James D. Farley
President and Chief Executive Officer at Ford Motor
Thanks, Lynn, and thanks for joining us. First, I wanted to thank our global team, remaking Ford into a high-margin, high-growth, more capital-efficient and a more durable business is really hard work. It requires focus, collaboration and excellence. And I also want to thank our investors. We're committed to creating value consistently over the long-term and we appreciate your support and input. Execution against our Ford+ plan allows us to break free from the low-margin capital-intensive and cyclical attributes that have constrained auto -- legacy auto valuations for a long-time. And this process does not happen in a straight-line. We are absolutely a different company than we were three years ago and our pace of change is intensifying. The creation of Ford Pro, Blue and Model e have been a huge catalyst for transparency, accountability and more rigorous capital allocation.
Our Ford Pro business is amazing. It's a high-margin business tracking towards $70 billion in revenue this year with further opportunities for profitable growth outside of vehicle sales, parts and service and software. And a good example of that is a recent decision by our team to add 100,000 units of capacity of Super Duty in Canada. It not only serves our customers, but it's capital-efficient and has very-high returns for many years to come.
As you know, we flipped our international operations many years ago from deep losses to now profits and positive cash flow with more opportunities ahead and that includes China. We also took our product portfolio from too many generic vehicles and infused it with passion and purpose. We build-out our iconic F-Series and transit lines as well as passion vehicles like Mustang and the new Bronco lineup and sub-brands like Raptor and Tremor and Darkhorse. Few OEMs can offer a customer choice like Ford at our scale. Ford is number-one in our home market for internal combustion. We're number two in EVs and have been for two and a half years and we are the number three hybrid brand in the U.S.
But what's less visible, but incredibly important for investors is the foundational work underway in the company to move to software-defined vehicles and breakthrough digital experiences. And I'll talk about that later, but this will have significant operating leverage. Ford+ is on-track. Today, we reaffirmed our adjusted EBIT guidance for the whole year and raised our outlook for adjusted free-cash flow. I'm going to comment on our EV landscape and strategy, software technology and services that are growing importance at Ford, our Ford Pro business and quality.
On electrification, we've been very vocal about why electric vehicles are so important and a great choice for customers and businesses. Customers, usage data and cost of ownership data would indicate about 50% of customers who buy automobiles would be better served on buying an electric vehicle. Now there's a lots of misconceptions around EVs on the separate areas of costs like resale value and insurance, of course, range and charging and battery life and OEMs like Ford must do a much better job at educating our customers about the advantages that an EV offers in terms of cost of ownership.
As you know, we are the number two EV brand in the U.S. for over two and a half years. That's a long-time and we've learned a lot and now we have used those learnings to sharpen our strategy. What we learned is that it's incredibly important to be transparent about Model e losses, inside the company as well. Forces -- this forced accountability and the result is our team is getting much more strappy and resourceful in terms of turning the business around. We are now more disciplined and have to be for capital and expense. And this means we will not launch vehicles at a loss that are not good for our business. Knowing what we know now about the reality of the market equation.
And we clearly see China and Tesla as the cost benchmark. We also see excess capacity that will lead to more pricing pressures, which is in our business plan, more consolidation and many, many more partnerships. We see less vertical integration in some areas to relieve capital and we see a lot of tough choices on footprint. Early majority customers are really different than their early adopters, particularly in retail, and we see a lot more openness to hybrids and extended range electric vehicles we call EREVs.
We also see a divergence on electrification adoption between commercial and retail. Commercial customers focus on total cost of ownership, they use the vehicles much more intensely and they do not overbuy batteries that retail customers do. They're also investing in our pro charging depots and our integrated software because they want to be smart about the cost of charging their vehicles. And I'm happy to say that our EV Pro contribution margin for our EV vans is now already positive.
We also have learned a lot about the size of the vehicle. We believe smaller, more affordable vehicles are the way to go for EV in volume. Why? Because the math is completely different than ICE. In ICE, the business we've been in for 120 years, the bigger the vehicle, the higher the margin. But it's exactly the opposite for EVs. The larger the vehicle, the bigger the battery, the more pressure on margin because customers will not pay a premium for those larger batteries.
And lastly, compliance. There is a lot of pressure on compliance. And the lower demand for EVs, especially the pricing means that CO2 credits are now likely going to be needed for fleet flexibility and optionality and will be a critical strategy choice for any company. And what are the success criterias for EVs in the future? Well, the first one is to have the right mix of fully and partially electric solutions. This is imperative. You have to have a compelling product roadmap and you have to have very flexible manufacturing.
A good example is our hybrid business. The global hybrid portfolio at Ford is on-track to grow 40% this year across nine nameplates. And we really bet on hybrid trucks. In the first half of the year, our hybrid pickups, Maverick and F-150 grew more than three times the rate of the overall hybrid segment. Our F-150 hybrid with Pro Power onboard is a game-changer for our customers. Commercial customers have power on the run like job sites and our retail customers have emergency power backup and boy have we seen that in Texas and all the other extreme weather events, how important that is for our customers.
The second success factor is matching the cost of the Chinese OEMs in Tesla, especially on affordable EVs. Now when people hear about affordability and they think about small and unaffordable, I'd like to address that now. We are designing a super efficient platform, leveraging innovation across our product development, supply-chain and manufacturing teams. With no engine or drivetain, a smaller vehicle can have a much roomier package actually the interior package of a class above with a small silhouette. That's a big advantage for customers versus ICE. And we're focusing on very differentiated vehicles priced under $40,000 or even $30,000. And we're going to focus on two segments: work and adventure. And why does this matter? Well, the use-case for smaller vehicles, affordable vehicles means shorter trips, more urban locations. It fits the duty cycle of an EV.
And affordability, well, smaller batteries have an outsized impact on the cost and margin of the vehicle and the consumer tax credit in the U.S. become a much larger part of the sticker price of the vehicle and that is supercharging the lower cost of ownership that EVs have already without it. And finally, we have the ability to leverage this platform across many top hats, which will drive scale and large install-base for our growing software business.
And the last success criteria is to be really careful about your larger EVs. For us, they'll be part of the picture, but success requires even more breakthrough on a cost-efficiency, much smarter choices on segments, in our case, work and commercial, a lot of partnerships and a lot of technology pathways. Overall, the EV journey has been humbling, but it has forced us to get even more fit as a company, including applying it to our ICE business and that will pay-off long-run -- in the long-run. I am so happy we scaled two and half years ago and we have the option to incorporate those learnings into our next-generation of EVs launching in the coming years.
I want to double-click on the software technology and services business. Ford alongside Rivian and Tesla are really the only non-Chinese OEMs controlling software across all the vehicle domain. Most companies are doing OTAs on vehicle entertainment, but Ford now has multiyear experience on updating powertrains, braking the fundamental performance of the vehicle and connectivity. And the breadth of our portfolio, including F-150 and our Pro business, the customer use-case is clearly much more complicated than Rivian and Tesla. Our vehicles are increasingly general-purpose computers capable of delivering the type of application environment, AI for our customers and user experiences that we expect from all of our digital devices. And this allows us to create powerful, connected, ever-improving customized experiences, which I'll talk about.
Many of you may be surprised that Ford leads on OTAs. According to the 2024 OEM OTA capability rankings in North-America, we are the leader based on quality of our updates. This is not how many updates we do, although we do a lot. It's about the ability to improve the fundamental performance and capability of the entire vehicle and all the modules in the vehicle. And there's no better evidence than Mach-E, longer-range, better efficiency on the battery, faster zero to 60 times, better Blue Cruise performance. We've done it all with Mach-E for many years now.
Our vision is not just a powerful computer on wheels. It's actually a robot. We will link with these digital experiences, things that only a vehicle can really do like safety and security and the other innovative use cases we shared with you at Capital Markets Day. These experiences that will drive higher profitability, accretive revenue and are the reasons for customers to actually stay with Ford and Lincoln lower marketing costs are now becoming clear to us.
One example on the retail side on the technology is our first implementation of the Phoenix system, we called the Lincoln Digital experience with our new panorama display in our new Nautilus. This experience is really a differentiator in the luxury space with Google Maps and Google Assistance and enhanced carplay. Our sales have surged for Nautilus 48%. We now have much younger customers and the biggest application for this technology is Blue Cruise and ADAS. It's a leading hands-free driving technology in America, we believe. We now have 415,000 enabled vehicles on the road. That's a 25% increase in one quarter. We have 213 million miles, 3 million-plus miles of hands-free driving now since launch.
To better dimension our progress software technology and services, in the quarter alone, total company paid subscriptions grew 40% to over 765,000 paid subscriptions. Our integrated service revenue is now on-track for double-digit growth this year. We are targeting $1 billion of revenue next year for our software. This revenue has gross margins of 50 plus percent, which drives significant operating leverage and improved capital efficiency.
Now the major part of this new software business is actually Ford Pro, so let me touch on that. The foundation of Pro is really simple. It's our vehicles. A robust and fresh lineup, the freshest we've ever had at Ford of ICE, hybrid and EVs, including the all-new Super Duty, the all-new Ranger globally, the all-new F-150 that has just finished its launch, the all-new custom transit in Europe and our two small vans in Europe, the new Transit Connect and Courier and the new extended range two-ton electric transit we sell in both Europe and North America.
Now what these brands and vehicles are seeing is resilient revenue streams based on a much longer-tail spending on the infrastructure by government and private enterprise. We also have a very robust and diverse customer range. We dominate in small business and medium business with tradesmen, but we have very large customers. We have state, local and national governments, and we have rental, which by the way is very profitable for Pro. In fact, in the U.S., one out of four of these fleets, mom-and-pop tradesmen all the way to large companies, one out of four of those fleets are U.S. -- in the U.S. or Ford only. But the big opportunity for Pro is beyond vehicles and that's where we're focusing.
With Pro Power Intelligence, we have a highly-differentiated telematics offering. We offer real-time driver coaching, which provides significant improvements for driver safety and now is available in about half of our modem-enabled Pro vehicles. This includes features like seatbelt and speed monitoring and harsh braking notification. Pro Intelligence is also a platform for vehicle controls. Our first foray, it's a big deal is fleet start inhibit, which protects our pro vehicles from theft and also unauthorized use. We will expand these vehicle controls to speed control and acceleration limits in the near-term.
Now, no third-party telematics solution can offer this functionality because it's related to the vehicle. We call it uncrossable mode for our software business. Over 4 billion miles have now been traveled in the first half of this year on vehicles equipped with Pro telematics, insights and controls and our paid subscriptions for Ford Pro Intelligence grew 35% year-over-year, now including 610,000 paid subscriptions with a triple-digit growth in telematics fleet management and charging depot software.
Turning to physical service, which is the second big non-vehicle revenue profit for us at Pro. We have a massive opportunity to grow physical services of parts. In the first half of this year, Ford Pro was only 24% of our after-sales revenue. It's a huge upside. Bank of America estimated the profit pool for maintenance, repair and parts, physical repair of the vehicle that escape our dealer network is about $135 billion. That's 2.5 times the profit dealers capture through vehicle sales and financing. This is a huge untapped TAM.
Ford Pro already has the largest physical and mobile service network in North America, but for specialized commercial service, many of which has open 24/7 for our customers with specialty technicians. And we continue to expand that physical network to a competitive advantage by adding Pro Elite centers and mobile service units. We are on track this year to reach 27,000 commercial service base by the end of this year. That is up 20% year-over-year. Growth will be led by Elite base, the largest and most capable of the service base for Pro, which will more than quadruple this year to 1,300.
We are now on track to increase our mobile service units by 45% to 2,500 service trucks and vans. That's 10% of our entire physical network. Mobile service network is incredibly important competitively. None of our competitors offer this kind of scale. We address many repairs, limiting our downtime for our customers. We service multi-make fleets, which helps us with our share garage unlike our competitors and global mobile repair orders that generated from this fleet is up 115% in the quarter.
Our focus on software and physical service expands the moat for Pro, while helping our customers improve productivity and grow their business. Pro is on track for software and physical service that contribute 20% of our EBIT by 2026. On quality, we're making progress with our latest vehicles. Ford jumped 14 points in the latest GD Power's 2024 U.S. Initial Quality Survey. We went from 23rd in the industry to ninth. Bronco Sport is now named the best small utility in initial quality, outperforming 18 competitors.
Our launch in initial quality are leading indicators for warranty in the future and we expect to see benefits in the future. We did see warranty cost increase in 2Q, of course, tied to new technologies, FSAs and inflationary pressures for the cost of repair. We expect technology-related warranty costs to now normalize as technology matures and we deploy that great OTA capability to address known issues. We are confident we are on the right trajectory with a very clear and non-negotiable mission at Ford to deliver best-in-class quality.
I'll close with this. The remaking of Ford is not without growing pains, but is unlocking opportunity to serve our customers and grow in ways we never thought possible. My confidence comes from the fact that we have built a world-class team and we are executing a compelling strategy. No other company has Ford Pro. We intend to fully press that advantage. No company has a more compelling product lineup with an attractive mix of ICE and partially and fully electric options for both work and retail customers. We also know we have a lot to prove. We look forward to proving our EV strategy out. That has become more realistic and sharpened by the tough environment.
Thankfully, we scaled years ago. We are confident we can reduce the losses and sustain a profitable business in the future with everything we've known. We look forward to proving that we can be profitable on smaller vehicles as well, not just on EVs, but across all of our powertrain choices. It's time to prove our recent quality gains are repeatable and will flow to the bottom-line. Plenty of work ahead, but the direction is crystal-clear to us. We are building a high-growth, high-margin, more capital-efficient and more durable Ford. John?
