Rod Lache: Hi, everybody. I wanted to ask a couple things on EVs. I think that certainly – I mean, I don’t think – you’ve been saying that the deflation that you’re seeing in EVs has been steeper than you assumed. But I – obviously, your original plan assumed some level of deflation through 2026. I think it was even price parity with ICE in some cases, and yet you assumed 8% margin in that time frame. Am I correct in those assumptions that your ultimate view was that you would get to price parity with ICE? And if that’s the case, why – what do you need to do in order to push harder? Do you need to actually reduce prices even below ICE in order to achieve your plan? Or do you need to achieve even greater – a greater price premium?
John Lawler: Yes, Rod, John. Exactly. If you look at our three-row SUV, the way we thought about that, our Gen 2 product was it’s going to have the exterior of size of an Explorer and the interior space of an Expedition. And so, when we looked at that and setting the targets for the team in 2026, we said, well, you should – we should start out with a revenue assumption that it will be priced on an ICE –as an ICE would be between those two to vehicles. And so, that’s how we set up the affordable targets that we gave the team to design to. And a lot has changed, but the team is working diligently to try to deliver that. And we are continuing to see pricing pressure in the EV segment, but right now, there’s still a premium to gas in many areas.
So, I think what you’re going to find is, over time, that premium is going to reduce as we move forward. And that’s what we’re trying – we have built into our planning assumptions for our second-generation vehicle and then as well for our third-generation vehicle, that you’re going to see another step down on pricing so that these vehicles are affordable. And that’s all setting up our cost structure that we’re targeting and going after, which was the basis of setting our 8% margin.
Rod Lache: Okay. So, that’s still your expectation, that you would get to an 8% margin and you would have a cost structure that reflects price parity with ICE?
John Lawler: Yes, that is the target that the team is going after. There’s a lot that has changed, as you know, and the team is working through that. The key three elements Jim went over is most importantly, the size of the battery, the efficiencies of watts needed to move the vehicle, the vertical integration, the partnering on what we would say are commodity parts of the business, things that aren’t differentiating for additional opportunity there, the scaling and using the capabilities of the vehicle as we build out the manufacturing facilities to be as lean as efficient as possible. And the team is pushing hard to get every save that we can through there to build out our Gen 2 vehicles that are profitable and deliver ultimately the 8% target that we’ve set for them.
Rod Lache: Okay. And just secondly, I’m assuming that you still view vertical integration and batteries and LFP is critical to achieving your cost targets. Just given all of the issues around that, can you just – and some of the pauses or delays that you’ve got on some of these plants, can you just give us an update on what the trajectory is to achieving those lower costs in batteries, and how is your plan changing?
John Lawler: Yes. So, we’re continuing to move forward with the vertical integration on the battery itself, working on cell design. We’re working on the chemistries. As we said, we have no real change to what we’ve put out forward before on BlueOval Park battery plant here in Michigan. But LFP is definitely going to be part of our future EVs, and that is a very important cost-reduction step in our path for the Gen 2 vehicles. So, it’s a combination of all of that. It’s a combination of the battery size and the efficiency of the vehicle to get the lowest watts possible to hit the ranges that we’re looking to hit. It’s the vertical integration across the vehicle, the vertical integration across the battery, and then as well as the chemistries. And all of that comes together to drive the cost reductions we need and the team is working toward is that part of the vehicle’s target.
Rod Lache: Okay. Thank you.
Operator: And our final question today comes from Emmanuel Rosner with Deutsche Bank. Please go ahead.
Emmanuel Rosner: Thank you very much. So, I appreciate your candid assessment of the EV business and as well as all the actions that you detailed in terms of trying to reduce the investment and losses in the near term. At the same time, you rightly acknowledged that impacting change – affecting change on the first generation is not going to be the easiest. You know, more change would come in Gen 2, Gen 3. So, any way you can just frame for us how much improvement can we expect during this first generation? You’re now running at something like a $5 billion annual loss on Model e. Not that long ago, a few months ago, you still had fairly near-term targets to bring that to EBIT positive. Obviously, a lot has changed. But then you’re addressing these changes with your actions. So, where does it go from here? Does it get worse? Does it get better? Can something be done before Gen 2 and Gen 3 in terms of improving the losses?
John Lawler: So, you’re right, a manual step function change is going to be on the Gen 2s where we’ll have more degrees of freedom to make the types of changes I just talked about. On the Gen 1s, we’ve seen the price come down much quicker than we had expected, of course, and that’s showing up in our results. We’re continuing to work very diligently on additional cost and design reductions on the Gen 1 products, and the team is also working very diligently to minimize the impact of the lower prices in the near term, in the next couple of years before Gen 2 comes out. And so, it’s going to be a battle between managing the top line as best we can, adjusting the supply of products relative to demand so that we can balance the pricing from that standpoint and then working like crazy to put whatever cost reductions we can on that Gen 1 vehicle through to the bottom line.
So, I think it’s going to be in the near term, it’s going to continue to be just that. It’s going to continue to be quarter to quarter. And the team working very diligently to hold as much revenue as we can and bring as much cost reduction through the product as we can.
Emmanuel Rosner: Thank you. And then a quick follow-up on Ford Pro. Obviously, extremely strong business and very solid quarter, but at the same time, there was a little bit of a pullback in both volume and mix and margin in the quarter. So, can you just go over the factors that drove this and the prospects in timing for normalizing back up?
