Ford (NYSE:F) CFO John Lawler wants the company to be better stewards of capital, what he considers to be Ford’s (F) “Achilles heel.” So to become more capital efficient, Ford (F) is going to encourage partnerships similar to those the company has taken in China, and initiate greater efforts to reduce costs.
At the Deutsche Bank Global Auto Industry conference, Lawler said he sees partnerships allowing the company to be more capital efficient and to improve margins. And through better product and market mix, the Ford+ strategy will continue to grow the company’s top line by being less capital intensive.
Cost reductions are another factor in Ford’s plan to improve profitability and margins. The company is on track to deliver $2B in cost reductions this year from across the company.
“When you look at the $2B, it’s primarily coming through material and manufacturing. Material is largely driven by the design changes we’re making on the products, especially launching with the [2025] model year coming in the second half of the year,” Lawler said.
Price compression has been significant this year, down over 20% in the EV segment. As a result, cost reductions were unable to keep up with price reductions. So, for this year, the company is going to continue to have cost reductions in the Model e line. Ford also plans to cut pricing by 2% this year, given where the consumer is financially. And as the year unfolds, Lawler expects some of that price degradation will be offset by sale of new products which allows for greater price flexibility.
To become more resilient and less cyclical as a business, Ford (F) will continue to grow its services segment, which includes software, fleet management and telematics. The company plans to double its penetration of connected vehicles and growth services business from 30-35% to 50%, expanding the gross margin in this category to 40%.
