Ford Motor Company (F) Presents at J.P. Morgan 2022 Automotive Conference (Transcript)

Aug. 13, 2022 5:59 PM ETFord Motor Company (F), F.PB3 Comments
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Ford Motor Company (NYSE:F) J.P. Morgan 2022 Automotive Conference August 10, 2022 9:30 AM ET

Company Participants

Ted Cannis - CEO, Ford Pro

Conference Call Participants

Ryan Brinkman - J.P. Morgan

Ryan Brinkman

We can get going with our next presentation. Once again, I'm Ryan Brinkman, the U.S. automotive equity research analyst. Thanks for joining us at the 2022 Automotive Conference.

Very happy to have here with us, Ted Cannis, CEO of Ford Pro, one of Ford's 3 new business segments focused on commercial vehicles. Of course, many of you will remember Ted from his time as Director of Investor Relations and from his time as Global Director for Battery Electric Vehicles, leading strategy and execution for what was called Team Edison, having played a key role in the development of the outstanding Mustang Mach-E. He also -- we're just discussing, one time headed up Ford's efforts in Russia as CEO of the then Ford Sollers venture.

So Ted, thank you so much for coming to the conference.

Ted Cannis

Thanks for having me. Great to be here.

Ryan Brinkman

And now I get to read something that I've always secretly wanted to read, but as a sell-sider, never had the opportunity. And that is that today's discussion may include forward-looking statements about expectations. Actual results may differ from those stated. The most significant factors that could cause actual results to differ are included on Page 22 of Ford's 2Q earnings presentation.

Ted Cannis

A lot of things.

Question-and-Answer Session

Q - Ryan Brinkman

So with that out of the way, let's kick it off here. Ford is undertaking a really substantial challenge, right, to redefine its operating segments, including full P&L transparency beginning in 2023 with some retroactive clarity provided as well. So help us better understand Ford Pro and the logic for carving out the commercial vehicle business. What are the benefits in doing so?

Ted Cannis

So I think it's a great question for what we're doing as a company. As an investor, I always know that you're going to have to redo all your spreadsheets and put them in new segments and calculations, come up with your new models. So sorry about that.

For the business though, it's a great thing. What we're doing with Ford Pro, just to explain it again, is it's a combination. It's absolutely dedicated for commercial customers, both governments, small, medium and large businesses who are -- have very fragmented solutions in the marketplace today. They're not using much software for a small business. They have to go buy vehicles, software, charging, service and financing from a lot of different vendors. The systems don't work together, it's complicated and the results don't work together. And they're trying to go to an electric-connected world. So that's what we're piecing together for them on a global basis with Ford Pro.

And if you look for the -- from that side of the business, what do we get as Ford? Well, Ford, we're in the vehicle business. These are trusted vehicles that people love in the commercial space, which I'll talk to in a bit, but they are a great backbone of business. But what we get now is expansion in the profit pools that we've never been in before, new addressable markets and higher-margin businesses in this always-on beyond the vehicle-connected business. And that allows us to have software-as-a-service-type margins on a subscription basis, with the continuing recurring annuities that you would expect in this kind of business. Very different than the cyclical businesses that we have in the vehicle margin side. And we can do that through connection through software.

And if you look at what Ford is doing in the segments that you'll see next year, it takes that thinking through the customer straight through into the income statement. So I can see how my business is focused on the unique needs of commercial business in my case, we can tailor solutions on modernization, innovation to those customers. We get profit and loss transparency, and you and the company get accountability in those business units to those commercial solutions. And the same thing for electrification solutions that have complete new systems, different skills in battery packs, cells, charging networks and those profit and loss and accountability and innovations.

And the same in the awesome Blue business that we have. Look at the pivot that we made years ago from Focus sedans into amazing sold-out, loved products like Maverick, Bronco and hugely tough engineering products like Super Duty and off-the-grid products that have to go in places that they don't go. So that's how we're thinking about the operating segments. It holds us accountable and lets you see the transparency of those businesses. So you'll see a lot more on that.

Ryan Brinkman

Great. And before we get into all the new exciting things that you're doing at Ford Pro, can you maybe give us an update on how you see the health of the North American and European commercial vehicle markets currently?

Ted Cannis

So we're all watching inflation coming this morning. We're watching the economics, having been in a lot of high inflation markets in my career when I was in Brazil and it was 40% a month, when the ruble crashed when the first time they invaded Ukraine when I was there. You're watching business economics all the time.

In our case, in the commercial business, we have the front-row seat. In North America, we have 40% of the full-size truck and van business for commercial customers. We've earned that over many years because that is the capability that we have. F-Series, the #1 product here in the country. The Transit is the #1 global cargo van in the world. In Europe, we're the #1 commercial vehicle franchise for the seventh year in a row with growing share. And in similar situation, like F-Series is the #1 product in America, not just commercial. The Transit Custom 1-ton van is the #1 selling vehicle in the U.K., not just commercial. So we have -- we are at the front row. And what we see is extreme levels of demand.

There is so much pent-up demand for the commercial products through the chip and supply constraints crisis and through new business model of delivering services and all kinds of delivery goods, not just retail goods. And you're seeing it in pet services. You're seeing, obviously, food being delivered from stores that never delivered before. They used to have big Class 8 trucks come to the site, and you would pick up your stuff at those stores. That model has changed. So we see incredible demand for all our products, and we are -- and this also means even in the emergency response vehicles where we also lead, police cars, ambulances and the rest of the business.

Ryan Brinkman

Great. There's a lot of talk in the industry about last-mile delivery with some big announcements by companies like Amazon, FedEx, et cetera. How is Ford Pro thinking about this last-mile delivery space?

Ted Cannis

So I think many of you who are in the room, if you're looking at EVs, non-EVs, or if you're in the suppliers, you're piecing these together. You get the -- you read the newspaper article and you, like us, you're combing through the announcement, scrutinizing every detail. What did they say? Was it orders, nonbinding? Was it reservations? Was it -- what is it that they're talking about? How many years we're including? You're finding, well, it's going to start here, and it's 3 years, 5 years because many companies are trying to show their green credibility to their stakeholders as well. And so they -- the bigger the number -- and it's typically delivery. Why? Because the new guys need anchor tenants that have big volume. They're in low margin, very competed over segments, and that's what you're seeing. But delivery in the van business is only 10% of the business, much bigger segments.

Our construction, service and maintenance, government, there's a lot of other big businesses. We are all sitting there at home working, availability bias. They're all coming to our door delivering things. They have a marketing campaign. So we think the only businesses that are out there are those ones. So we handled it completely different way.

We have -- we've come out with 8 different versions of Transit or electric in the United States, low, medium and high roofs, different wheel bases, some have to be parkable in parking structures. You can't do that with a tall delivery van. And we're doing that. And with that so far this year, we have 95% of the electric van 2-ton business, 95%. Over 3,500 vehicles July year-to-date, and the other guys have less than 200 OEM reported data so far. It's not even close. And in Europe, growing very fast, where we launched later this year. We had something like 28% share in June, which is the latest reported data and as we roll those out. So it's a completely different business.

The other thing is they all require upfits in our space. Something like a majority of a transit are upfit, and they have to use an outside service body, racks and bins, shells. And both here, we have 300 qualified upfitters that we work with. Some have been working for over a century, and they used to be in the carriage business, 200 in Europe. And you're matching those upfits to the body so they can be used in the vocation that you have. And if you don't have the hard points on the vehicles, that carryover for internal combustion and both because the average fleet customer puts 10% to 15% of their business a year, you can't buy at scale what you're already buying and use across your vehicles and swap the gear, equipment, tools that you have. So it's very hard for others to get into all those different vocations. So that's what we read when we read about delivery.

Ryan Brinkman

Ford has been having some significant success with its new crop of electric vehicles. Jim called out super high market share for the E-Transit in its category. What insights are you learning from these EVs on the road now? And then also, what are the implications for the commercial business from that success?

Ted Cannis

I think -- so obviously, the glamour business is all retail. The first thing you ought to understand between a retail customer and commercial is the retail guy is in a might. You can imagine you yourself as a retail buyer, hey, I need a 7-seat SUV. Yes, but you have one kid. Yes, but with the kid, they might have soccer camp, and it tows us out here. But you don't have anything. Yes, but we might buy a place in the Finger Lakes, and we might get a boat, so we have the towing just in case. That's how retail works.

The commercial business is like this. The boss says is how much you're going to spend. Why would we buy a V8 with more fuel if a V6 won't work? You're going to buy what you need. So if we're going to do 200 miles a day in White Plains, well, you're not doing your plumbing business with 10 vans and going to Charleston. It's a bit of -- it doesn't make a lot of sense. So in our space, it's total cost of ownership. Hey, how much repairs am I going to save? Fuel prices are going up. How much fuel am I going to save? They think they're all going to public charging. We can talk later about charging. But instead, they're actually going to do their charging at home, so they're going to save hours at the gas station. And they're penciling this out, local incentives, work zones, opportunities. And what they really like in our space is the new capabilities of truck, like Pro Power Onboard, Power-Up tools, the front space so they don't have to use the bed in the back. They can use the places in office, plug-in laptops equipment because they always have power from the battery. So it's -- use cases are also totally change the business. And this isn't just giant companies, this is plumbing units, [mentally] organic guys, plumbers and electricians. Something like 40% of our customers have 150 vehicles or less in their fleet, which we classify as a small fleet, by the way. We have 125,000 active fleet accounts just in the U.S.

Ryan Brinkman

Great. Jim Farley has emphasized the importance of 100% uptime, investing in the customer experience post warranty. What role does Ford Pro play in this? And what progress is being made?

Ted Cannis

So if you look at our business, Ryan, or commercial customers, they want to be uptime. So to make money, they either are serving electric lines or they like working on a construction site. Roofers want to roof. Plumbers want to plumb. They don't want to be fixing and working on vehicles. So the main thing is to keep on operating all the time with as little downtime as possible so they can generate the mass customer value or for either earning revenue or fixing solutions basically. And so that's what we spent the time on.

So a year ago in Europe, we landed a complete command center. It's kind of like the side of the wall here. We -- where -- and it's not just roadside assistance. This is like where is my vehicle when it's repaired and proactively working to get them back on the road. So taking software and data and creating new constructs sometimes like you would see in the CAD or the Deere business or something like that to get the Mach on the road. We've put in fleets of mobile service units, again, not roadside assistance, light repairs, maintenance, brakes, things like this where you can go out to the customer site with a vehicle, fix 10 vehicles, not just Fords, other brands, Rams, multi-make vehicles, you fix them. And instead of them having to drive 10 vehicles with other employees to a dealership and then taking and deploy back while you leave it there, you can get it all on their site at their time. We're doing it with new facilities of longer hours. They are dedicated for these conversions of higher bays for delivery vans, longer specialized equipment.

In the U.S. alone, we have over 650 commercial vehicle centers of our 3,000 dealers that have specialized in commercial work, and we're adding another 120 elite ones on that, that only work on commercial. Never waiting behind a retail customer. In Europe, it's 800 Transit centers. So this market coverage to keep the customer on the road, electric or internal combustion, and mobile service is great for electric because they don't go on the lift very much, nothing to work on underneath, is a huge opportunity that we're investing heavily through data software and new service capability, give a platform. And we expect just in the U.S. alone to generate another $750 million in revenue by 2025, which is obviously a higher-margin business.

Ryan Brinkman

Maybe a similar question but about the always-on connected vehicle strategy, which Jim has also been emphasizing. What role does Ford play in that area? And what progress are you making?

Ted Cannis

So in the whole switch to always-on, so in the commercial space, we started getting most of the modems coming in the vehicles in North America and Europe at the end of 2019. So in that space, you have other software providers, but they don't link up to your vehicles. They can't reach inside the vehicle to do command and control. They can't get the rich prognostics data to see how the vehicle is operating because your use case and your operation might be different than your neighbors in a business who -- of plumbing. So we create that capability through digital algorithms to operationalize the vehicle so you can manage your vehicle health report. Some we give for free, our essentials product. You can manage engine hours and other things like that, connector vehicles up. Others are paid telematics subscriptions, which are growing at a 40% quarter-over-quarter clip sequentially in the last x quarters. And so what we see is there's a lot of demand. And it's really in the small and medium business.

Giant companies have gone digital. But a small company, something like 150 vehicles, 200 vehicles in their fleet, we see something like 10% have gone into software solutions. And now the modem is already equipped in the vehicle. You don't have to have an extra plug-in device for extra money that they fall out. They get left at dealerships. They have some quality issues at times. You can get that data -- rich algorithm data to manage your business and your drivers. And that is really important to them. Where are they working? Are they harsh braking? They don't -- nobody likes harsh braking. Slamming of that causes collision, raises insurance. One driver raises the rates for the whole group. If I can manage you when it's happening and you're speeding too fast, then I can intercept the driver behavior.

Ryan Brinkman

Great. And how do you think about the addressable market for commercial software? And who are your main competitors there?

Ted Cannis

So if you look at that software space, it's predominantly because of they kind of get to, it's again to these big fleets, and it's companies like Verizon Connect or Samsara or Geotab. And they have to plug in because they don't own the modem in the vehicle. And we see that space growing to about $5.5 billion TAM by 2025. And there's many flavors that are expanding the tool set.

So I mentioned some of the telematics products we have now in the in-cab coaching. We're moving the spots like -- we have a new program on a Salesforce platform called VIIZR that's coming out, multi-make, not branded Ford. And its Salesforce field management adapted by us for the trades, electricians, plumbers, et cetera, new cars, used, Rams, Fords, those kind of products. We announced Canopy with ADT, a joint venture that we have, where it's security, what's in the back of your bed, so it doesn't get stolen inside a van, a big problem in Europe we have with van of contents being stolen. So you have that, and you have the monitoring over process.

Obviously, driver monitoring is a big one. Collision recreation is a big one. So these are huge spaces. As camera costs come down, as connected integration moves up just like your ring doorbell, your nest and everything else that you're trying to control in your house, this is what a fleet manager is trying to do. He's got hundreds of employees. He's got vehicles all over the place -- or she, and they're trying to figure out how to manage my fleet to reduce operating cost to the lowest so I can run my business.

Ryan Brinkman

Okay. Ford has been talking a lot about commercial charging and the BlueOval charge network. What makes Ford Pro potentially better positioned to succeed in this area relative to some of these more dedicated charging companies?

Ted Cannis

I think -- so most of us were all talking public charging, just like the infrastructure bills are talking public charging, which tends to be a lot of DC charge. I need to zap and get out quickly. Our space, if you're in the commercial charging business, is totally different. And our approach to our competitors is also totally different. So we went earlier this year like when I was in the Edison team to do a myth-buster survey, this one we called fleet busters. So we went out to 1,200 fleet decision-makers in U.S., U.K. and Germany. And first of all, came back as a lot of those decision-makers -- the fleet manager decision-maker isn't making the decision. The Board, the CEO, the CMO, the Chief Sustainability Officer, a lot of new people have told them that they're going to go electric. 60% of them, and it's almost the same by country, a little bit different by size of business, but they say it's going to be a big headache. And the #1 on the headache list is always infrastructure. And in our fleet guys, when they go into a meeting before, you never asked the guy where he fueled. It was kind of a silly question, whether he's going to go BP or Exxon or whatever. Now you got to know, that communications cable company, our service employees take those vans home. No, this I got to have an on-site depot. So we had started building when we did the public roaming network that we built in Europe and North America to go from the various suppliers of public charging. We had to adapt that to companies that didn't have phones, many of them are not issued company phones. And how could you pay for charging without an RFID, without an app or something through the vehicle? So we had to handle that.

On home charging, we had to address the system to do this, kind of problems like preconditioning the vehicle, which you have to have the software to reach into the vehicle to warm the battery up here in New York in the morning, all those block of cold chemicals, basically metals, and warm them up so you can get full range. And if you don't have that, you're not going to get 20% to 30% of your range and not operate what -- we had to create in driver notification systems. You forgot to charge last night, Frank, and you're not going to be able to do any work in the morning because it's not on. Or in the middle of the night, there was a power outage. We've sent notification to you. The fleet manager knows the vehicle is in and charge, ready to go for the morning.

But what we didn't have solved was the depot charging because it's a much more complex part. And so we did a big acquisition search last year and purchased Electriphi. They were a Silicon Valley start-up dedicated on commercial business. They had -- they were managing like the Sacramento bus school system EVs and others, mainly Class 8 and above. And they take like a linear program, and it's like here's 10 guys who have stated charge coming in at night. These guys had 20 miles left, 13, 18, 43, and they match it up to the utility -- local utility rates level. Here's the rates at time of day parcels. Here's the peak demand chargers that you don't want all those to go over peak demand then you're going to pay a huge monthly hit because they were seeing a lot of guys would go fleet electric, and they weren't saving the savings in the kilowatts. And because they're buying at the wrong time of day, then the APIs that fit into the back-end enterprise systems, SAP, Oracle, driver management, dispatch and routing, and it bundles all that together, and then we bundle that together with her home and public to give an end-to-end solution, however your workforce works, which can be very different even in the same vocation. The delivery companies handle delivery very different way with different kinds of vehicles, customers and solutions. Same thing with every business. And we meet with them to pick these solutions, and it takes weeks and months because the guy in the past was buying oil. He often -- she often as a site manager buy his kilowatts, and somebody else has an IT budget by software. But if you don't buy them as a package, charging software and service together, it doesn't really work that well. Firmware doesn't work with the vehicleware where they have cloud issues or latency issues. They don't get commercial-grade chargers, so they don't have the cables long enough. They might only have WiFi connection, but they forgot to get cell phone or Ethernet connections because they need more reliable connections. And they just don't know.

And what they think, like retail guys, is they're going to use all public charging at first. Got to have public charging. Got to have public charging. You say, well, if you have public charging, your driver is going to be sitting there, going out of the way, sitting at a charger, paying more money to zap the thing at paid 12 times, why would you do that? Residential charging is a lot less. You can get an AC charger. We built both the vehicles, E-Transit and both batteries, we put an extra onboard charger in the lighting on the larger one, so that you can charge AC overnight. Low cost, not so much charging infrastructure, much easier to get started, and we'll finance it as well. All of this for you.

So we end up having month-to-month long discussion with many ginormous companies because they tend to be different departments: IT, facilities, general management and other people who will be joining the conversation, sustainability officers and extra say, "We have carbon goals in 2025. We need to have this plan. And so it ends up being a very long discussion, right?

But I will say on a happy note, this week on Monday, we hit our 100th commercial customer that we have. So we only [have added mill] in the E-Transit and Lightning made for a few months here in Europe. And we already are listing these customers of very large to very small who are buying our solutions, including we just announced today, DTE. We have a big deal with renewables in Detroit on energy, and they're buying both Lightnings and E-Transits from us and charging solutions to manage their charging fleet with the software.

Ryan Brinkman

Why would you say that a customer or maybe an investor should place their bets on Ford Pro part of a legacy traditional OEM being successful in this area rather than maybe one of these pure-play EV start-ups?

Ted Cannis

I've had this question before. Well, one, because we're cooler. There's that. But probably this is -- imagine this conversation in your fleet. This is the thing, most of us are all retail customers. You probably don't talk to that many fleet decision-makers. I am sure as heck, you're going to go out and look at what arrives at your home in the future to drive it down the street, noticing that landscaping vehicle, that plumbing van, that utility truck. And you will see, gee, there are a lot of Fords on there and a lot of other ones that are built on Ford bodies, but you can't see the branding.

This is how the conversation goes, imagine. So Mr. Fleet Manager, I'm here today. I'm the new start-up guy, and I'm telling you why we're just a perfect entry. Okay. Well, I'm going to ask you a few questions. What would those be? Well, hey, Ford says they've just locked up raw materials from around the world, Indonesia and Australia. They got the lithium and the cobalt and nickel. What about you? I know you said you pushed back production a couple of times. You've down-ramped the numbers. You're using cells that you've been obviously working on many, many years ago. You've got offtake agreements for all the supply. Absolutely. We got that. We do have that. Well, what about battery plants? Ford says they're investing some of the other OEM big battery facilities, joint ventures, SK, LG -- have you seen these facilities, football fields long of technology with no people. It looks like an Intel plant. You've got supply there all showing up. Absolutely. We've got all kind of same pricing, no risk premium. No. Check.

Well, I see you're using some -- you've got one body style on you. You're going to have more body styles because we need to garage our vehicles, and you have a high-roof van. You're going to have some more? Absolutely. You've seen our PowerPoint presentation. We're going to have some of those in the future to fill your CO2 requirements, okay? And you've got some new technology that nobody else has used in this segment, and it's critical to function if it hasn't been used by any competitor in those spaces. You're going to -- but we're new, and it's start-up -- we're a start-up, all right. Technology, check.

So you say, okay, you don't have -- it's -- you have own -- you don't have an upfitter base. Ford has 300 qualified upfitters in North America, 200 in Europe that have been fit for purpose. They've got CAD and KE and support team. To support those upfits, they got -- outside Kansas City and the caves, all these upfitters where they do the work, shift-throughs and pass it out. You've got that? They have all that scale, thousands and thousands and millions of F-Series and Transits that they're building on. And you've got that, but all the hard points are different, the welding locations. You've got all that. And then team is booked. Absolutely, we got that, check.

Service. You're going to be able to service the vehicles in White Plains, in Duluth, in Quebec. Absolutely. We have a plan to have server. We've got partners. We've made some recommended partners, call centers, customer success teams, triage team, absolutely. Uptime dashboards, we have that. We've got a lot of recommended partners. We're piecing this together. So let me know, I got to go have a conversation with the boss.

Now let me see. I know we have 250 employees out there who are generating revenue all day, but I've been thinking we've got to go with the new guy, Ford. I mean Ford has been with us for 40, 50, 60, 800 years. We've been going a long time with Ford. Let's just try this because I've had a lot of time with the kids this summer. My wife's driving me nuts. Vacation is overrated. Let's just wing it. This will be great. We can market it. We're new. Try to imagine what that fleet conversation is like for any of these businesses. And here we are, are just doing our business, selling E-Transits in North America and Europe, Lightnings, more to come. So that is how our day goes. It's pretty easy conversations, frankly, with fleet managers.

Ryan Brinkman

We talked about the great success you've had with this current initial lineup of electric commercial vehicles, 90%-something market share for the E-Transit in its category, 200,000 orders for the Lightning, a lot of them in retail. But what about, though, the next generation of these vehicles or other vehicles? It was discussed at the Capital Markets Day last year that they could be based off of a new -- from the ground up EV platform as opposed to originally ICE vehicles that were retrofitted. What additional opportunities or enhancements is that second generation going to allow for Ford Pro?

Ted Cannis

So it's a great question. I think all of you were all wondering. These are the first generation vehicles. We spend a lot of time how could we make what is being done already better. So all electric vehicles are going to be CO2 clean. They're all going to be quiet. They all can work inside because they don't have emissions. So that's -- yes, that's not a competitive breakthrough. So we went out many different things. We're completely redesigning the front, but not just a space. We cleared all of the stuff. We cross-lighted. We put in power outlets. It's drainable. It's workable. We spent millions hours with customers working through that. We -- and a pickup bed and a Pro Power Onboard there. But we wanted to also get the scale of the massive size of the F-Series in this period of early transition, E-Transit as well, even though behind the scenes, it's a much more rigid frame, all-new rear suspension. So the drive in both of these is awesome. Imagine if you're in Europe, you've been driving manual diesels.

Now you go to a nongeared, comes right off the line with full payload instead of waiting for people in traffic, low-riding electric vehicle. It's like a driver's dream. In this time when everybody is trying to retain labor, that's a miracle, too.

But you'd still have the constraints. The engine one here. You had body style constraints, arrows constraints, which is critical in electric vehicles. So for these next-generation vehicles in the commercial space, we've talked about the $11-plus billion we're doing in Tennessee and Kentucky for Blue Oval City. There is a huge opportunities to [take the matter] with the total software integrated platform, with the new guys we brought in the company like Doug Field and their background in Apple and Tesla and the people they're bringing in. As we make this pivot, we need new skills like us buying Electriphi in the commercial charging space, new people, new skills. There's a huge new opportunity.

We've announced there's another new commercial vehicle, all new coming in Ohio. We have others in Europe that are coming to have various segments. So it's a chance -- even in the next round, we're already working to win the next round beyond the first round. And I think we're uniquely positioned because we have that huge base, we have a lot of the learnings out there already from the vehicles that we've been building. And I think we're going to be super well prepared.

Ryan Brinkman

Okay. I do have to ask at least one obligatory financial question.

Ted Cannis

That's fine. Yes, sir.

Ryan Brinkman

And I know we're going to get tons of color when we report 4Q results. You have said some things about the profitability of commercial vehicles in the past. I remember one time Ford saying that while their North America operations were making like 9% or 10% EBIT margin, that the F-Series was doing 16%. I remember meeting with Jim Farley when he was running Europe and saying that while they were doing low single digit, that Transit and LCVs were doing 10%.

So clearly, it's much more profitable than the rest of the business. We're going to see Ford Model e and Blue. We've been told that, that Model e is going to be unprofitable at start, and obviously, Blue is more profitable. What are we going to learn about Ford Pro? Why is Ford Pro profitability -- why is commercial vehicle profitability historically been so much more profitable than the rest of the business? And how would you rate the sustainability of those drivers that allow it to be more profitable?

Ted Cannis

So if you just look at a frame up of the business, last year, we said the commercial side of the business for these commercial and government-targeted customers was about $27 billion in revenue in 2019 and would go to about $45 billion in 2025. There's a lot of parts of the plan, the makeup of that. A lot of it is vehicle segments and opportunities that we didn't have before. And a lot of the software and services parts business that we're also going after at the higher margin piece and stickier long-term annuity streams. So it's a bit of both of those.

In some vehicles, they're almost entirely for commercial customers. Transit is mostly commercial customer. Yes, there are retail adventure vans and camper vans. But that's not the bulk of the business. F-Series, depending on how big the F-Series straddles retail users and commercial users, a big Super Duty, a boat or motor home or a horse trailer does that. And there's the commercial ones that they're doing landscaping and have upfits on the back to shuttle bus or something in an airport. So you have a whole range of these.

The beauty of, I think, the new segmentation is you can peer and you guys all -- when we get to first quarter, you're going to be able to peer into the business like never before to see how the constructs of each of those business work. How does the electric business work? How does this area where we really targeted the internal combustion at these off-road, very difficult performance-based vehicles like the new Mustang coming out nice. Here's how we have it and here's our business, the Pro business. And I think you're going to see that level of transfer will help you understand us better and how to place your bets in the business better.

Ryan Brinkman

Okay. Great. Are there any questions for Ted in the audience?

Ted Cannis

Jim?

Ryan Brinkman

One here. Yes.

Ted Cannis

I think they're walking the mic.

Unidentified Analyst

So your -- I love that you're pushing the segmentation, but I want to kind of get your thoughts on where your push is relative to GM and Stellantis. Because you're #1, your success because I think, as Ryan mentioned, we all know the profitability, so they're all chasing the same profit centers. Can you kind of walk us through how you evaluate your position today, the difficulty they will or won't have, matching what you're doing in the coming 2 years? Because we know they're pushing aggressively on a different time lines on EV products, software-connected trucks, commercial customers. So is this a win-win for all 3 of you in North America and Europe? Or is it...

Ted Cannis

I think that's going to be pretty different, and everybody is coming from a little base. So we're in both regions with products that tend to overlap like the 2-ton Transit, right? It is -- other than in the past, it's kind of the same kind of construct and we can use it. We're in both regions already. Both of them, Jim, would have to go to Europe, and Stellantis would have to combine their operations here. Also, we are leveraging the Volkswagen agreement that we have, building the vehicles in Otosan, so we have -- that scale our business -- of commercial businesses is getting bigger. We're Otosan in Turkey for those of you who don't know it.

So we have an increasing scale on the commercial side where we're providing the vehicle platforms and the products of Volkswagen as well. And we have the software that we're leading on. So we're doing our own telematics software. A lot of them are buying outside companies business, but we are doing that work and the integration, the command and control in the vehicle for both e-telematics in that space. And we have a couple of year head start in both Lightning and in Transits. And we're using that and leveraging that pool already with the customers.

And the same thing in the charging, both of those companies have so far gone to a recommended supplier strategy. There's charges out there that'll cover you. We said, no, no, because to offer this change where there's so much trepidation into the fleet service managers, just even the small businesses, we said we have to kind of an end-to-end solution where they're not going out at night, going who's on first? Was it the vehicle, was it the charger firmware? We would have to come up with the solutions. We'd have to do them at low-cost solutions. The AC charging is a big change versus our customers and competitors, and they want to sell you DC on the charging side. And we strung that all together, including adding financing and putting all together on a digital platform. They're not doing that.

Most of them, it's a buy-and-recommend strategy. You piece it together if you're the business. And we're also operating both regions already.

Ryan Brinkman

Okay. I think we can squeeze in one more question.

Unidentified Analyst

The other thing that Jim has talked about a lot is dogged fight against complexity in the business. Is there some balancing act that you have to do as you're continually adding to the portfolio of capabilities and then keeping the sign of complexity so that it doesn't inhibit the business as well, too?

Ted Cannis

I think the -- this is going to be Of the many gifts Jim brought to the business, this is one. We were fighting this a lot on the Edison side. So Mach-E and these products were -- and Lightning and E-Transit when I was working on before I got to this job was how to minimize the complexity and the go-to-market on that. I think we really had a wrong view at Ford that it was, if I can -- marginal -- last marginal vehicle exactly to you, that would be the perfect, then you'd buy one more Ford. Firstly, that's not how it even works in dealerships anyway. They have x amount of stock. You want the blue one. They had the red one in a different configuration. It doesn't really work that way. So mathematically, we had really, on some vehicles, billions of engineering combinations. And most of them are never ordered.

And so we just had to redo how we're thinking the whole business. And the new people we brought in, particularly on the software side, they're platform people. You build platforms. You don't build bespoke solutions by vehicle, by particular commodity and change the business to a platform approach on the software platforms across the business on the entire electric stack, how you do your clusters, your HMI screens, the sensors and camera combinations, driver system. Before, it was sort of buy series and buy vehicle, it was a free for all. It really was.

You can do all that, and you save billions of dollars. The customer is going to lose 0, really, 0. And it's for us, it's tons-less engineering, tool and combinations, that suppliers have to be a whole round of applause. And we just save a huge amount of effort, and it's easier to maintain, supply, quality, everything. So the gift that keeps on giving. And it is going through, and it's a radical change that is a long, long, long overdue.

Ryan Brinkman

Okay. And with that, we are out of time. So please join me in thanking Ted for all the great insight.

Ted Cannis

Thanks, Ryan.

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