F - NYSE

Good day, everyone. My name is Leila, and I will be your conference operator today. At this time, I would like to welcome you to the Ford Motor Company Third Quarter 2025 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Lynn Antipas Tyson, Chief Investor Relations Officer.

Thank you, Leila, and welcome to the Ford Motor Company's Third Quarter 2025 Earnings Call. With me today are Jim Farley, President and CEO; Sherry House, CFO; Andrew Frick, President, Ford Blue and Model e; and Kumar Galhotra, Chief Operating Officer. Joining us for Q&A will be Cathy O'Callaghan, CEO of Ford Credit; and Steve Croley, Chief Policy Officer and General Counsel. Also with us is Alicia Boler Davis, President of Ford Pro. Jim will give a high-level overview, followed by Kumar on industrial progress, Andrew on market dynamics and Sherry on our financial review and guidance. We'll be referencing non-GAAP measures today. These are reconciled to the most comparable U.S. GAAP measures in the appendix of our earnings deck. You can find the deck at shareholder.ford.com. Our discussion also includes forward-looking statements. Our actual results may differ. The most significant risk factors are included on Page 20 of our deck. Unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS and free cash flow are on an adjusted basis. Upcoming IR engagements include Andrew Frick at the Scotiabank Conference in Toronto on November 18 and Sherry House at the Barclays Conference in New York on November 19. Now I'd like to turn the call over to Jim.

Thanks, Lynn. Before I get started on earnings, I wanted to welcome Alicia Boler Davis to our team and to all of you. Her leadership is critical as we build our incredible powerhouse, Ford Pro into a durable product software services powerhouse. Alicia will cover Pro starting on our fourth quarter earnings call. I'd like to thank the Ford team as well as our suppliers and all of our dealers for delivering a very strong quarter. We not only solidly beat expectations, but our underlying performance has us on track to raise our full year 2025 EBIT guidance if it weren't for the impact of the Novelis fire in Oswego, New York. Sherry will provide details of the financial impact of the Novelis fire, and I'm very pleased with our team's swift and decisive response to this challenge. We immediately mobilized a dedicated crisis team worked around the clock with Novelis to secure alternative aluminum sources for our operational lines and accelerate the plant's recovery. Several top leaders and I personally visited the site to support all of these efforts. In addition, we are adding up to 1,000 new jobs to increase F-Series production to recover lost volume and fulfill strong customer demand. We have made substantial progress in a very short time frame in both reducing the 2025 impact and putting in place an exciting recovery plan for next year. Turning to our results. Our Ford+ plan delivered a record $50.5 billion in revenue and $2.6 billion in adjusted EBIT. Once again, we made meaningful progress in cost and quality, thanks to the disciplined execution of our industrial team. Kumar will share more details. I'd like to thank President Trump and his team for the recent tariff policy developments, which are favorable to Ford as the most American auto manufacturer. Credit based on our large U.S. manufacturing volume will allow us to offset tariffs on imported auto parts we need for our strong American production and manufacturing base. In addition, tariffs leveling the playing field for those imported medium and heavy-duty trucks is a positive for Ford because we are no longer disadvantaged for building every single one of our Super Duties here in the United States. We also continue to watch for relief from tailpipe emissions, which may come as soon as the end of this year. Federal legislation has already scaled back California

Thank you, Jim. Our industrial platform is delivering tangible progress in quality, cost and modernization. Improving quality is the single biggest driver to close our cost gap. Better quality lowers warranty expense and reduces recalls. Four key elements are essential for sustainable warranty cost reduction, seamless launch execution, minimal defects, greater reliability and durability and time. You need time to clear the car part of old issues. It all starts with a clean launch. A bad launch creates years of warranty and recall problems. Over the past 2 years, we have radically improved our launch quality. We are on track for best-in-class performance across 6 nameplates with 3 more nameplates in the top quartile. This is based on J.D. Power Warranty Analytics Data. Also, Ford was the most awarded brand in J.D. Power 2025 U.S. initial quality study. We're also catching defects earlier in the process through rigorous engineering reviews where leaders sign off to ensure accountability and fixes happen in real time. Our next focus is on long-term reliability and durability. We've identified the specific parts and systems needed to achieve industry-leading reliability. To get there, we've implemented a new powertrain testing regimen that is up to 7x longer than before. It includes extreme use cases that help us find issues we previously only found years after the vehicle was in the field. Now it takes time for these improvements to improve our recall numbers as older models have to work their way out of the system. But we're already seeing our recall costs shift towards more aged vehicles. And since the peak recall period is in years 3 to 5, we expect a meaningful improvement soon. On cost, we delivered another quarter of year-over-year improvement and are on track for a net $1 billion improvement this year, excluding the impact of tariffs. Lower material costs, freight and duty efficiency and lower warranty contributed to this. This is the result of a fundamental change in our team's operational DNA. We have dedicated work streams, reducing the cost of parts, optimizing repair times and transforming how we negotiate with our suppliers. We're also modernizing our facilities and IT to unlock the next level of efficiency. We are systemically deploying AI across the entire industrial system. For example, we have significantly improved CAD loading times to less than a minute. And we have added 900 AI-powered cameras across our plants to detect quality issues at the source and help us mitigate supply disruptions. Thank you. And now over to Andrew.

Thank you, Kumar. I will start with Ford Pro, which is thriving due to our diverse vehicle lineup, service parts penetration and growth in our integrated software and services. Our specialized dealer network is a significant competitive advantage that is difficult to replicate. Dealers recognize the importance of customer uptime, and they continue to invest, adding another 1,700 service bays and 500 mobile service fans over this past year. This makes Ford the largest mobile fleet in the U.S., providing a structural advantage and brand differentiation for both Pro and retail customers. We have intentionally diversified our revenue streams for more durable profits. For example, softness in government sales this year was offset by strength in small to medium businesses or SMB. Our channel mix is now well balanced across large corporations, SMBs and government and rental fleets. In software, Pro's paid subscriptions grew 8% to 818,000 subscribers, and we're also seeing growth in our ARPU and attach rates. This is producing a flywheel effect. For example, customers who subscribe to our fleet software have a service parts capture rate up to 20 points higher, which also helps us win sales from new competitors in multi-make fleets. There is upside to software via strategic partnerships. Our new partnership with ServiceTitan, the largest software provider to the trades is a notable example of this. We are embedding our real-time vehicle data directly into their workflow, combining the insights from Ford Pro's data services with ServiceTitan's Fleet Pro software for a real-time view of fleet vehicle data. Customers will be able to manage vehicle maintenance, streamline services and simplify repairs. Now in our home market, industry conditions were strong this quarter with a SAAR of $17 million in positive pricing. Our total U.S. share grew to 12.8% with growth outpacing the industry despite our phaseout of the edge, driven by key products like F-150, Bronco, Explore and Expedition. In fact, the all-new Expedition is red hot, gaining over 3 points of segment share with 75% of customers choosing high-end trims like Tremor. And we continue to lead the hybrid truck market with about 70% share. Lastly, our ample inventory does position us for a strong fourth quarter and helps to insulate our retail sales from the near-term impact of Novelis. We will end this year with leaner retail stock levels between 55 to 59 days supply, with gross stock down 11%. As we look at 2026, even with our net recovery, we forecast being down roughly another 6% to about 520,000 units of gross stock, a disciplined approach yet still leaving us headroom to look for more market opportunities. Now I'd like to turn it over to Sherry.

Thank you, Andrew. Ford continues to make great strides in our journey to build a higher growth, higher margin, more capital-efficient and durable business, and that progress is evident in our ongoing performance. In the third quarter, our strong product lineup drove global revenue growth of over 9%, roughly 1.5x faster than our growth in wholesales. And we delivered adjusted EBIT of $2.6 billion, flat with the prior year despite absorbing a net tariff headwind of $700 million. The durability of our business is strengthening. Over the past 3 years, total company EBIT from software and physical services has grown by over 20%, and our revenue growth has diversified across regions, segments, channels and software and physical services. Furthermore, our industrial system has delivered on their commitment to consistently deliver cost improvements, excluding the impact of tariffs. Total company adjusted free cash flow was strong at $4.3 billion in the third quarter with $5.7 billion year-to-date. We ended the quarter with nearly $33 billion in cash and $54 billion in liquidity. Our balance sheet is a competitive advantage. We are disciplined in our capital allocation strategy, and we are focused on the areas driving expected profitable growth such as our UAV platform launching in 2027. We remain committed to our investment-grade rating and returning capital to shareholders. Today, we announced the declaration of our fourth quarter regular dividend of $0.15 per share payable on December 1 to shareholders of record on November 7. Now turning to the segments. Ford Pro delivered another solid quarter. Revenue was $17.4 billion and EBIT was $2 billion with a robust double-digit margin. Revenue and volume grew by 11% and 9%, respectively. Growth in EBIT was driven by volume and continued improvement in warranty and material cost, partially offset by tariff impacts and pricing normalization in Europe and North America. Ford Model e delivered both revenue and volume growth, driven by new product introductions in Europe. EBIT losses increased due to lower net pricing and an increase in spending on our next-generation vehicles. Let me give you additional color on Model e. Year-to-date, Model e is at a $3.6 billion loss. Roughly $3 billion of this is from our first-generation products, Mach-E, Lightning, Puma, Explore and Capri. The balance is investment in our next-generation vehicles, including our UEB platform. The only practical way to improve the profitability of our Gen 1 vehicles is through one of the more of the following: pricing, new cost reductions and improved fixed cost leverage. Given current industry trends, it's clear scaling fixed costs is a challenge for most of the industry. You can see this in a multitude of recent program cancellations and charges globally. We've been proactive. Over 2 years ago, we reduced our planned battery capacity by 35%. And last year, we canceled our 3-row program, making room for additional commercial vehicle volume. Clearly, near-term U.S. customer and market realities for EVs continue to evolve. We will have more to share about how we are adapting to these changes at a later date. Ford Blue achieved EBIT of $1.5 billion, with revenue growth exceeding the rate of wholesale unit growth, highlighting the strength of our diverse product lineup. Higher costs were driven by tariffs, which muted progress in warranty. Adverse exchange was also a headwind driven by a weaker U.S. dollar against the euro and Thai baht. Ford Credit delivered over $600 million of EBT, up 16%, reflecting improved financing margin. Ford Credit also made a $350 million distribution. We continue to originate a high-quality book with U.S. retail and lease FICO scores again exceeding 750 for the quarter. So let me turn to our 2025 outlook. Excluding Novelis, our underlying business continues to perform well. In fact, we are tracking at the high end of the adjusted EBIT guidance range we provided in February of between $7 billion and $8.5 billion. This original guidance was provided before tariffs, which we have fully absorbed. Additionally, adjusted free cash flow is trending better than the guidance we provided in July of between $3.5 billion and $4.5 billion. Between 2025 and 2026, we expect Novelis to be a headwind of $1 billion or less. For 2025, we expect an adjusted EBIT headwind of $1.5 billion to $2 billion in the fourth quarter for Novelis, and we currently have line of sight to mitigate at least $1 billion in 2026, and we are working to improve the situation further. We also expect an adjusted free cash flow headwind of $2 billion to $3 billion in the fourth quarter. Keep in mind, the production disruptions result in an oversized short-term impact on our working capital, which will reverse next year. Given the recent announcements by the administration, we now expect tariffs will be a $1 billion net headwind for 2025, down from $2 billion. This brings our updated adjusted EBIT guidance for 2025 to between $6 billion to $6.5 billion with adjusted free cash flow of between $2 billion and $3 billion. Our full year outlook also assumes U.S. industry SAAR of about 16.8 million units, U.S. industry pricing of about 0.5%, a net cost improvement of $1 billion, excluding the impact of tariffs; and lastly, capital expenditures of about $9 billion. Turning to 2026. While it's premature to give guidance, I want to share some puts and takes as you think about the industry and Ford. First, we have line of sight to recover at least $1 billion related to Novelis. For tariffs, we expect a net full year impact similar to 2025. For compliance, the evolving global emissions landscape is expected to eliminate 2026 compliance headwinds, thereby unlocking opportunities to optimize our mix of ICE, hybrids and EVs and reduce reliance on credits. And for cost, we plan to deliver another $1 billion of cost improvements across our industrial system, which will be redeployed to strategic accretive ICE and hybrid cycle plan actions. Additionally, UAV platform spending will continue to increase as we ramp our Marshall LFP battery plant and change over to the Louisville assembly plant ahead of the 2027 launch. Before we go to Q&A, let me end with this. Our underlying business is strong. And importantly, we are starting to more consistently execute and deliver our Ford+ plan. I'll now turn the call over to the operator.

[Operator Instructions] Your first question will come from the line of Joseph Spak with UBS.

Maybe just a couple of points of clarification. I guess I want to understand why, as of now, you only think you could recover about $1 billion of the impact from Novelis. And then also just in some maybe breaking news, there was a journal article which said Novelis plans to have the plant back up by the end of the year. So is that sort of in line with your thinking and then considered in your outlook?

Yes. Thanks, Joe. This is Kumar. Thanks for the question. And thank you for your very thoughtful paper on this earlier. Yes, that is in line with our communication with Novelis. The hot mill which is down now will be operational in late November, early December. It will then go through a quick ramp up through December. Between now and end of the year, we'll probably lose 90,000 to 100,000 units in fourth quarter. We announced today that we will add a third shift at Dearborn truck plant and higher line speed at Kentucky Truck. So through those actions, we expect to make up roughly 50,000 of those 100,000 units in 2026.

I would just add, it's important to realize that the makeup capacity next year will largely depend on Ford's capacity makeup. If we have more availability of aluminum, the real lever for us is going to be our own upside. And we're working through that. This is still early days. We'll have a lot more to update through this quarter and into next year's guidance. But please understand that's not Novelis restriction.

Yes. Thanks, Jim. All F-Series plants were already running 3 crew and Dearborn wasn't and now it will run 3 crew as well. So the factories are basically flat out.

Okay. Maybe just one more, and I guess it's unfortunately, we keep on having to bring these things up. But maybe you could just update us on how you're viewing any potential disruption from [ Nexperia ] chip impact and what kind of supply you have or alternative supply and whether there's anything considered for that as well?

We see this as a political issue. We're working with U.S. and Chinese administrations. I was in D.C. yesterday actually, and this issue is top of mind for every official we met in the U.S. government. They're very well aware of it, working to resolve it. These are fairly common parts, mature node semi components like diodes and transistors. We're maximizing our buy of these components. We got really good at doing that during the chip crisis. I think all the OEMs are doing the same thing. At the moment, the runout dates look very close to the date when we may see a resolution. It's an industry-wide issue. A quick breakthrough is really necessary to avoid fourth quarter production losses for the entire industry. That's all I'm willing to say at this point.

Our next question will come from Dan Levy with Barclays.

Kumar or Jim, I wanted to actually just go to the topic of warranty. And thank you, Kumar, I think you unpacked some of it. But it looks like your warranty expense was better year-over-year. You're talking about $1 billion of better cost next year as well. And I'm wondering if you could just update us where we are on the path to breaking that cost curve on warranty. I know this is sort of the question that keeps on coming up, but we've heard about the improvements in the J.D. Power survey and the efforts you're taking. But when do we start to see this finally show up materially in the numbers?

Thanks for the question. Let me make 2 points. First, the warranty is obviously made up of coverage and FSA costs. FSA costs are not simply a function of number of units. For example, software, OTA repairs and other repairs like that are significantly cheaper. And as you mentioned, our initial quality has improved substantially. And the reduction in those coverage costs is expected to offset any potential increase in FSA. And I use the word potential increase intentionally because given the large car part, it is somewhat difficult to precisely forecast the FSA number and the FSA cost. But next year, we expect the total cost coverage plus FSAs to also go down.

And I also want to highlight our Q3 warranty costs were down year-over-year.

Correct.

$450 million.

Yes. It was a big -- a really big achievement by the team, really seeing that coverages flow through one of the reasons why we were able to offset the tariffs.

Great. As a follow-up, I wanted to ask a question about industry competitive dynamics. And I know that the incremental 50,000 units of capacity is really just to make up for some of the lost volume from '25 here from the fire. But you're raising your capacity. We know that your other competitors in trucks are taking some capacity actions as well. What is your comfort that the industry price discipline that we've seen can be maintained even with this incremental capacity coming online?

Yes, Dan, it's Andrew. Thank you for the question. As we look at the industry pricing this year, it's up about 0.5 point, and we expect that to remain strong. And when you look at the strength of some of the segmentation out there like full-size pickups, it also remains very strong within the industry itself. So we see strength as we move forward in those key segments, which are very important to us.

And the reason why we feel comfortable is when you look at the underlying segment drivers, fuel price, construction, they're very strong for those segments. And as well, our competitors and Ford have a relatively new lineup. We have a new Expedition Navigator. We have a very still new F-150. We are -- the Super Duty is basically still brand new, and we have hybrid lineup that others don't have. So I think it's a combination of our optimism about the freshness of our lineup as well as the underlying drivers of the segmentation.

Your next question will come from Mark Delaney with Goldman Sachs.

I want to start on emissions. Jim, you mentioned last quarter that the new emissions rules could be a multibillion-dollar opportunity for Ford over a 2-year period. And Sherry, you said today about the company having opportunities to optimize on mix for next year. So is that multibillion-dollar figure still the right metric for investors? And should investors think about that as being all additive to current EBIT? Or is some of this about avoiding future compliance costs that will no longer come into effect?

There's 2 -- thank you for your question. There's 2 principal drivers for investors for emissions in the U.S. to think about. The first is a different regime, if it's confirmed in December, whenever it will be, will allow us to minimize the cost of credits that we would buy. We had those as optionality and we don't have to use them.

That's right.

That's a really big advantage. The second one is the monetization of that is very much centered around mix, mix of powertrains, mix of series, mix of vehicles. So even if we have basically maxed out industrial manufacturing capacity, we still have lots of levers to sell what customers really want. And we'll put a finer point on all that in the year-end when we look at next year's guidance. Anything to add, Sherry?

Yes. Just that we have purchase obligations about $2.5 billion, and we think a lot of that may go away with Q4. And we're already 40% lower from where we started the year with the purchase obligations because the

My other question was about better understanding what's happened with profits in the business this year, excluding tariffs and the aluminum issue. If I walk from the midpoint of the EBIT guidance given with the July call, I add in the $1 billion lower tariff headwind and then subtract the Novelis cost, you end up right at the midpoint of your new EBIT guidance for 2025. So it doesn't appear on the surface that the 3Q strength is continuing into 4Q and maybe there's some timing that's happening in 3Q and goes away. But maybe that's the wrong interpretation and really, you're tracking more to the high end of the outlook for the year. So any more color you can share around how to think about profit trends in the core business would be helpful.

Yes. So let me just start by saying our business has been performing exceptionally well. And as a result, we would have guided $8 billion plus. With that, you take out the Novelis EBIT impact of $1.5 billion to $2 billion, and that's how you get to the $6.5 billion. If you would have taken our prior guidance of $6.5 billion to $7.5 billion and took out the $1.5 billion to $2 billion, we would have been guiding at 5% to 5.5%. So indeed, we do have progress in the business. It is partially because of the improvements in the tariffs, and that's going to be $1 billion. But before we even got to that, we've had material cost improvements. The credit business has been performing well and pricing and volume has also been strong.

Our next question will come from Doug Karson with BofA. For our next question, we'll go to Edison Yu with Deutsche Bank Research.

Can you hear me?

We can. Please go ahead.

First one, I think you mentioned that looking at next year, the tariff impact should be similar. Can you just walk us through some of the assumptions around that? I would have thought some of maybe the changes in policy could help.

Yes. So the changes in policy, the proclamation that happened last Friday gave us $1 billion of benefit. And that's now allowing us to offset more of our parts tariffs expense. So that's going to be the primary improvement that we saw that was driving the $1 billion that I just talked about, leading to just a $1 billion net impact for this year and enabling us to have a similar impact on tariffs and costs for next year. So basically, what's going to be left is you're going to be left with the -- with auto parts tariffs that don't have offset steel and aluminum, in particular, and that's going to be both the tariffs of steel and aluminum as well as any of the pricing impacts that come through and then any of the vehicle import tariffs that are not offset by the U.S. content offset that we're allowed.

And the time frame is different. This year was a partial year, next year is a full year.

That's right. But when you look at the impacts, we're expecting it to be very similar this year.

Understood. And then just a follow-up on, I think, some of the comments you made about Model e investment. I guess how are we thinking about the Skunkworks efforts now? Obviously, you talked a lot about the emissions being a huge potential tailwind. But obviously, there's -- you spent all this effort on the next-gen EV platform. Are there -- just high level, are there kind of changes we're thinking about related to that? How does one kind of move forward?

Great question. The EV North America market we're seeing now in the fourth quarter of this year, I believe will be -- we believe will be very different in '27 through '35 when that vehicle is out in the market. And so 2 things to think about. First of all, the UEV was designed for 2 priorities: the lowest possible cost platform with multiple top hats in one facility and designed to really compete in the heart of what we believe is the new EV market in North America, which is affordable commuter vehicles. We expect adoption will increase over time and the market continue to evolve and maybe even regulations evolve. We think this product is literally at the center of the future of the EV market in the U.S.

Our next question will come from Ryan Brinkman with JPMorgan.

Regarding Novelis impact, clearly, there's some shifting here of production and wholesales impacting the cadence of earnings and cash flows that matters to investors. Maybe with regard, though, to the impact on retail sales and the customer, what are you expecting there? It looks like at the end of September, you were fortunately sitting on an 88-day supply of F-Series more than GM at 70 days, full-size pickup segment average, I think it's 78 days. And of course, you operate with far less during the chip shortage. So how do you think about that impact or about managing that impact from a customer perspective?

Yes. I think -- this is Andrew. Thanks for the question, Ryan. We believe we have enough stock to insulate us from the impact of Novelis in the fourth quarter given where we started the quarter. And that's why I wanted to make the comment on where we expect to end the quarter in the midpoint of our range just to give you confidence in how we're managing the Novelis impact.

For our next question, we'll return to Doug Karson with BofA.

I'm not sure if you could hear me.

We can. Please go ahead.

Ford and Ford Credit both have very strong balance sheets. It's a true asset, certainly for bondholders and I think equity alike. The leverage has been very low. The cash balance is very high. And in late September, [ Gordon ] Ford Credit rolled out what appeared to be a successful plan to offer subvented financing the F-150 to subprime customers, kind of providing them an opportunity to enjoy a lower loan rate kind of reserve for higher FICO scores, perhaps easing some affordability issues. So maybe you can kind of explore what opportunities you could maybe provide your customers through creative strategies around loans and rates given the strong balance sheet.

Thank you for the question. Yes, we ran at the last few weeks of September, what we call a no tier upgrade marketing program, and it really was to generate news for the F-150. We haven't changed our purchasing policy or our risk appetite, but we're really focused on ensuring that we use these sort of incentives to structure deals for customers that they can afford their monthly payments on a sustainable basis. So I think this program -- this program proved to be very effective. Overall, it didn't change our average FICO scores. In fact, it went up. But these are sort of opportunities that we can look at on an ongoing basis.

Just so I'm clear, I believe your subprime is a very small part of the overall book...

Very small. Yes, it's very small. In fact, our high-risk portfolio mix is just 3%, and it's been very sustainable at that 3% for quite some time now.

Okay. I think that's comforting for people, but also maybe an opportunity to expand some loans to more subprime and potentially get more sales done wouldn't be a terrible thing also. So I appreciate the question and the answer. I appreciate it.

Yes. Thanks. We are concentrated on helping sell more products. So we're very open to new ideas.

You must have some dealer friends.

I wish.

Our next question will come from Itay Michaeli with TD Cowen.

Just wanted to go back to the powertrain and segment mix opportunity next year, maybe trim mix as well with the compliance costs. To what extent would that optimization end up pushing up your ATPs? And if so, how confident are you, given some of the affordability constraints that you can kind of pass that mix optimization through to the consumer?

It's Andrew. Thank you for the question. Well, our ATPs are really strong right now, as you know, and we are among the leaders and above segment average. But I think at the core of what it allows us to do is build the customer demand and give us the flexibility to manage our mix, as Jim mentioned earlier, on certain vehicles, especially as we look at some of our off-road derivatives like Tremor and Raptor, it gives us some headroom in that to actually manage the mix within selected vehicles.

Terrific. That's helpful. And as a quick follow-up, maybe on the quarter, if you could talk through the drivers behind Blue's improved pricing, I think $400 million was better than what we did last quarter as well as any additional color on fleet pricing in the quarter?

Well, I think in general, as I mentioned earlier, the industry pricing is up 0.5 point. Retail is up more. It's very strong right now, up 1.7 points. It's driven by a lot of the tariff pricing through the year. If you look at the counterbalance of that fleet has been down a bit. It's primarily in the van business. And fortunately, for us in our portfolio and what plays to our strength, our Super Duty pricing and full-size pickup has remained very strong for us throughout the entire year.

And one of the great offsets that we've been able to manage this year with Ford Pro is not rely on the traditional fleet business. Andrew, maybe you want to talk about the changing mix of our Pro business.

Yes. We continue to increase our overall services as a percent of EBIT. Just a couple of years ago, we were around 13%, and we are now well on our way to hit our 20% total EBIT. Across the channels, we've also been able to diversify. We're roughly 1/3 of our channel mix now amongst large corporations, 1/3 with small, medium businesses and 1/3 with government and daily rental. So we are very well balanced, very diversified, both on the vehicle side and also with the services.

But our -- that strength in small, medium business, SMB, we call it, is really a key accomplishment by the team. We heavily focus on that group. We're continuing to try to grow that mix of that group, and that helps us a lot derisk any kind of pricing risk on the fleet.

Yes. We've been able to grow.

Your next question will come from Tom Narayan with RBC Capital Markets.

Just one quick clarification. So the net impact on tariffs on '25 $1 billion and the '26 to be similar, do you mean to say that the '26 net tariff, assuming everything we know now is also $1 billion?

Let me clarify. So for Q4 of this year, we expect an EBIT impact of $1.5 billion to $2 billion due to Novelis. And due to tariffs, we're expecting to see a positive in the Q4 because we are going to get the receivable for the $1 billion. So that's going to be a positive in Q4. I wasn't sure if you were originally talking about the Novelis because the numbers.

No, no, no. The tariffs because I remember in 2Q, it was like negative $800 million, 3Q, negative $700 million. So it's like a plus $500 million for Q4 to get to that $1 billion. I'm just understanding how to think about '26.

What's going to happen is you would have tariff costs, and it will be offset by this $1 billion that is retroactive that's coming in, in Q4. So to date, we're at like $1 and then you'll be able to take the $1 billion off, you'll encounter a little bit more next quarter, but you'll be positive for Q4.

Got it. Got it. And a quick follow-up. As you pivot, let's say, from EV to ICE, just understanding how that works. Clearly, there's stranded costs. We saw the EV losses worsened sequentially. I know some of that was investment. But how should we think about EV losses going forward like into next year as -- if volumes come down? I know some of the plants are flexible, some of them are dedicated, but how should we think about that?

We'll be excited to give you an update after the fourth quarter as we look into next year. Very big decisions for the company.

Your next question will come from Emmanuel Rosner with Wolfe Research.

Great. I wanted to ask you just a little bit more how to think about the mix optimization opportunity into next year as a result of some of these lower compliance hurdles. I think you mentioned the ability to maybe maximize some of the off-road offering, Raptor, et cetera. Is there a sense that those were supply constrained -- like you were constraining supply of those and that there's a large amount of like unmet demand in there? Like any sort of way to frame this in terms of how you had been managing the business before as a result of these compliance rules? And what -- essentially, what is the size of the opportunity here?

Well, Emmanuel, it's Andrew again. Yes. So in -- when you're compliance constrained or under certain regulatory policy, we were having to restrain some of the mix because some of the off-road vehicles, like I mentioned before, Tremor and Raptor are actually very negative against compliance. So we would suppress some of the natural demand within that. So as we look at next year and our overall build mix, we'll obviously match that to customer demand. We don't want to overproduce against that, so we can remain disciplined. And we'll take a look vehicle by vehicle like we always do to maximize our mix within.

One of the big opportunities to complement what Andrew said on the series mix nameplate is the hybrid mix. And obviously, we can change the pricing in hybrid and change the demand curve for the vehicle. We've had to be very aggressive with hybrid pricing to make sure we cover the right mix. And that obviously is a big opportunity for us because F-150 is a huge volume vehicle for us and the hybrid F-150 is so popular, we have opportunity there to maximize the company's results.

The only other thing that I would add, I just want to make sure everybody understands is that with the EPA changes that are likely, that is removing a compliance headwind that would have been going into next year. And so it's just really important that everyone understands that we were facing a headwind. And so that's going to help to eliminate a year-over-year impact.

Great. And then just one additional question on guidance, comparing it to just the most recent one that you had provided last quarter. So if I basically take the current guidance adjusted for the Novelis fire, but also the $1 billion benefit from lower tariff outlook, it seems like it's essentially an unchanged guidance versus last quarter. And that's despite essentially assuming now, I guess, expecting now for the industry, better SAAR as well as better pricing. So are there at the same time, some industry or company factors that are playing out maybe a little bit less favorably than 3 months ago?

No, none to no. I mean, as I said, I mean, we were going to be $8 billion plus. When you take that $1.5 billion to $2 billion off, that gets you to the $6 billion to $6.5 billion, you add the $1 billion of tariffs. But we also are performing at the higher end of the guidance that we had put out there at the beginning of the year. And the reason for that is credit has been doing good, material costs have been doing good. The pricing and volume have been solid. And so that's why we were at the higher end of the guidance.

I take it offline on the sell side call.

Our final question will come from Colin Langan with Wells Fargo.

Just wanted to follow up. I'm actually -- I guess I'm getting a little confused with some of the puts and takes. If I look at the midpoint of guidance, Q4 is like $550 million. I thought you just said that tariffs would be a refund of $1 billion. And then the Novelis -- so it just would imply almost like negative if it wasn't for the tariff refund. And then just even if I add Novelis, then it would still imply a pretty big drop underlying from Q3 at $2.6 billion to Q4. Am I misunderstanding the commentary there?

We would have been at $8 billion plus -- you take out the Novelis impact in Q4. So that's going to be $1.5 billion to $2 billion, which gets you to the $6 billion to $6.5 billion for 2025. Now when I talk about makeup, that's in 2026. So that's where you get the $1 billion back in EBIT not in '25.

So I guess I'm just -- on the prior question, so year-to-date, you have like, what was it, $1.7 billion of tariff costs. The guide for the year is $1 billion. What -- how are we getting there for Q4? I thought that was the refund or maybe I misunderstood that, sorry.

Yes, that's right. So as of last Friday when the proclamation was signed, we now can apply a greater percentage of the MSRP tariff offset to our parts. And now that we can do that as of last Friday, we're going to get $1 billion of benefit. We couldn't record that in the Q3 numbers because our books were already closed and this just happened last Friday. So now you're going to see a receivable in Q4 that's more than going to offset what the tariff cost would be in Q4. And then when you add Q1, Q2, Q3, Q4 together with that positive receivable, you'll reach $1 billion net for the full year.

Okay. Got it. And then just, I guess, a follow-up on your color on 2026. You highlighted cost is $1 billion positive, Novelis, it would be $1 billion help into next year. Any color? I think in the past, you've talked about around $600 million of sort of the regulatory costs just structurally going away as a tailwind. And did I catch the commentary on inventory, it will be actually down again next year. So we should kind of have a little bit of destocking factor that we should be thinking about, too?

Well, Colin, there's a lot of texture we want to take you through as we position 2026 and beyond. And we're going to do that properly at Q4 earnings. And so for now, I just said we've got some tailwinds and headwinds that I wanted you to know, tariffs roughly the same, tailwinds make up Novelis, likely removal of the EPA compliance headwind, continued cost savings. But then the headwinds are going to be investments in our launches in Marshall and Louisville and investments in the cycle plan. So that's what we're able to share at this time, and we look forward to sharing more with you in our Q4 earnings.

That was your final question. I'll now turn the call over...

I just want to say one thing. We appreciate all of our investors and the people that analyze our industry very carefully. I just want to note that I know Adam Jonas is moving on to another segment, and I wanted to thank you for your activist investor point of view. It certainly helped us be better managers and stewards of the company. And I think we just wanted to say thank you as a management team for all of you for what you do. But when someone moves on like Adam, we want to highlight that. Thanks. Okay. Well, thank you, operator, again. To summarize, Ford is addressing the key issues affecting our industry head on. Our improved industrial system is driving consistent results on cost and quality. Ford Pro is making Total Ford a more durable company and business. We have and will continue to take decisive actions to improve and grow our company, and I'm confident in a stronger Ford as we head into an exciting 2026. Thank you today.