford, targeting 8% adjusted EBIT margins by 2029. This involves transforming the EV business with less capital and diversifying into Ford Energy.
• Vehicle Portfolio Strength: Ford continues to dominate in trucks and utilities. The F-Series maintained its position as America's best-selling truck for the 50th straight year. The Maverick is the best-selling hybrid pickup, and the new Ranger Super Duty showed strong early demand in Australia.
• New Product Pipeline (Fathom & UEV): The all-new Fathom, built on the Universal Electric Vehicle (UEV) platform, is on track for Q4 2027 launch with an MSRP under $30,000. It features advanced zonal architecture, hands-free ADAS, and bidirectional charging. Rigorous testing includes a fivefold increase in powertrain durability testing.
• Industrial System Improvements: Ford is accelerating its industrial system to reduce warranty and material costs by $1 billion in 2026 (excluding Novelis/tariffs). The Oakville Super Duty plant ramp has exceeded planned daily volume and quality targets.
• Auto Adjacencies Growth: Software services and parts businesses achieved record revenues at accretive margins. Connected services like 'Prognostics' are driving maintenance visits, increasing customer retention by ~9 points when combined with software subscriptions.
• Ford Energy Expansion: Ford Energy is progressing with its grid-scale battery storage business. The Kentucky battery plant has met all operating milestones, with 20 GWh of annual capacity targeted for end of next year. Over 80% of 2028 capacity is accounted for by executed contracts or late-stage negotiations.

Ford Blue: Generated $27.1 billion in revenue (down 3% YoY) and $1.4 billion in EBIT (down 10% YoY). Revenue decline driven by product discontinuations and Middle East conflict impacts, though favorable mix and strong F-Series/Lincoln performance provided support. Model e: Reported an EBIT loss of $1.1 billion on $1.2 billion in revenue. The EBIT improved by 25% YoY due to capital efficiency measures, structural cost reductions, and rightsizing Gen 1 volumes. The segment remains targeted for breakeven by 2029. Ford Pro: Delivered $17.8 billion in revenue (up 2% YoY) and $1.7 billion in EBIT (down 16% YoY). Revenue growth occurred despite wholesale volume declines. EBIT pressure stemmed from higher commodity costs and temporary costs associated with the Oakville launch, partially offset by lower tariffs and favorable product mix. Ford Credit: Achieved EBT of $803 million (up $172 million YoY), driven by favorable derivatives performance, healthy financing margins, and supportive used vehicle pricing.

• Full Year Adjusted EBIT: Raised guidance to $10.5 billion - $11.0 billion (previously lower low-end).
• Full Year Segment EBIT: Expects Ford Blue EBIT of ~$5.5 billion; Ford Pro EBIT of ~$7.0 billion; Model e losses unchanged at ~$4.0 billion; Ford Credit EBT updated to ~$2.8 billion.
• Cash Flow & CapEx: Adjusted free cash flow guidance remains $6.0 billion - $7.0 billion; Capital expenditures remain $9.5 billion - $10.5 billion.
• Macro Assumptions: Assumes U.S. SAAR of 16.5 million units; commodity headwinds approaching $2.5 billion YoY ($500M increase); U.S. industry pricing expected ~100 basis points higher YoY.
• Cost Reductions: Targeting $1 billion in material and warranty cost reductions (excluding Novelis and tariffs).
• 2027 Outlook: Profitability targeted to be roughly in line with 2026, with investments in future growth offsetting external cost pressures (~$2B headwind in commodities/memory/logistics).

• Macroeconomic Sensitivity: Guidance excludes potential impacts of significant escalation in the Middle East or a material downturn in the U.S. economy, which could substantially impact demand.
• Commodity & Input Costs: Rising commodity costs and input pressures represent a significant headwind ($2.5B expected for full year 2026), impacting freight and energy costs.
• Supply Chain Execution: Risks remain regarding supplier readiness and ability to run at rate with high-quality parts, particularly for the upcoming Fathom/UEV launch.
• Competitive Pressure: Intense competition from Chinese OEMs, particularly in Europe and emerging markets (LATAM/Southeast Asia), poses pricing and market share risks.
• Operational Disruptions: Short-term supplier disruptions impacted Q3 results; Novelis-related temporary costs incurred ~$1 billion YTD, though net tailwind is still tracked for 2026.

Q: Rajat Gupta (JPMorgan) asked how much of the 2027 profit offset stack is within Ford's control versus external factors, given recent inflation spikes, and what risks remain for the UEV/Fathom launch.

A: Sherry House stated that revenue optimization, AI-driven demand sensing, inventory management, and continued software/parts growth are key controllable areas providing savings. Kumar Galhotra noted that 90% of validation is complete, with remaining risks primarily centered on ensuring the supply base can produce high-quality parts at rate. Jim Farley added that Ford’s disciplined inventory management puts them in a strong position entering 2027 compared to competitors.

Q: Emmanuel Rosner (Wolfe Research) inquired if Model e will improve in 2027 and when profitability steps occur, asking about investment levels in UEV and BESS.

A: Sherry House clarified that progress is non-linear, with higher expenses expected in 2027 as plants come into focus. The first major step-function change in profitability is projected for H1 2028, driven by the ramp-up of Fathom production and Ford Energy revenue. European partnership products will add further investment in 2027, with full-year production benefits arriving in 2029.

Q: Andrew Percoco (Morgan Stanley) asked about the status of Ford Energy contracting (backlog vs. negotiations) and the global impact of Chinese auto exports, specifically in LATAM/Southeast Asia vs. Europe.

A: David Carroll explained that Ford does not disclose backlog yet but is ahead of expectations, with >80% of 2028 capacity secured via contracts/negotiations, driven by superior product quality. Jim Farley highlighted that while China export pressure is intense in LATAM/SE Asia, Ford’s Ranger competes well at higher price points. He noted that Europe faces the most direct competitive pressure due to EV mandates and overcapacity, where partnerships with Geely and Renault are critical for right-sizing capacity.

Q: Jairam Nathan (Daiwa) asked about the upsell strategy for the sub-$30,000 Fathom, specifically how to achieve profitability and margin expansion beyond the base price.

A: Andrew Frick indicated the starting price is $28,350, with a range extending into the high $30,000s, though specific trim details were reserved for later. Jim Farley emphasized that the primary upsell opportunity lies in the digital suite. The advanced 48-volt electrical architecture allows Ford to offer sophisticated ADAS, digital cameras, and embedded Apple Maps at low incremental cost, creating long-term subscription revenue and enhancing the customer experience significantly above traditional ICE/hybrid offerings.