Ford Motor Company (F) Q2 2026 Earnings Report, Transcript and Summary

Good morning. My name is Laila, and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company second 26 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. If you would like to ask a question during this time, please use the raise hand feature at the bottom of your screen. At this time, I would like to turn the call over to Maria A. Ricciardone, chief in investor relations officer.

Thank you, Leila, and welcome to Ford Motor Company's second quarter 26 earnings call. I am Maria A. Ricciardone, Ford's new Chief Investor Relations Officer. I most recently came from Lockheed Martin where I was treasurer and head of investor relations. I joined Ford because the opportunity ahead is tremendous. Few companies today are navigating a transformation of this scale and this consequence. My focus will be straightforward. Clear consistent communication with all of you and ensuring the market understands how our differentiated strategy translates into profitable growth capital discipline, and shareholder value. With that, let's jump in. With me today are Jim Farley, president and CEO and Sherry House, CFO. Joining us for Q&A is Andrew Frick, president of Ford Blue and Model e, Alicia S. Boler Davis, president of Ford Pro, Ashwani Kumar Galhotra, chief operating officer, and Kathy O'Callaghan, CEO of Ford Credit. Jim will give a high level overview of the business and Sherry will provide added texture on the financials and guidance. We will be referencing non GAAP measures today. These are reconciled to the most comparable US GAAP measures in the appendix of our earnings deck. You can find the deck at shareholder.ford.com. Our discussion also includes forward looking statements. Our actual results may differ. The most significant risk factors are included on page 20 of our deck. Unless otherwise noted, all comparisons are year over year. Company EBIT, EPS, and free cash flow are on an adjusted basis. Upcoming IR engagements include Mike Aragon, President of Integrated Service at the Goldman Sachs Communacopia and Tech Conference in San Francisco on September 8. And the Morgan Stanley annual Laguna conference in Laguna Beach on September 17. Now I will turn the call over to Jim.

Thank you, Maria. I want to start by thanking our extended 4 team. All of our dealers, and our suppliers for their commitment to delivering on our Ford plus plan. I especially want to highlight all the Ford team members who work so effectively through the Novelis disruption. I also want to recognize our team in Canada. Along with our labor partners, Unifor, under the leadership of Lana Payne, for reaching a ratified 3-year agreement covering all of our Canadian employees. Our business in Canada and our manufacturing operations in Oakville are really important to our future at Ford. And this agreement also underscores how important USMCA is to our future at Ford. And the opportunity we have to build a framework that levels the playing field for North American manufacturers just like Ford against the mass imports from Japan and South Korea that carry a huge currency advantage. In the quarter, we delivered a strong performance, generating 48.3 billion in revenue and 2.5 billion in adjusted EBIT. We are also raising and narrowing our full year adjusted EBIT guidance to between $10 billion and $11 billion a $1 billion raise at the midpoint. The most important part of the quarter is the growing evidence that our strategy is working. Towards becoming a more profitable, more disciplined, and generally different company. Our fourth plus plan focuses on 3 complementary areas. Of course, we have first our core of auto operations, our retail and commercial vehicles, that are becoming more profitable, and more dependable. Second, we have the software and physical services layer, which is growing margin accretive, and built into everything we do at Ford. And third, adjacency businesses such as Ford Energy, that open all new sources of profit for the company. We play only where we have real competitive advantage, or we can build 1, and we are ruthless about where we put our money. Every dollar must earn durable returns and drive profitable growth. So let's talk through each of these areas. On core automotive, operations, our execution is underpinned by a fundamentally stronger industrial system. For more than 3 years, we have been relentless about building top quality and that work is showing up. In our home market, Ford finished number 1 among all mainstream brands, J.D. Power 2026 initial quality study. We see this win as a first down payment on a much more consequential virtuous circle. Going from initial quality to long term durability lowering our warranty costs even further, fewer recalls, stronger customer loyalty, more pricing power, and for our conquest and growth, improved resell value. Ford's quality renaissance gives goes hand in hand with our equally intense drive to improve our cost structure. We have significantly reduced our warranty and material cost since 2024, and we continue to optimize cost as we enter a heavy new product launch period over the next 3 years. Turning to the products themselves, we are reinforcing our strength in our trucks, our vans, our personality utility and off roaders. Iconic brands and distinctive products delivering real price power. We can see it in the quarter. In Ford Blue, F Series remains the number 1 truck brand outselling the closest competitor by more than 80 thousand units in the first half of this year and is on track for 50 straight years at the top. that is 5 decades of trust and capability with our customers. And we intend to extend our lead. But it is not just F Series that makes our truck business strong. We continue to grow our customer base across our entire lineup, This spans every price point in The US truck market. From our Maverick all the way through the top end of our Super Duty. And there is much more to come soon. Including an all new F series and an all new Super Duty. We also continue to see momentum with our off road enthusiast vehicles. In fact, they now make up 25% of our US sales in the second quarter. We made it a huge bet on Bronco, Tremor and Raptor. And has paid off with higher growth and higher margins. And these vehicles are bringing new customers to Ford. They are younger, more affluent, and more geographically diverse. And we are investing to grow our leadership in this space. Itay tuned. Hybrids are another strength for Ford we plan to build on. The F-150 hybrid leads up leads among full size trucks, and the Maverick hybrid achieved record sales in the first half to become America's best selling hybrid pickup. We plan to extend our hybrids across our entire lineup over the next several years. On the commercial side, Ford Pro is the cornerstone of our global business. And holds commercial vehicle market share leadership in both North America and Europe. And the Oakville expansion I referred to earlier is on track to launch in the fourth quarter of this year, adding up to 100 thousand units of additional super duty capacity. We are investing in Super Duty production to increase our manufacturing flexibility, to add resilience, and to meet pent up demand. These investments will help drive Pro's future financial performance. And turning to Model E, we are aggressively driving down Gen 1 costs and will become a major scaled competitor as we invest in affordable versatile EVs. The Louisville plant changeover for the new UEV platform is well underway here. Forward. You may have seen prototypes now of our first vehicles off the UEV platform testing on roads across The US. Customer deliveries will begin next year. The first UEV product will compete in the affordable heart of The US EV market. Where we will offer customers a wholly new proposition that we cannot find in the market today. It starts at around $30 thousand It has more cabin room than the Toyota RAV 4. Plus it has a pickup truck bed. It has bidirectional charging capability. Incredibly fun to drive, and personalized technology in the experience. In fact, we just announced Apple last week, as you know, will be the embedded map provider for every UED platform vehicle. And we are very excited to show you much more. About our move to be among the leaders in the EV space. In Europe, as you saw last week, we announced our agreement with Geely. Which will bring speed and capital efficiency to our European operations. The second area of our Ford plus plan is software and physical services, including our parts business. These businesses have significant room to grow are central to our 8% margin, target by 2029. And the idea is really simple. Combine our digital services our large dealer network, our physical services, into 1 seamless experience. Building a flywheel across software, vehicles, and parts. On software, we are turning a 1-time sale into a life relationships reset. We now have over 14 million connected vehicles, that is an enormous base to grow from. Our goal is to activate that base. Driving real digital usage, and convert engagement into recurring high margin revenues. Our services are not just digital. They are also physical. We continue to grow our parts business. For example, we are expanding our parts catalog We are growing our sales to US wholesalers. And co investing with our dealers to increase service base and our mobile fleet. Customers love our mobile service. We have over 5 thousand mobile service vans and trucks on the road and we see net promoter scores much higher for remote service. Leading to higher loyalty. In fact, in Q2, we delivered 1.5 million remote services at Ford, 1.1 million just in the U.S. Finally, we are making progress on our adjacent businesses. Earlier this year, we launched Ford Energy. Reporting through Model e. it is a strategic business for us at Ford, but 1 with a very short payback Ford Energy can win because it is built on capabilities few companies can match. Tariff resilient, world class US manufacturing, leading battery technology, and iconic American brand that is already familiar to communities who are most in need for grid support and infrastructure upgrades and, of course, the ability to leverage our vast auto service expertise. By late next year, we expect to reach 20-gigawatt-hours of annual capacity for Ford Energy. Which is and we have potential to expand beyond that. We believe this will position Ford Energy among the leading energy storage manufacturers in North America. Scale matters in this business, It drives efficiency, improves the levelized cost of energy, and creates a competitive advantage that is hard to match without the scale of global auto to leverage. We are building a business that can integrate further into energy and that aspire aspires to create value far beyond the sale of our DC blocks. To serve a broad and enduring customer base We are in talks with a wide range of strategic customers and look forward to sharing more with you at the right time. As you can see, Ford is becoming more disciplined, higher-return company. We have strong automotive business. With an increased-fit industrial system. To complement that business, we are scaling high margin software and physical services around a seamless customer experience. While leveraging Ford Credit. And adjacent to all of that, we are building new businesses like Ford Energy, where we can establish a competitive advantage. Over to you, Sherry.

Thank you, Jim, and hello, everyone. Our second quarter results demonstrate our resiliency and intentional actions to drive profitability In a complex macroeconomic and industry environment, we generated $48.3 billion in revenue, down 4% year over year while earning $2.5 billion in adjusted EBIT, up 17%. Revenue was impacted due to expected volume reduction stemming from lower Novelis aluminum supply, and the sunsetting of certain vehicles as we refresh our portfolio. Consistent with our deliberate actions to enhance profitability, this quarter's EBIT strength was largely a result of strong mix and net pricing. We generated $2.1 billion in company adjusted free cash flow and ended the quarter with a strong balance sheet, including $22.3 billion in cash, and $43.4 billion in total liquidity. We remain committed to our investment grade rating and returning capital to shareholders. In fact, over the last 5 years, we have returned more than $16 billion through dividends and anti dilutive share repurchases. And today, we announced a third quarter regular dividend of 15 cents per share. Before unpacking the segment results, I want to address our $1.3 billion net loss in the quarter. As we announced in December 2025 we recognized a 1-time special item charge of $3.6 billion, of which approximately $500 million was cash. This charge was related to the May disposition of the Blue Oval SK Battery joint venture. We expect the vast majority of the remaining cash charges related to our December announcement which total up to $2 billion to be completed by the end of the year. Operationally, we are successfully navigating the Novelis aluminum supply recovery plan and we remain confident in our net $1 billion EBIT improvement. Heavily weighted to the second half of the year. Year to date, we have incurred about $800 million in Novelis related temporary costs and now expect a full year cost impact of about $1.5 billion. The hot mill restart is on track, and contingency material is secured. US inventory of 52 retail days supply is slightly below our target. of 55 to 65 days. And we expect to return to targeted levels as the recovery progresses. Turning now to the core automotive highlights. Ford Blue, delivered $1.1 billion in EBIT on revenue of $26.1 billion. Our revenue and EBIT were up 17%, 2% respectively. Reflecting favorable product mix enabled by US regulatory changes and higher net pricing. More than offsetting an 8% decline in wholesales. These results demonstrated that our focus on off road vehicles and passion products is resonating. We had record sales for the Bronco family in Q2, and our 3 row adventure utilities are growing. With Explorer and Expedition retail sales up 22% in the quarter. F-150 remained strong, while inventories recover. With a disciplined go to market execution in Q2 that included the highest retail share, lowest incentive spend, highest share of revenue, with sales focused through our most profitable channels. Ford Pro, delivered a solid quarter despite significant headwinds. delivering $1.7 billion of EBIT and $17.8 billion of revenue, down 26% and 5% respectively primarily due to temporary Novelis disruption. We continue to see growth in software and physical services highlighting the durability of our ecosystem strategy even in periods of disruption. This resiliency positions Pro to benefit from second half volume recovery. We are confident in the pricing power of our Pro business and although early, 2027 model year customer contracting in North America is off to a fast start. Placing us about a month ahead of where we were last year. For model e, we reported an EBIT loss of $919 million on revenue of $1 billion, reflecting a 31% EBIT improvement on declining revenue. This was our third consecutive quarter of year-over-year EBIT improvement. Progress was driven by structural cost reductions right sized Gen 1 volumes, and lower US incentives following regulatory relaxation. We continue to prioritize profitability and capital efficiency on our path to breakeven. As such, we expect to improve gen 1 EBIT by approximately 40% year over year in 2026. Paving the way for our investments in UEB and Ford Energy. Our software and physical services keep getting stronger. Total paid subscriptions grew about 50% to roughly 1.6 million including more than 900 thousand Ford Pro Intelligence paid subscriptions. Customers are actively choosing to pay for these services beyond an included trial. A direct signal of value. We have also seen positive net pricing in our parts business, in line with the industry. These services carry attractive margins and create recurring customer relationships. Ford Credit delivered another solid quarter. With EBT of $757 million, up $112 million. These results reflect our strong financing margin, our high quality portfolio, and our disciplined approach to capital and risk management. We remain confident in the quality of our portfolio and our ability to continue supporting the market shift toward longer term financing options for customers. We also continue to execute on our multiyear certified pre owned enterprise strategy which ultimately protects our residual values. According to third party data, our year to date CPO unit sales growth in the US is over 20%, now positioning us as the No. 2 CPO brand in the market. Now I will turn to our 2026 outlook. For the full year, we now expect company adjusted EBIT of $10 billion to $11 billion, narrowing the range and increasing the midpoint by $1 billion. Driven by strong pricing and mix. An increase in adjusted free cash flow to $6 billion to $7 billion, which now includes flow through of this higher EBIT in our expectation to receive in 2026 about $500 million of the $1.3 billion AIEA reimbursement we booked in Q1 And capital expenditures remain unchanged, at $9.5 billion to $10.5 billion as we invest in higher return growth opportunities Our guidance does not include potential impacts of a significant escalation in the Middle East or a material downturn in the US economy, which could have a substantial impact on industry demand. For our full year segment outlook, we now expect an increase in Ford Blue's EBIT range to $5 billion to $5.5 billion, a narrowing of Ford Pro's EBIT range to $7 billion to $7.5 billion, an improvement in model e losses to about $4 billion. This includes about $1 billion in incremental investment for UEB and Ford Energy mostly weighted towards the second half of the year. And for Ford Credit, EBT is now expected to be above $2.5 billion. Our guidance continues to assume a US SAR of 16 million to 16.5 million units commodity headwinds of just above $2 billion, and we remain on track to deliver $1 billion in material and warranty cost reductions in 2026, enabling our increased investments in UEV and Ford Energy. For US industry pricing, we now expect full year to be about a half a point higher at plus 50 basis points. The accomplishments this quarter reinforce our trajectory The investments we are making in our truck lineup, UAV platform, Ford energy, and high margin services will bolster our margins over time. Keeping us firmly on the path to our 8% EBIT margin target by 2029. With that, let's open the line for your questions.

We will now begin Q&A. To ask a question, please use the raise hand feature, which can be found at the bottom of your screen. Please limit yourself to only 1 question. Your first question, will come from the line of Andrew Percoco with Morgan Stanley.

Great. Thanks so much for taking the questions. Can you guys hear me? We sure can. Thank you. Great. Well, congrats on the really strong results this quarter. I do want to start on the energy storage side of the business. And just hoping to get more of an update in terms of the conversations that you are having on that front. Obviously, we saw the EDF agreement. So utilities do seem like the obvious customer here. Given some of your long standing relationships there with Ford Pro. But I am just curious to what extent you are having conversations directly with hyperscalers you know, that might want to lock up some of your domestic you know, battery capacity. So it is it is really a 2 part question. 1, are you engaging with the hyperscalers about direct off take? And 2, what inning would you say you are in, in terms of getting some incremental contracts to markets? to the market? Thank you.

Sure. Just to take a step back, what we hear from our customers is we are in the center of the market. A 20 foot containerized LFP prismatic solution DC block with a 2- and a 4-hour configuration is exactly the heart of the market. So that is a real positive. They also appreciate our approach to service prognostics, digital, you know, remote monitoring. that is a real big positive that Ford can bring to the as a product. We are people are excited about the talent in our team. We have specialized talent that have real experience in this market building this business. The kind of conversations we are having, we are in the real depth now. The demand signal is very strong for us. And given there is about a 6-month lag between kind of when you start, when the projects have to land, we are kind of-- we are, like, in the first or second inning to tell you all everything about the customer for 2028 capacity. But it looks really good. We are we are in line with our forecast inside the company, which I will not go over. But, we are we are seeing a broad group of customers. They are not just utility providers. There are other in fact, every day that goes by we see more broader application of storage batteries from broader customer bases. We have a whole process where we are monitoring the customers as they go through because these are projects oriented. These are project quotes. We go from kind of initial early discussions, then we go to, the legal and contracting phase, and then we have the final contract at the end. So I would say we are in the third inning of selling out the 2028 capacity. of 28, 20-gigawatt-hours. I would say just to emphasize in my speech, that we have the capacity to upgrade at Kentucky 1 and that we are building prototype cells already in Marshall, Michigan. So this is not a theoretical business. We are building cells already. And, obviously, Kentucky 1 is building out a little bit later than Marshall. Hope that gives you some more texture.

Yeah. that is great. If I could just sneak a quick follow-up there. What are some of the things that you are looking at specifically in terms of whether or not you decide to add additional capacity? Is it simply booking out the first 80% of that 20 gigawatt hours over multiyear period, or are there other things that you are kind of looking at whether it is legislative, tax credit related in terms of your decision to go ahead and move and add more capacity?

I think your list is pretty good. I think it is it is basically 3 areas. Obviously, the tax treatment is very important for customers. We are we are also you know, looking very carefully at strategic choices for the company. And we are we are looking obviously at the customer flows. So I would say the list you have is a good working list. I do not want to get any more specifics than that.

Great. Thanks so much.

As a reminder, please limit yourself to 1 question today. And our next question will come from Alexander Perry with BofA.

Congrats on a strong quarter. So I just wanted to ask a bit more on the mix opportunity. So off road performance trends, and other higher margin trends such as your V8 series continue to increase as a percent of sales. Maybe just talk to us what are the key drivers of the strong trim mix and how we should be thinking about the mix benefit throughout the balance of the year? Thanks.

Yeah. Thank you, Alexander. This is Andrew Frick. We have seen certainly some product in series mix as a position of strength for us right now. And I think a couple of the key drivers are it is a direct reflection of the choices we have made in our brand positioning. As well as some of the regulatory environment changes that help us match customer demand. So Jim made some comments in his, statements in his opening comments, and I will maybe add a little context to that. We have seen growth in our portfolio mix, our product portfolio mix in large utilities and the Bronco family. In fact, Bronco family had our best first half sales ever. You mentioned off road mix. We grew that by over 3.5 points in the first half and actually in the second quarter it was up over 4 points. Year-over-year. And we have series mixes like Tremor that is now 15% of our expedition sales. And Raptor is really strong right now across our portfolio. We have grown our Raptor sales by 9% so far this year. So and you mentioned V8, so we are increasing our V8 mix as well. Bottom line, to answer the question is we expect that level of product mix and series mix to continue through the balance of the year.

Perfect. that is incredibly helpful. Best of luck going forward.

Thank you.

Thank you, Alexander. Our next question will come from Joseph Spak with UBS.

Thank you. Good afternoon, everyone. Jim, maybe you could just talk I heard in the prepared comments that the Novelis ramp is proceeding as expected. You could just talk a little bit about what you see for F Series here in the back half. Because in your guidance, you do factor in a lower volume recovery So that is a little bit more measured, and it does not sound like it relates to Novelis. So is that just some prudence because of what you are seeing in terms of the competitive dynamics in that segment and you want to, you know, remain pretty vigilant there to protect price.

Yeah. Thanks. I would like Andrew to comment, but we are seeing, you know, F Series is around 45-day supply, which for us, is very lean. So we have a lot of upside on the wholesale side, not just retail side. Andrew, anything you want to highlight?

Yeah. I would just add the overall truck demand right now across from Maverick all the way up Super Duty is really strong, and, you know, we are seeing strength across the lineup. Maverick Hybrid achieved a record in the first half. For F Series specifically, we are really confident in the strength of our F-Series business right now. Jim mentioned we are on our way to 50 years of leadership. And our we lead the competition right now in key go to market metrics. So we have significantly lower incentives, higher share, higher share revenue with really strong turn rates, which is indication of strong demand and we are also being really disciplined on our channel mix with the limited production we have. In fact, we have had really low rental volume where a lot of our competitors have really increased this year-- year-over-year. year. So as Jim just mentioned, our day supplies are in good shape at 45. That gives us upside coming out and the demand continues to look really strong.

What drives the lower volume recovery? Can you repeat that, Joe? I did not hear we did not hear you.

Alright.

You mentioned in the guidance, like, that, you know, the lower aluminum headwind is offset by a lower volume, you know, the volume recovers at the lower end. So just curious what changed there.

it is just mix. It is just mix, And as I said that we are planning to be able to still have a year over year improvement of 1 billion. So you had, you know, roughly 2.5 billion on the top line. 1.5 billion due to Nobelis cost now lower. than what we had originally thought before we thought 1.5 to 2 billion but now it is tracking at the lower end. So the results are gonna be the same in terms of what we guided, and it is a mix change.

Thanks, Sherry.

Yep.

Your next question will come from Mark Delaney with Goldman Sachs. Maria, you may now unmute your line and ask your question.

Good afternoon. Thank you for taking the question, which is on the tariff and trade environment. I think on tariff you left your outlook unchanged. But under the current policy rules, maybe talk about the ability to further mitigate that going forward. And you also spoke a bit on USMCA. And Jim, curious if you have any early thoughts around how the discussions are going. And based on some of the proposals to potentially require more US-specific content, how might that affect Ford's operations and supply chain? Thank you.

Sure. Well, let me just comment on USMCA because it is very critical Look. Ford is an unusual company in a way. We build the most in The US. We have the best ratio between imports and our local production. We also export the most. And even for us, this improved USMCA could be a great opportunity for the industry. And for Ford What we are-- and we have had good really good-- not only conversations with the US administration, and USTR, but also with Mexico and Canada. So I think because of Ford, we are Ford. We have great access to everyone. And I think at the top of the house, we all have the same kind of principle, which is build a stronger US industrial base. Our orientation for USMCA is maybe a bit different than others. We want to make it easier for Ford and other US makers to compete with Japan and South Korea They have incredibly strong local supply chains, like steel and aluminum. They have much weaker currencies, in some cases, 40 year lows. And they have a modest 15% tariff. Even some of our domestic competitors import from those locations, and they have huge advantages. We are prepared to support revising the USMCA so long as it allows the promotion of more competitive US auto sector. And that is really our lens for this negotiation. it is really we want to put Ford and companies like Ford that committed to US manufacturing in an advantaged, a better level playing field with these foreign competitors. We are in the early days of engaging, so at this point, I think you know, you know, it is it is very early days. But that is gonna be our orientation. In terms of tariffs, etcetera, I think, you know, there has been some recent news, but I would say as a whole, Ford, I think, is has done a good job with our exposure to tariffs. And I think we have worked really hard with the administration as well as know, even our strategy around collecting cash to really manage through this in a way that advantages the company. I do not want to get into specifics because I think those are pretty well documented by the team. Thank you.

Your next question will come from Dan Levy with Barclays.

Okay. Great. Thank you for taking the questions. You know, about a month ago, you put out a headline that you ranked No. 1 in this J.D. Power initial quality study. And I know that, you know, warranty and quality has been sort of the journey for you, and you reiterated some of the cost benefits this year. But maybe you can just give us a sense of just an update and what this headline potentially means on incremental cost outs in the future on the warranty side? Just any reads factoring as well for 2027 and beyond.

Okay. I think, Sherry, it would be great to get your view from the financial standpoint, but I think the real essence of this is this question about the lagging indicator recalls versus our initial quality. And I would just emphasize that recalls are not all the same. The software recall and a powertrain recall are quite different things. So, Kumar, if you want to make a comment about the kind of cost variance that you are seeing?

So I will go ahead and start with the financials.

So we do see continued improvement on a year over year basis. I will be very clear about that. On warranty as well as material cost, and that is what it comprises the $1 billion year over year improvement that we are looking to see that we do plan to reinvest in UEB and Ford Energy. In terms of where that is coming from, it is coming from coverages which is initial quality. Which is the number 1 mainstream brand award directly relates to. And that is 1 of the best indicators is I will let Kumar talk about that our recall financials will also follow suit shortly.

Yeah. The initial quality improvement is great. But this focus is permanent. We are focused on long term durability and, obviously, lowering warranty costs. That will turn into eventually lower recall costs as well. So this year, we have recalled about 12 million vehicles. But the number of recalls is down very substantially from last year. it is down about 40%. And this reflects our intensive strategy to quickly find and fix any hardware or software issues. And go the extra mile to protect our customers. We are seeing substantial improvements in our newer model years. Both in numbers of recalls and recall volumes and, of course, warranty. So it is a bit of a like Jim said, a virtuous cycle that is starting to begin. Initial quality, great. It will turn into long term quality and as well as recall improvements over time.

And can you just remind us the cost gap? this is 1 of the most important road maps to our 8% margin is continue to close the cost gap. And we are seeing initial you know, good initial indications. We wanna do what is right for the customer. What I am most excited about is the work I am seeing in the next generation products. In the powertrains. The team is absolutely obsessed with these next generation of products being engineered with the right supply chain to make a massive move forward. In our cost of quality.

Great. Thank you.

Our next question will come from the line of Gautam Narayan with RBC.

Yes. Thanks for taking the question, and welcome, Maria. So 1 of the big learnings that we are seeing in recent weeks has been how automakers are benefiting from software. We already know about how great this is for you guys at Pro, but I wanted to ask about BlueCruise specifically. Could you comment about how Blue Cruise might be contributing to Ford financials? And then just an add on to that, the Apple Maps integration you know, could this expand beyond the UEV platform to other Ford vehicles? Thanks.

For sure, it could. You know, we have not made any announcements, but we are really impressed with the progress that Apple's made in their map. And we really see the benefit for customers to have a great, integrated solution. I would guess the big story there for Ford is the transformation of our electric architectures. I do not think it is been covered in the media yet, but you know, UEV has a fully zoned electric architecture with our with our own software. And our new generation products will come with a massive upgrade to our architectures. With a lot of software coming from Ford. And in fact, the ADAS solution and the integration of Apple Map are gonna be mostly Ford efforts. So that is a major step forward for our customers. And I think that is strategically the most important thing. We still continue to see great revenue growth with BlueCruise. it is it is probably on the retail side our best proof point for software. Paid subscriptions in Q2 grew by 20%, which is which is great to see. And in fact, BlueCruise made up 50% of our retail integrated services revenue. So that is how important BlueCruise is. And the cost is gonna come down. The functionality will go up. Even the UEV is gonna have a ramp to ramp off ramp to up on-ramp L2 capability, which no 1 in that segment at that price point has anything close to that. So on BlueCruise, I think for people to get a dimension of the scale, We have now 12.1 million or more than 12 million hours used since launch. And we are approaching a billion miles, 840 Getting better at selling it. it is something that we are getting better at specking out tied to our series mix. And packaging So I would say it is it is really the revenue management capability in the company around the software is really improving. That does not take away at all the pro software that also is you know, is growing really fast. But since that was your question, I wanted to hone in on ADAS and Apple Maps.

Got it. Thank you.

Next question will come from Mike Ward with Citigroup.

Thank you very much. Good evening, everybody, and thanks for doing this 1 clarification. Jim, you mentioned Super Duty is an extra 100 thousand. Did you specify where that was coming from? And then my question really is just a follow on. On the subscription side. You mentioned the Ford Pro at 900 thousand. I think that was in your sales release. And then, Sherry, you talked about 1.6 million subscriptions. Is the remaining portion of that BlueCruise? And how I assume you are looking at it from a financial standpoint on the margin contribution rather than revenue given the size of Ford. But is it getting to the point that in the next 2 years we could see these things subscription revenues adding a half a point to margin at Ford Pro and overall Ford automotive margin. Is that the type of direction we are looking at?

Yeah. that is a that is a pretty long question, but thank you. Maybe, Alicia, I will ask you to comment on Ford Pro software, and then, Sherry, if you want to touch on then the subscription numbers. Yeah. I will just say overall, companies measure subscription and paid subscription a little differently. And so it is kind of apples and oranges depending on the company. Some companies bundle them into their vehicles with a trial We really at Ford, just philosophically, we are focused on paid subscription. Even though we have a lot of subscriptions that are not paid, for example, trial, we are very focused on paid subscription. So you will hear that Ford maybe more than others. Alicia?

Yeah. I can make a comment first. Michael, on your first question around, Jim mentioning 100 thousand additional Super duties. And so we are launching the Oakville facility later this year. And we will have capacity to produce up to 100 thousand additional Super duties. Relative to software and pro, we are continuing to drive a profitable growth really by expanding software services and parts to increase our share of wallet. As Jim mentioned, we really focus on paid subscriptions, and we are over 900 thousand for Pro. that is over 20% year over year growth, and we expect to continue to see that growing through the balance of the year. And it will continue to contribute from a margin perspective. Obviously, software has a higher margin So not as high as a percent of revenue, but definitely contributing from a margin perspective.

And then that would be, as you said, primarily Blue Cruise. Mhmm. And we could absolutely see this business, the integrated services be being, you know, half point of margin for the company. Mhmm. it is very profitable. And we have not really seen the margins come down. And I can just clarify the question that you had on the paid subscription. So as I said in my prepared remarks, 1.6 million paid subscriptions, that does include retail plus pro The 900 thousand was the Pro Intelligence. So the 700 remaining paid subscriptions is gonna be retail. it is gonna be other pro services, and then it also includes BlueCruise.

Thank you very much.

Next question will come from Itay Michaeli with TD Cowen.

Great. Thanks. Good afternoon, everybody. Just kind of a quick question on just the updated guidance. I was hoping we could do a bit of a second half versus first half, bridge for Blue and Pro. It seems like the second half outlook for Pro is kind of, nicely improved. But Blue seems a little bit lower ex-IEP. I am just kind of curious to the puts and takes between the 2 trajectories for those segments.

Yeah. So first, Anthony, just the enterprise level guidance the increase is really simple. that is mix and pricing. So just put that out on the table And then when you are talking about the second half, you are talking about the EBIT bridge between second half and first half. So there, you would have had and then do you want to get into Ford Blue and Pro specifically?

That would be great. Yeah.

I mean, really, what you are seeing is you are seeing increased volume. Right? You have got the Super Duty, and you have the F-Series that are becoming back in full force. For the second half of the year, You are gonna have commodity increasing. You know, we had $500 million a year over year improvement or hit impact, rather, of commodities now. And when you get into the second half, you are gonna have another $900 million. So the second half is gonna have higher commodities that is hitting us, and, also, the second half has higher investment in UEB as well as Ford Energy. But you are really seeing, terms of the improvement is the volume the volume increase in terms of mix and pricing.

Yeah. And I can just give a little more context from a pro perspective. So we expect to make up our postponed Super Duty fleet orders in H2 that was primarily explained by the impact of Novelis. And so we expect to end the year with our full recovery to 4 Pro's 2025 revenue run rate and then Super Duty availability being aligned with demand. If you look at the first half, from a pro EBIT perspective, $3.4 billion. Second half, if you follow in our guidance, 3.6 billion to 4.1 billion and that is really driven largely by the additional capacity that we have And in the Super Duty space.

that is very helpful. Thank you.

Our next question will come from Emmanuel Rosner with Wolfe Research.

Great. Thank you so much. So it is good to see all these operational and execution traction this year. Curious, do you expect further improvement in EBIT next year in 2027? And if so, would you be able to, speak to us about some of the puts and takes and the drivers of further improvement?

Sure, Emmanuel. Thank you for the question, and good to have you with us today. So I knew I would not get out of this call without talking about 2027. But it is a little bit early to talk about it in detail, but let me give you some of the puts and takes as you suggested. First up is gonna be the nonrepeat of the temporary aluminum source costs that are associated with Novelis. I just gave more precision around that number today. Which we now expect to be about $1.5 billion. So that starts you out As you look at the core, as you just pointed out, yes, you are absolutely seeing a fitter core business and 1 that has momentum. And it is gonna be more durable for the long term. So I do expect to continue to see reductions in costs, especially in material costs and warranty. But also structural costs too. And as we just talked about, continued software and physical services growth. We do have launches that are going on in 2027, so you are gonna have launch costs associated with that. Especially related to our battery energy stationary storage business Ford Energy, as well as the universal EV platform, both launching in 2027. And we are gonna start investing and preparing for an all new US truck lineup that we have started talking about a bit. On the headwinds, you are gonna have the non repeat of that AIIA tariff EBIT benefit. You will remember that was $1.3 billion that we booked in Q1, and you will we will have to see what happens with commodities. At this point, we are planning for 4 quarters of impact versus 3 quarters of impact in 2026. And any improvement that might happen, we start to see a little bit of softening. That would be a tailwind. So in short, you see a company more efficient, more durable, and fitter and better able to absorb headwinds.

Thank you. So a lot of puts and takes, but overall, would that net to a higher EBIT in your math, or is that too early to say?

it is too early to say at this point.

Understood. Thank you.

Our next question will come from Colin Langan with Wells Fargo.

Great. Thanks for taking my question. Just wanted to-- I have more of a model question to start off. But you know, you mentioned 2 billion of raw Did you say $500 million is already incurred? So is that the other 1.5 year over year is the headwind in the second half? And then you said the billion investment costs little is it impacted already in the first half. And any color on the Novelis self that is you know, is that how much is in the first half? How much goodness is in the second half? And then as if I step back, the second half you know, EBIT rate is stepping down. Why not annualize that? What know, because especially with the Novelis improvement, I would have thought that would actually help you. So what is sort of unusual in the second half that we should not be annualizing that?

Or should we? Okay. Well, let's take those in turn, Colin. So first off, with commodities, as we said, we are expecting a bit over 2 billion for the year. And I am expecting about 1.5 billion of that to be in the second half. So 1 point, right? We said about 900 additional what we have already had. Then when you get to novellus, at this point in time, we have had our Novelis costs hit us at about $800 million. I also guided that I am expecting the total cost to be about $1.5 billion. So the balance of that $700 million would be in the second half. Your questions on then you had a question on the first half bridge versus the second half bridge and you are right. Very strong volume and mix Is that what your question was? Second half versus first half? EBIT bridge? Well, if I annualize the second half, it would imply a slowdown. So and particularly with Novelis actually recovering, I think you know, you are supposed to get those pickup volumes back up. So why you know, why should we not be concerned by the annualized slowdown, particularly as Novelis is sort of back on track in the second half? Yeah. that is right. So you have got as you said, you have got the strong volume coming in from Novellus, but you had some of that in Q2 as well. And what you are also gonna see in the second half is unfavorable commodity pricing that I just talked about 2 quarters versus 1. And you also are gonna have accelerated investments in Ford Energy, the Universal EV platform, and the Oakville launch. So a lot's coming at us in the second half, but there is some strength in coming back with the volume. Is going to be what is really enabling us to be able to be very close to where we were the first half when you take out the non repeat of the AIIA 1-time refund of $1.3 billion.

Yeah. And, Colin, we can certainly we can we can follow-up offline and just go through the detail of the model. So we can follow-up that the call.

I think we can take 1 last question. We are almost at the top of the hour.

Your last question will come from Edison Yu with Deutsche Bank.

Great. Thanks for taking our question. Just want to ask about Ford Defense. Jim, you had mentioned a last earnings call, you were of contemplating or doing some work on the component side. I think just the other day, you are now confirmed to be working on a contract for the ISV. How should we think about this effort going forward, and any sense on how big this could be in the next couple of years?

Sure. Thanks for your question. You know, Ford always answers the call to duty. that is our principle as a company. We did sign a contract with the US federal government to produce 3 prototypes they are considering, based on Super Duty for military use. We are really excited to get into building those. We already dominate in that market in the commercial world. We wanna offer the US government the same advantages that our commercial customers get. And that includes, you know, great parts availability and everything else that comes along with being the leader. it is a great opportunity for us. I think as a company, this particular opportunity in the transportation space we are discussing continue to discuss additional defense related projects with the US government, but we have nothing else to add at this point. You know, we do believe we have a lot to offer, but we will think through this as an adjacency. It has to be a strong business. With really good returns and really, really good capital returns. I have to say when you look at the scale of the opportunity here and all the opportunities versus something like BESS, which has a very short payback. They are pretty different opportunities. They are very asymmetric. So as I said, we are very focused on these adjacencies. That are very close to our core business. Like BESS, Defense would be another 1. there is a few others that we have not talked about yet. But they are not all the same. And they do not all have the same opportunity. And I would say at this point, Ford Energy is a great opportunity, and we are really excited to get going with the US government on these prototypes. So stay tuned. Nothing else to add at this point.

Thank you. This concludes the Ford Motor Company second quarter 2020 earnings conference call. Thank you for your participation. You may now disconnect.