Ford Motor Company Morgan Stanley's 14th Annual Laguna Conference

All right. Good morning, everyone. For those that don't know me, I'm Andrew Percoco. I cover autos here at Morgan Stanley. Very excited for our next conversation with Mike Aragon, President of Integrated Services at Ford. Thank you for joining us this morning.

Yeah, thanks so much for having us back at your conference this year.

Of course. Appreciate it. Before we get started, just a quick disclosure here.

Please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative. All right, maybe just to kick us off, you're 18 months into the job at Ford. Your career, you've been merging hardware and services and software across various other end markets. Maybe just discuss what you've learned and what you think the market might not be appreciating in terms of the opportunity at Ford when it comes to services and software.

Yeah, when I came into Ford, as I was going through the interview process, especially somebody not from automotive, brand new, mostly from the tech space, one of the things that I didn't see a lot of chatter about was Ford Pro and the fact that we have incredible hardware through Super Dutys and transit vans that our commercial customers love, but this growing software platform on top of it, where we were getting a lot better at taking vehicle signals, prognostics, and then closing the loop with physical service, which really adds a lot of value to our customers. So that was one area that I just felt was underappreciated.

What was exciting to me about that was that's a problem that travels pretty well to the retail side of the business, so a lot of room to grow as we expand it from just mostly a commercial-focused initiative to more bringing that same thinking and product development to the retail side of the business as well.

That makes sense. What surprised you the most? Is it the opportunity for Ford on the Ford Pro side? Is it BlueCruise as it relates to autonomy? As you really dug into the weeds of everything Ford has built, what surprised you the most as you've really started to do your work over the last few months?

Honestly, the thing that surprised me the most, again, because I was an outsider coming in, and a lot of my tech friends were like, "Oh, you're going to auto." There's a perception that as a 120-year-old company, where are these companies going, especially with all of the competitive threats and the macroeconomic threats. The thing that surprised me, the pleasant surprise, was the focus and dedication on transforming our company. We're a 120-year-old company, and it starts at the top with Jim. I'm sure you've gotten to know Jim a little bit, but what you see is what you get with him. He's all in on the transformation of Ford because he sees this as our ripe opportunity to set us up for the next 120 years.

It was a pleasant surprise that the company at the top gets it, and it permeates down into the leadership team, so all of my peers on the leadership team completely bought in. I would say pleasant surprise, just because I was hoping to do that, and that's the organization I wanted to be a part of. We're doing it, and again, we're doing it with a pretty intense focus.

Yeah, that's great. When you think about executing the growth in this business, I think you guys have disclosed 1.6 million paid subscribers growing at a very healthy clip. How should we think about the true addressable market as it relates to adding these services, both on the Pro side of the business, but also on the retail side of the business? How quickly can you actually increase that subscriber base? Is there hardware integration that needs to happen? Just maybe talk through- Yeah the addressable market and what it takes to get there.

I want to start with that 1.6 million subscribers, because a lot of other OEMs look at it a little bit differently. That 1.6 million is just customers who choose to subscribe after they've purchased the vehicle. There are other ways to look at it. You can look at included with duration as part of that. You could look at trials as part of that. I know some of our counterparts in this space look at it that way. Nothing wrong with either option. We just want to look at early signals in terms of product-market fit. We see that as a signal. If a customer's chosen to do this, it's not bundled, pretty good sign of product-market fit. That's why it's an important metric for us.

Because we have so many products, it's a little bit of a tough question to answer, but I will give you a subset of that answer with a specific. With BlueCruise, we have 1.5 million vehicles that are part of the install base. Of that, we have 530,000 customers who subscribe through us, and that's growing at about 40% year-over-year. Of that 530, 200,000 are part of that cohort I was just talking about, the people who subscribe after the fact, and that's growing at 170% year-over-year. What you're seeing, and what we're happy about is that early leading indicators that product-market fit's really starting to take on, especially as BlueCruise continues to get better with new features very regularly every year.

The way I think about the, to answer your larger question, the broader opportunity, our job is to do a few things. One is to grow integrated services, and so you'll see that number continue to grow. If we do our jobs, taking all the vehicle health signals, looking at our customer behavior, solving real problems for them on the parts and service side, you're going to see us pull in more of that aftermarket back to Ford, right? A lot of OEMs have this problem where a lot of that aftermarket escapes to individual shops or some of these larger companies out there that do that. We want to pull that in.

The third component is if we do those first things really well, integrated services as indispensable, and then pulling in more of the aftermarket, that next vehicle's going to be a Ford vehicle, and so we've earned their loyalty. If we do those three things well, I think the total addressable market from integrated services contribution, it's going to be a force multiplier for Ford.