James D. Farley, Jr.
President and Chief Executive Officer at Ford Motor
Hi, everyone. I'm not sure where we got cut off but I want to just highlight how important last year was not only financially but a foundational year for our team. Our power choice and our powertrains really came through, and you can really see that on the F-Series, which I'll talk about in a second.
Our global hybrid sales were up 20% last year and we expect them to be up 40% this year. We're now the number one and number two best-selling hybrid trucks in the U.S. Maverick is number one and we're the number three hybrid brand in the U.S. behind Toyota and Honda. But unlike them, our hybrids really sell best on trucks for our side. We launched some awesome tech. BlueCruise just passed 150 million miles of hand-free use, but more importantly, the growth is up 25% quarter-over-quarter and the gross margins for BlueCruise are at 70-plus percent, the same for Ford Pro Intelligence. And boy, can Ford do work vehicles. The new Super Duty and Transit are off to great starts as is the new Ranger. We are really focused as a team on the segmentation. You can see the speed, the accountability for results and focus within the company.
And our underlying business is getting better, as John will show. Despite the UAW strike, our auto profits were up year-over-year. We returned to investment grade, we have higher ROIC, and we have really solid conversion from profits to cash. We're returning capital to shareholders, we're declaring a regular and a special dividend, and we're getting much more disciplined on capital not just where we allocate, but more importantly, how much we spend and when. Our Integrated Services are really accelerating under Peter Stern. These are high-growth, high margin, as I said, and much less cyclical profits for us. We have one single leader, Kumar Galhotra on our industrial system and he is laser focused on quality and cost.
And our international operations have made a remarkable turnaround after a lot of difficult restructuring. It's the second year we made profit. It's about a $3 billion turnaround compared to just three or four years ago. And what would surprise people is what a juggernaut Ranger has become. It's a global franchise and it's our second best-selling nameplate globally, just behind F-Series and ahead of Super Duty. Now John is going to go into last year's results. It was a solid year, but I want to be really clear, we are nowhere near our earnings potential for Ford Motor Company. And we are really positioned well this year for growth and profitability, for revenues as well.
I'm going to cover four key areas. The first area is Ford Pro. It's nearly a $60 billion high-margin hardware, software and physical services business and most of that revenue is reoccurring. I believe Ford Pro is where the industry is going, an integrated business between all three of those factors. And we're seeing it first there because the customers use the vehicle more intensely and are more willing to pay for software. And we believe the attributes of Ford Pro are undervalued, but the performance will reveal that over time and look at the performance last year.
Ford Pro doubled its EBIT to $7 billion despite a significant slowdown on Super Duty during the launch in the name of quality. And we're now on track for mid-teen EBIT margins at Pro. And you're going to see top and bottom line growth this year in Pro. We have the freshest product lineup in Ford's work history in two decades. Our order banks are exceeding our supply. And the reason why that order bank is so strong is fundamentally different economic factors than our retail business. What I mean by that is, look at North America. We're really dominant. We do really well on state and local government Pro sales. These are very profitable. And last year, state and local governments increased their spending by $75 billion or 16%, and a sizable portion of that is in infrastructure and people need Super Duties and Transits.
Look at the build-out of telecom and 5G, directly correlates to our robust revenues. And the same is happening in the manufacturing sector in the U.S. with reshoring or onshoring manufacturing. Dealers are clamoring for more Pro allocation. They normally get only 50% to 75% of the volume they want. And in Europe, it's the ninth straight year of Ford being the best-selling CV brand, and we're just in the middle of launching the Super Duty of Europe, the Transit Custom and the new Ranger is now ramping up.
Why do we think we're undervalued in Pro? Well, there's a couple of reasons. The first is our market leadership is a little bit opaque. We don't just lead in Pro, we dominate. We're 40% of the market share of Class 1 through 7 full-sized trucks and vans. In fact, many months, our second-place competitor isn't even half our size. Now commercial -- commanding that share means that we are dominant in vocations like service construction, utility and, as I said, government. But our biggest success is in TAMs where the market's biggest, small and medium-sized businesses and tradespeople. That's the backbone of the U.S. economy, and boy, does Ford have a reputation with those customers.
Our second big moat is upfitters. Again, very difficult for investors to see but this is really significant. Every one of our landscapers, plumbers, electricians, they all upfit their Transits and Super Duties and Rangers specific to their vocation. So these upfitters being really important. We now have already developed a digital upfit integration system, and we share engineering specs with all those upfitters. We've been working with them for decades and they really trust Ford. They're even able to move their upfit equipment from old Fords to new Fords.
The third big moat is a growing one. It's software and our physical repair business. Example of that is last year, we already have 0.5 million active software paid subscriptions at Pro. It's up 46% and the margins are over 50%. In two years, we expect software and services to drive 20% of the Pro EBIT. And that's supported by two things; getting to 60% mix on our connected vehicles and a threefold increase in our attach rates for those paid subscriptions that I mentioned, which are only at about 12% today. One of the biggest advantages we have in Pro that's hard for people to see is our physical repair network. It costs a lot of money to create, costs decades of time and there's a lot of expertise.
In the U.S., we have 23,000 service bays that are busy seven days a week, 24 hours a day, and we're pressing on that advantage. Every day, we have new, very large service elite repair centers launching in the U.S. We haven't waited for brick-and-mortar. We now have 1,200 vans and Super Duties that are outfitted for remote service to our fleet customers. The Net Promoter Score is 10 points higher because they don't have to come on with the dealership. And this has effectively added 10% more capacity for our service. The bottom line is, we have these amazing vehicles. We have a leading market share position. We're now adding long-term durability of those products. We have a highly profitable alternative revenue streams in repair and software now. Ford Pro is really a magical breakthrough for our customers and our company and, I believe, the industry.
Quality, we don't have to go into the negative effects about quality, but we've been addressing it for three years now and we're starting to see progress. Our vision is that we want to give customers who buy our trucks and vans and our passion products, Off-road, Bronco, all of it, the long-term durability from companies like Toyota and Honda, but in the segments we compete in. We already have world-class quality in many parts of our company, and now we're seeing green shoots in North America. Kumar is leading this and he's here for Q&A to answer any questions.
But there are two aspects of quality I want to highlight. The first is launch quality. That Super Duty launch I mentioned, it was a line in the sand for this management team. We intensified all of our testing, our real-world problem-solving on the plant with our suppliers and engineers. We slowed down the launch and boy, did it cost us. $1 billion of EBIT we forego last year, but it was the right trade-off for our company and our customers.
The result is the launch spike that every launch has we think on Super Duty is now similar to best-in-class in our industry, and we're seeing the benefits in the F-150 launch. That launch is underway right now and it's a really important one for our company. The second area of quality we're seeing progress on is initial quality. Now we measure that in three months in service. And that is highly correlated to long-term, quality, and yes, warranty costs. And we saw last year a 10% increase. That is the largest improvement in the similar quality that we saw last time in 2016. It's the best in a long time and we are committing to a similar improvement this year.
Quality now factors into 70% of the short-term incentives for our management at Ford. In the long term, it's even more important because we're measuring total shareholder return. We will share those KPIs on quality with you every quarter. Next thing I'd like to highlight is EVs. Now someone portrayed the change in the EV market as Darwinian. That could be a slow evolutionary change, but we think this has been a seismic change in the last six months of last year. That will rapidly sort out winners and losers in our industry. Now the catalyst for that seismic change is a combination of EV manufacturers cutting their price by 20% across all major geographies and a tremendous amount of capital flowing and a ton of new capacity into one single segment, two-row crossovers. Our overall EV strategy has never been more relevant as the seismic change happens, and we want to share with you our targets.
Our next Gen 2 products will be profitable in the first 12 months of their launch. And that will mean that we'll get to mid to high single-digit EBIT profit margins over their life cycle, and that's going to deliver profits above Model e's cost of capital. And here are our big bets and adjustments. We're going to spend less capital on larger EVs. And as we've always said, we'll have a very small number of those. We're going to focus those large EVs on geographies and product segments where we have a dominant advantage like trucks and vans. And those products will have breakthrough efficiency compared to our Gen 1 products, and they're going to be packed with innovations that customers are going to be excited to pay for.
We're also adjusting our capital switching more focused on to smaller EV products. Now this is important because we made a bet in silence two years ago. We developed a super-talented skunkworks team to create a low-cost EV platform. It was a small group, small team, some of the best EV engineers in the world, and it was separate from the Ford mothership. It was a startup. And they've developed a flexible platform that will not only deploy to several types of vehicles but will be a large installed base for software and services that we're now seeing at Pro.
All of our EV teams are ruthlessly focused on cost and efficiency in our EV products because the ultimate competition is going to be the affordable Tesla and the Chinese OEMs. And that bet and all of the rightsizing of capital and even delays to some of our products, given the market realities, better balance growth, profits and returns for us. But one of the things we're taking advantage of and taking some timing delays is rationalizing the level and timing of our battery capacity to match demand and actually reassessing the vertical integration that we're relying on and betting on new chemistries and capacities.
Our overall EV business will grow this year because we have the Explorer launching in Europe and really exciting, many of our commercial vehicles launched with electric this year as we refresh the lineup. We will also align production and inventory for customer demands. EV customers are also helping us in a very critical area of software quality. They really, really are teaching us a lot. And this is a critical place where I think we're ahead as a company. Why are we making these changes in our EV business and capital allocation?
Well, because we learned as an early leader as we scale the EVs and hybrids simultaneously. The demand curve turns out to be for EV is very different than ICE. We've seen an explosive growth in EVs in 2021 and 2022, and we realize very quickly that our first three Gen 1 products, we didn't have enough capacity. With EV growth, but as well importantly, the COVID supply shocks and the chip crisis itself and Tesla's ability to make vehicles despite the chip crisis in '21 and '22 and the zero cost of capital gave us too optimistic of a demand signal at that time, and it drove a temporary spike in supply. As the COVID shock retreated, we learned that as you scale EVs to 5,000 to 7,000 units a month and you move into the early majority customer, they are not willing to pay a significant premium for EVs. This is a huge moment for us.
What we've seen, because we offer everything, is pricing quickly converged to hybrids after any benefit from subsidies. Now Tesla found out this first but we were right behind that, and they were very exposed to early majority. But we learned very quickly, and I want to say that no one will be immune to this reality. The most obvious indicator of this reality is looking at total revenue, not units for EVs. Look at the U.S. market. EV total revenue was down in the second half of last year versus Q2. If you look at unit volumes, they were up. That is a really important insight we learned in being a first mover. The same thing happened in China, same thing happened in Europe.
Our data shows that EVs are a clear destination for many customers based on their unique duty cycle. It's going to take time more than we expected 18 months ago. But we are seeing big adoption variances by geography, and that's why the power of choice at Ford is so important and a big advantage for us. We're betting that choice and flexible manufacturing is going to get us successfully through this transition.
Look at the best-selling vehicle in the United States, the F-150. We have a, we have a hybrid and high volume and a nice choice. In Q4, in California, our mix was 50% hybrid and EV F-150 and 50% ICE. 1,000 miles away in Dallas, it was only 15% hybrid and EV, 85% ICE. You go around the world, you'll see same variations. Hybrids will play an increasingly important role in our industry's transition and will be here for the long run. Hybrid just hit specific customer use cases. On a Maverick pickup truck, our hybrid is focused on mileage and efficiency and they do the math very clearly, and they don't have to change their behaviors.
On F-150 Hybrid, they get the same benefits even when they're toeing on fuel efficiency, but we throw in Pro Power on board on top of that to displace a very expensive generator cost. And margins on hybrids are closer to ICE, much higher than EV margins. The journey on EVs is inevitable in our eyes and we have a bright future of EVs. We're adjusting our capital and we're giving customers choice. Last thing I want to mention is talent. None of these breakthroughs in our company operationally or financially or in technical excellent innovation are going to happen without the right talent.
And we've learned that the right talent is not sufficient. Over the last two years, it's been imperative that we go to a right performance management system. It's a fundamental change in the way we're running the company. We now truly differentiate and reward excellence at Ford, and that matches our operation and our business delivery. It's a massive culture change.
Evolving to a compensation and benefit structure weighed more towards variable compensation that is tied to our delivery business results is fantastic. You can't bring in and retain the best talent without making this change. And now our long-term incentives and our short-term incentives are tied specifically to shareholder value creation.
Over to you, John.
