Ford Motor : John Lawler to Highlight Progress of Ford+ Plan During ‘Chat’ at Deutsche Bank 2024 Global Auto Industry Conference Transcript

	Ford Motor Company
	Deutsche Bank Global Auto Industry Conference
	June 11, 2024
	10:30 AM EDT
Emmanuel Rosner:	All right. Good morning, everybody. Thank you so much for joining us for this
	keynote session with Ford, as part of Deutsche Bank's global automotive
	conference. My name is Emmanuel Rosner. I'm the lead U.S. autos analyst here
	at Deutsche Bank. I'm extremely pleased to be joined today by John Lawler, who
	is the CFO of the company but also recently named Vice Chair. And so,
	congratulations for this, and thanks for being with us.
John Lawler:	Thank you.
Emmanuel Rosner:	Just for the purpose of the webcast, this is meant to be a 45-minute session,
	because this is counting down to 35.
	Ford needs no introduction, but it's a leading global automaker. And in the last
	couple of years, Ford has been executing against its Ford+ plan, segmenting the
	business into Ford Blue, Model e, and Ford Pro. Ford has shared strategies,
	targets, and opportunities for each of the businesses, and today we're hoping to
	get a pulse on how things are going, and we'll also dive deeper into the longer-
	term strategic opportunity.
	So, with this, John, thanks again.
John Lawler:	Thanks for having me.
Emmanuel Rosner:	So, to start, congratulations on being recently promoted to Vice Chair. Can you
	talk to us about your new role and what the top two or three things you will focus
	on are?
John Lawler:	Sure. Well, I'll continue in this role as CFO through the end of the year. We have
	Sherry House who has come in. She's going to be a great CFO when she takes
	over. Great automotive experience, banking experience, tech experience. Perfect
	background for where we're headed as a company.
	So, I'm really excited about this role. I've run operations. I was in the strategy
	group when we did the foundational elements of the Ford+ plan. And I'm looking
	forward to get back focusing on some of the strategic initiatives we need to push
	forward and accelerate, given the amount of disruption we have in the industry.
	So, alliances are going to be critical. The choices on technologies and areas
	where we choose to invest and expand, as well as partnerships. So, I'll be
	responsible for global partnerships, the ones we have today and the ones we
	need to develop and put in place.
	And then, the last thing I'm going to focus on is really around leveraging my
	overseas experience. I've worked and lived in China. I've worked and lived in
	Japan. I've worked and lived in Europe. And there's a lot of policy dialogue going
	on. And so, I plan on engaging in the overseas markets quite heavily with political
	leaders and governments.

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Emmanuel Rosner:	So, let me ask you immediately, based on your strategic hats, what are the
	biggest challenges for the automotive industry over the next five to 10 years?
	And how will you help Ford be positioned to face them?
John Lawler:	Well, I would say that - a couple of them, because there's numerous strategic
	opportunities or challenges, depending on how you want to look at it. The
	transition in the industry and the rate of change is unprecedented. We've been
	saying for the last, I don't know, 10 years, how quickly the cycle is moving, how
	quickly it's changing. But when you look at the new competitive threats facing the
	industry as we transition to not only electric vehicles as a much larger percentage
	of the mix of vehicles that we'll sell, but also the digital platform and the digital
	architecture of the vehicle, these are significant changes in the industry.
	And the pace of that change is only accelerating. Just look at China. Look at how
	big their market share is in EVs. Look at what they're doing relative to the digital
	experience and the growth overseas and their cost structure. Those are
	significant, significant competitive threats that we need to deal with.
	So, that's what we'll do.
Emmanuel Rosner:	This is the plan. I was going to ask you specifically about China, because I
	understand management recently spent some time there. Obviously, you used to
	run the China business for Ford. But certainly, given how fast things are moving
	there and the threat it could represent for the global autos industry, it seems like
	an area where it makes sense to focus on. Can you share what you learned from
	this trip? How will this influence Ford's strategy in the region and globally?
John Lawler:	So, when you look at China - I started in China in 2010. I left in mid-2016. The
	entire time that I was there, the global OEMs were the lead, with the partners.
	When you look at China now, the global OEMs are not the leads in that
	marketplace. It is the local domestic Chinese. Their EV technologies are
	advanced relative to what's in the West. They have a development process that
	is much faster -- 24 months.
	And then the way they think about the vehicle, the concepting of the vehicle, it's
	significantly different. The West is incremental; they're functionally doing step-
	changes. And they think about the vehicle much differently than we do in the
	West, as a third space. So, their product concepting is something that has gone
	to a new level.
	So, as they've done that, they've also developed the technologies around
	electrical architectures, as well as the digital interface with the consumer. And
	when you look at that society, they're much more digitally advanced than we are.
	When I left in 2016, their digital footprint was much bigger than it was in the
	West. And so, that's just continuing to accelerate.
	And then you have new competitors coming in, competitors that have an
	ecosystem, a digital architecture ecosystem - Xiaomi, Huaihai - and they're
	building vehicles. And they're competitive vehicles, they're good vehicles. And
	when you look at that, they're tapping into that ecosystem of millions of
	customers. And now that interface with the vehicle, it's exactly the same interface
	they have with other electronic goods that they have. So, this is a competitive
	threat that is going to be significant, maybe not in the United States in the very
	near term, but definitely in Europe, definitely in Southeast Asia.

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John Lawler (cont'd):	And so, that's what we learned coming out of that, that the pace of change is
	even accelerating much quicker than we had expected. And the amount of
	change that happened between last March and this March was significant.
Emmanuel Rosner:	And so, how do you deal with it?
John Lawler:	So, I think we're in a really good position. Two years ago, we started our
	skunkworks team. It's an independent team out in L.A. It's leaders that have
	developed electric vehicles, leaders from the industry - Tesla, Apple, other tech
	companies - led by Doug Field and Alan Clarke.
	And the way they're developing the vehicle is very different than the traditional
	way OEMs have developed vehicles in a linear, progressive process, a process
	we've basically been incrementally improving over the last 120 years or so,
	where it's a systems integration process. It's agile. The engineers do not rely on
	suppliers for design. They'll work with suppliers. We go down into the supply
	base a couple of tiers. We will own the entire electrical architecture. It's a
	distributed electrical architecture. We'll own the software on the modules, the
	systems integration between the vehicle and the digital architecture and then the
	experiences that come from that, the pace of development, and then the cost
	structure.
	We're developing those vehicles to be competitive with a return at between
	$25,000 and $30,000. And the thing is we have people that have done that in the
	past and they're doing it for us now.
	And what we learned is that there are significant competitive threats, but we also
	learned that our skunkworks program is putting us in a really good shape to
	compete with those companies around the world.
Emmanuel Rosner:	And maybe one quick follow-up on this as well. I think you mentioned as part of
	your new role, partnerships is a big piece of it. How will partnerships help you
	win?
John Lawler:	So, I think when you look at that, we will leverage the partnerships we have
	today. One example of that is we're leveraging our partners in China today to
	export from China - now, mostly to Southeast Asia and South America - and
	that's significantly growing. So, we expect to be more than 200,000 units this
	year. We were over 100,000 last year. Margins are very good because we
	maintain the distributor profits; they get a manufacturing markup. And we
	continue to leverage them for growth in emerging markets so we can compete at
	the lower end.
	And then you add on top of that vehicles like Ranger and Everest at the higher
	end in those markets, and we feel we have the ability to cover most of those
	emerging markets and do it profitably, something we haven't had in the past.
	And that's starting to show up in our results, and we've talked about this. When
	you look at our returns '18 through 2021, in overseas markets, we lost roughly $6
	billion, and we burned about $8 billion of cash. The last two years, we've been
	positive from a profit standpoint, over $5 billion, and we're positive from a cash
	standpoint.

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John Lawler (cont'd):	And so, we're going to continue to leverage partnerships in ways like that. And
	then when it comes to technology, we'll leverage those partnerships as well to
	make sure that we're at the forefront of being cost competitive.
	Do you want me to keep going? Okay. Now, the other thing about this industry
	that has been an Achilles heel - and you see that through our multiples - is the
	fact that we have not been good stewards of capital. Very capital intensive, low
	returns. Right? So, part of our Ford+ strategy is to grow top line, and you're
	seeing that come through, through product and market mix. It's to improve our
	margins, to be more capital efficient, and to be less cyclical and more robust as
	an industry.
	So, partnerships are going to allow us to really work on being more capital
	efficient as we spread that capital and leverage partnerships and technologies.
	And you see that with what we've done in China, and you're starting to see that in
	other partnerships in areas that we're moving to make sure that we're much more
	capital efficient.
	We're looking at how we do that. We have metrics across all four of those key
	variables. And then when you look at that relative to the best-in-class industrials,
	you can really understand where automotive is and has performed over the last
	30 years relative to best-in-class industrials. So, we know exactly where we need
	to go to start to provide the types of returns in a business that is competitive with
	the best-in-class industrials. So, that's another way we're going to leverage
	partnerships.
Emmanuel Rosner:	And I think when we last spoke, when you were named Vice Chair, I think part of
	those partnerships are meant to be also on the combustion engine side.
John Lawler:	Absolutely. So, when you look at that, not only is it around the digital electrical
	architecture and what we need to do there, it's not only around the transition to
	electrification and the various types of technologies in electrification, because it's
	not just pure EVs - it's plug-ins, it's EREVs, and other technologies that are
	emerging in that space - but then what are we going to do as ICE volume comes
	down? Now, we don't believe ICE volumes are going to go away anytime soon,
	but EV mix is going to increase.
	And so, as that happens, how are we as an industry going to manage that wind-
	down in the consolidation of assets and the efficient wind-down? If we all want to
	do it independently and we're all not working together, I think that's going to be
	very inefficient relative to what could be. But we need catalysts across the
	industry to make that happen.
Emmanuel Rosner:	Let me ask you some questions on the near term and industry conditions. How
	are things going for Ford this year? And specifically, so far in the second quarter?
	You had flagged some calendarization of vehicle sales from Q1 to Q2. You now
	have almost a full quarter of model year '24 launch for the F-150. Talk to us
	about how Q2 has been shaping up for you overall.
John Lawler:	Well, I'm not going to give any guidance or information around Q2, given we're so
	close to the quarter. But when we guided in Q1, we said that we'd be at the high
	end of our range. And when you look at what's been unfolding relative to the
	launch of the F-series, it's launched now. We're working down that inventory,
	which is good. When you look at the progress we've been making, Q1 is a good

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John Lawler (cont'd):	indicator of where we can head as a company and how this year is going to
	unfold; hence, the guidance we gave at Q1.
	And I think that when you start to unpack some of the key levers for us, it's really
	around growth. And you saw that in Q1 as we grew. And we've grown over the
	last 24 months, really, around product and mix. And you're seeing that strength in
	product. This year, 60% of our product in Ford Blue will be all new by the end of
	the year. We're continuing to see strong growth in Ford Pro. And right now, what
	we're seeing in electrification is continued growth, slower than what everybody
	had expected, but growth is continuing. And you saw that in the results that we
	had coming out of last month.
	So, it's really about those four levers: capital efficiency, growth, growing margins,
	and then what we're doing to become less cyclical. And the area to become less
	cyclical is we are growing out both our service businesses as well as our
	software business. And you see that growth in Ford Pro, you see that growth in
	Ford Blue, et cetera.
	So, right now, Q1, off to a good start. We reflected that in our guidance. We're
	working through some of the issues.
	Now, for Ford, Emmanuel, I think you'd be the first one to say that, "Your Achilles
	heel is costs." And we're working through that. We're seeing some puts and
	takes on costs. It's interesting, we're seeing some inflation in the warranty space;
	the cost per repair is going up. But we're seeing a little bit of good news come
	through on commodities.
	We're on track to deliver our $2 billion of cost reductions this year. We're gaining
	traction in the design reductions. Those will come with the '25 model year. So,
	those will really start to show up in the second half of the year. And we're doing
	good work in our manufacturing facilities, leveraging cost reductions to offset a
	majority of the cost headwinds we see coming out of the new contract.
	And as with any year in this industry, there's puts and takes, but we're continuing
	to progress, and we're consistent with what we had said coming out of Q1.
Emmanuel Rosner:	That's good to hear. Have you seen any signs of weakening consumer demand
	so far in the market? The U.S. obviously continues to be robust, but I always
	think of it as more like an output. Inventories seem to have been building up at
	some of the Detroit Three and especially for trucks. So, are you worried at all
	about supply now outstripping demand?
John Lawler:	I think we're back at equilibrium and we're getting to the point right now where
	supply is - it's not constrained any longer.
	I think when you step back and look at it, there's a - the market in Europe, I think
	there's a little bit more pressure in Europe than there is here in the United States.
	So far, the consumer has held up pretty well. Pricing has held up. But as you
	said, inventories I think are back to the point where we need to be very thoughtful
	as industry about the production versus demand and then the supply that's in the
	marketplace. So, we're watching that very closely.
	We're still targeting to be somewhere between 50 and 60 dealer days supply.
	New vehicles that we have out there are turning very quickly.

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John Lawler (cont'd):	So, I think, Emmanuel, we're at a point as an industry where we need to be very
	thoughtful about how we proceed from here and watch our production relative to
	supply very closely and the stocks on the ground at the dealers.
Emmanuel Rosner:	I guess, so far, what are you seeing in terms of vehicle pricing for you and the
	industry? Is there a risk that price cuts are coming to help reduce this inventory?
John Lawler:	So I can speak about where we're at at Ford. We had been planning for a 2%
	reduction this year from a top line pricing standpoint. I think that as we see the
	year unfolding, first quarter was a little bit stronger than that. We didn't see much
	come through. But I think there's a bit of increasing pressure, and I think you'll
	see that flow through in the second half of the year. So, I would still expect that
	you'll see a little bit of pullback on top line.
	And I think that's something that you would expect, given where the consumer is.
	We keep watching not nominal pricing; we keep looking at real pricing. So, that is
	cost increases, prices increases relative to wage growth. And we're still at the
	higher end of what we saw pre-COVID, is monthly household income required to
	purchase a new vehicle. Before COVID, it was in the 13% to 14% range. During
	COVID, it went up into high 14%'s, low 15%'s. Now we're back, getting back into
	that 13% to 14% range, but I think there's a little bit more that's going to come off
	the top end for the consumer to get back to where it was before COVID.
Emmanuel Rosner:	I think you've also said for a while that dealer margin would be the first to
	potentially moderate. How much of that has played out from your observations?
	And how much more room to go?
John Lawler:	I think it's still coming through. The dealer margins were really strong during
	COVID, just as they were for the OEMs. I think the dealers, as inventories built
	up, they're transacting again and they're working what they do, and I think you're
	starting to see some of those margins come in a bit in select vehicle lines. In
	other areas where there's strength, I think the dealers are managing their
	business well. So, I think it's going to be a combination of both the OEMs and
	what the dealers have been doing and what the dealers do. I think it's all going to
	be focused on providing the customer good value, and our role is to make sure
	that we keep inventories in good shape.
Emmanuel Rosner:	Maybe one last one on this year, and then we'll move on to the midterm outlook
	for each of your businesses. Your overall guidance this year is $10 billion to $12
	billion of company-wide EBIT. Your last commentary there was you're tracking
	towards the high end of this target. Is this still true? And can you share the
	drivers behind that?
John Lawler:	So, there's no change to what we guided at Q1. The drivers behind that are, one,
	if you - this is where I think the segmentation is really helpful. So, you have to
	peel back based on each of the segments and how we guided at Q1 for those
	segments. So, let's do that.
	In Blue, 60% of our products are going to be new this year by the end of the year.
	We have an all-newF-Series that launched in Q1. We're bringing that through
	the market now. Demand has been very robust. They're turning at a fast pace,
	which is very positive. And then we have quite a few new other vehicles that
	we've launched and that we are launching this year. Right now, we're launching
	the new Explorer.

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John Lawler (cont'd):	And so, we should see continued improvement with Ford Blue as those new
	vehicles come in. And so, we think that that's going to allow us to continue to
	progress that business, grow the business, and provide strong margins.
	Pro has been I think the proof case of what we can do as a business and the
	opportunities that we have in this industry. Margins were very strong in Q1,
	consistent with us approaching and hitting the mid-teens targets for that
	business. We're continuing to see demand because of the amount of spending
	that's going on in sectors that drive that business. You have a lot of work going
	on on the infrastructure around this country. You've got the CHIPS Act. You have
	5G. And that's all driving demand for our vehicles. In the past, it used to be as
	housing starts went, so went the commercial vehicle business. That's no longer
	true. There's a lot of other industries driving that. And you can see the data about
	the amount of capital flowing into those industries, which then drives demand for
	our vehicles. And we're continuing to see that unfold as well.
	And then on electrification, when you unpack what happened with electrification,
	18 to 24 months ago there was a hype about how quickly that was going to grow,
	and there was a strong narrative around that. And I think we had a false signal
	coming out of COVID and the fact that the early adopters came in so strongly.
	Then when we got through the early adopters and we moved into early majority,
	you saw that back down a bit, and those customers are not willing to pay the
	premium and there's not as much of an understanding around the benefits of an
	EV.
	And then some of the things that are out there around the drawbacks of EVs
	aren't completely understood. Range. Something like 90% of the customers drive
	within the mileage capability of an EV on a regular basis. Very few trips over 200
	to 250 miles. And so, that range anxiety is really just something that's there that
	the consumer doesn't really understand the capabilities of the EVs, the charge
	capabilities, the number of chargers that are out there actually that are available
	to consumers. So, we've got to work on that as well.
	But demand there has come off, and I think it's not a matter of if it's going to be
	there, it's how fast. And so, when you look at the S-curve, it kind of looks like
	we're in the bathtub period, where we're in the saddle of it, and it's going to come
	back at some point here. And exactly when, I don't think anybody knows.
	So, we're continuing to invest in EVs. We're working on our second generation of
	products which are ground-up. We've delayed a few of those - the three-row
	SUV - because we have battery technologies that are coming in which are going
	to be much lower cost - mid-nickel,low-nickel technologies - as well as other
	technologies that we're going to leverage to lower the cost for those as well.
	So, I think across all three of the segments we've got a plan that's moving
	forward and you can see the results there and you can see how we're
	progressing within each of those. But very focused on the specific needs of those
	customers and driving the business around meeting those needs in a profitable
	and competitive way.
Emmanuel Rosner:	Let's go a little bit deeper into the specifics and midterm outlook for each of these
	business segments. So, starting with Ford Blue, you indicated that you think the
	company is on track to cut costs by $2 billion for the year. I think it was both
	manufacturing and design materials reduction. I think you've talked in the past

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E. Rosner (cont'd):	about closing a $7 billion cost gap versus some competition, with opportunity
	mostly in Blue. Is this $2 billion part of the $7 billion? Is the $7 billion still
	something that you're targeting? What more needs to be done beyond this year?
John Lawler:	So, the $2 billion this year is across the company. Blue will have a part of that.
	When you look at the $2 billion, it's primarily coming through material and
	manufacturing, as I talked about earlier. Material, it's largely driven by the design
	changes we're making on the products, especially launching with the '25 model
	year coming in the second half of the year, and then what we're doing in the
	manufacturing sector.
	And it's part of the overall cost reduction efforts that we need to be more
	competitive with some of our core competition. And so, we're focused on that,
	and this is a step in the right direction, and we're going to continue to focus very
	diligently on driving out additional cost reductions over time.
	So, it's not the end of it, that's for sure, and we expect to see the pace of change
	in that space accelerating as we gain traction on moving through some of these
	cost reductions.
Emmanuel Rosner:	The size of the opportunity, is that still $7 billion?
John Lawler:	I'd say the size of the opportunity hasn't changed much. We've made some
	progress, but our competitors are making progress as well. And so, we need to
	get our pace of progress to accelerate beyond where our competitors are and
	start to close that gap. But we're going to continue to do that.
Emmanuel Rosner:	And then you've obviously had a major product refresh, which we spoke about,
	and you're baking in some price deterioration of about 2% at the industry level,
	which you just mentioned. But I think you're also assuming the average
	transaction price is a bit better than this, or more flat, for Ford this year based on
	these product refreshes. So, can you go over the drivers behind this outlook,
	maybe specific vehicle? And then you were talking about some of your inventory
	targets. Where are you at on that basis in terms of dealer inventory?
John Lawler:	For dealer inventories, we're focused on being somewhere between 50 and 60
	days. We're in that range, and we're going to continue to stay in that range. It
	may fluctuate a bit month to month, but overall the trend of where we're at. So,
	yes, that's specifically on.
	From a pricing standpoint, we said the 2%. We believe that given the new
	products that we have, there will be some pricing power that we have. Because
	as you know, with new products you tend to have more of a price premium than
	the older models. And so, we expect that to offset some of that price degradation.
	So, we'd be about flat in Ford Blue.
	On Ford Pro, we're continuing to see strength. We said that through the second
	half, we're protecting for some pressure on the top line. We'll see where that
	comes out. We're starting to move into the '25 model years. Because in our
	commercial business, we'll go out and we'll do two major contracts with our larger
	fleet customers. With fleet customers, we'll do something around July, and then
	we'll do something again at the end of the year, towards October/November, as
	we take orders. And so, we're about to go off and do that right now on the first

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John Lawler (cont'd):	tranche of the '25 model years. But so far, we're seeing continued strong
	demand for our Pro products.
Emmanuel Rosner:	When you watch some of your D3 competitors having really high inventories in
	some of the important product lines - I mean, we're talking about 100-plus days
	in some cases - does that worry you in terms of your ability to realize those price
	increases?
John Lawler:	It worries me that the stocks are building. We haven't seen that impact us so far,
	but we're watching it very closely.
	I think when you look at what happened across the industry, one of the pitfalls
	you can run into is if you're pushing product out that isn't necessarily what the
	consumer wants, it's really tough to move them. Within Ford, we call those the
	ones with pink polka dots, in that they're not spec'd right and it's really hard to
	move them and it takes a significant amount of consumer incentives to move
	them forward. And so, when you look at that and if you get into the situation
	where you have a lot of vehicles that we call the pink polka dots, you're going to
	run into trouble.
	So, we're watching it closely. It hasn't been a contagion onto us yet. We're still
	seeing strength. And I think primarily because much of our product is new.
Emmanuel Rosner:	Let's shift to Model e. Can you give us a sense of where Model e stands now
	versus how you were thinking about it a year ago? You've pushed out some of
	the launches of a few next-generation EVs. How should we think about Model e
	in the interim, between now and some of these, sort of like, pushed-out
	launches?
John Lawler:	Well, price compression for that segment has been significant, down over 20%.
	So, our cost reductions haven't been able to keep up with those price reductions.
	When you look at this year, we're going to continue to have cost reductions in
	Model e. The question is, is the pricing going to stabilize? Or are we going to
	continue to see pressure, downward pressure, on the top line? So, we planned
	for additional price compression in the e segment through the rest of this year,
	and that's how it's unfolding. Let's see. So far through midyear, we've seen some
	price come off in the first half. Let's see where we go in the second half.
	When we look at the Model e business, it's really about the second generation of
	products. And we did delay the three-row SUV because we've said we will not
	launch a second-gen product unless it's profitable within the first year and we are
	going to get a return on that capital we're investing.
	We delayed the three-row SUV because there's technologies that are developing
	specifically around batteries, going from high-nickel to mid-nickel, which will
	provide us significant cost reductions. The energy density comes down. Nickel,
	that chemistry and the make of that chemistry, is more affordable. And as the
	energy density comes down, what you need to do for thermal propagation, et
	cetera, can be managed differently, which is a significant cost reduction. So, we
	pushed that out, with those developing technologies around the batteries.
	The other thing we need to understand is that in the electrification space, what's
	happening on the retail side is different than what's happening on the commercial

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John Lawler (cont'd):	side. So, remember that electric vehicles are in Pro as well. So, the electric van,
	the Ford Lightning pickups that they sell that are electrified, those are in the Pro
	business and those are in the Pro business results.
	And when you look at those and you look at what the consumer from a
	commercial standpoint has done is they've been very careful about how they've
	come into electrification. So, they started out buying a few number of vehicles,
	because they wanted to put it into their duty cycles and they wanted to
	understand what that complete equation was for them from a total cost of
	ownership standpoint. And as they've done that now for a year to 18 months,
	they're seeing that in certain duty cycles that the cost of ownership is better. And
	so, therefore, then they're starting to adopt. And we've had some of our
	customers who have gone - now are moving to a full-EV fleet or a majority-EV
	fleet, given their duty cycles and the cost of ownership is better.
	And so, the Ford Pro business, the great thing about the Ford Pro business is not
	only are we selling them the vehicles. We're selling many of them the charging
	networks for their depots. We're selling them the software to charge. We're
	selling them fleet management software, et cetera. And then we're servicing
	those vehicles for them. So, we have that ecosystem that's built out that I think is
	accretive.
	And it comes back to that fourth pillar I was talking about, is that the way you
	become more resilient and less cyclical as a business is you grow those services
	and you grow that penetration there. If you look at the Ford Pro business, when
	you look at the attached services, the physical services, we're going to grow from
	roughly 30%, 35% to 50%, and those have gross margins of 40%. Our software
	services are growing at over 40%. We have 560,000 customers buying our
	software, fleet management, telematics, et cetera. And so, we're going to
	increase our penetration of connected vehicles from roughly 30% to 60%.
	So, it's a cycle there that's happening. So, you have to look at the electrification
	in the commercial business separately than what you see it in the retail business.
Emmanuel Rosner:	Let me ask you a question about skunkworks. I think obviously initially your next-
	gen EV project was going to be about larger vehicles, in general. It feels like as
	part of this sort of like next generation new strategy you also have a lower end,
	more affordable. What essentially prompted that? Because on the ICE side, it
	doesn't look like you're trying to compete that hard in the $25,000, $30,000 type
	of price point. But is it necessary on the EV side? Do you feel like a big piece of
	the U.S. market will end there? Or is this a global effort? Is it a regulatory effort?
	Can you just put it in context for us?
John Lawler:	All of the above. There's a global effort. Compliance is something we work on
	every day. Tailpipe emission standards are getting more stringent year after year.

The other thing is the conventional wisdom in the industry is - and it's true, right?

• when you look at our larger vehicles, they're profitable. The bigger you go, the more profit you make. The cost of that and marginal cost of adding a third row into an SUV is much less than the revenue that you can gain for that.

It's the inverse in electric vehicles. The most expensive part of an electric vehicle is the battery. The smaller the vehicle, the smaller the battery you can put in. So, therefore, then the cost is lower.

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