CEO's Trip to China Causes a Wakeup Call for Ford
A recent article in the Wall Street Journal highlights an alarming wake up call for US auto manufacturers and one CEO saw the writing on the wall: “A few humbling trips to China in the past 18 months prompted Ford CEO Jim Farley to alter his EV strategy.”
Farley's recent visits to China have significantly impacted Ford's EV strategy. His observations have highlighted the rapid advancement of Chinese EV technology and manufacturing, prompting a sense of urgency within Ford to accelerate its own efforts:
Chinese EV advancement
Farley was impressed by the technological sophistication and rapid growth of Chinese EV companies. He noted their advanced features, competitive pricing, and aggressive expansion into global markets: “The Chinese carmakers are moving at light speed, he told John Thornton, a former Goldman Sachs executive who spent years as a senior banker in China. They are using artificial intelligence and other tech in cars that is unlike anything available in the U.S. These Chinese EV makers are using a low-cost supply base to undercut the competition on price, offering slick digital features and aggressively expanding to overseas markets.
“John, this is an existential threat,” Farley said.”
That’s a pretty stark statement. Farley seems to realize that legacy automakers are in trouble. It’s likely that other legacy automakers are starting to realize they are facing a serious threat from Chinese automakers as well. They are investing heavily in research and development, and their electric vehicles are more advanced than those of their American counterparts while also being less expensive. Not being prepared to compete with Chinese automakers risks losing market share outside of the US. To remain competitive, they must enhance their strategies and invest more heavily in research and development.
Competitive threat
“In the span of a few years, Chinese EV maker BYD, backed by Warren Buffett, and other domestic brands have clawed away gobs of market share in China from once-dominant foreign rivals, through a combination of lower prices, high-tech interiors and rapid vehicle updates. Today, they are quickly expanding in Europe, the Middle East and other Asian markets.”
His visits reinforced the view that Chinese EVs pose a significant competitive threat to traditional automakers, including Ford. This has driven a need for Ford to reassess its EV strategy and accelerate its development timeline. Considering the EV adoption rates in the US, EVA President Elaine Borseth, in a recent interview with the Financial Times, mentioned that the US is risking falling further behind the curve with potential setbacks caused by those on Capitol Hill with a misunderstanding of the EV race. She mentioned that removing government support for EVs (as proposed by the Republican party and Donald Trump) would threaten the US economy and domestic carmakers with a 1970s-style crisis, a period when Japanese and South Korean rivals stole market share from American carmakers. This time around the “Chinese will just take over in the EV market”, Borseth added.
Strategic shifts
Farley's experiences have led to changes in Ford's EV strategy. The company has increased its investments in EV research and development, expanded its partnerships, and focused on improving its product offerings to compete more effectively in the global EV market.
“The CEO has a team exploring ways to contract with some of the same low-cost parts suppliers that have given Chinese EV makers such a big edge. He has pivoted Ford’s strategy toward smaller EVs, because for now the huge batteries needed for big pickups and SUVs are too expensive. That strategic shift resulted in the recent, high-profile cancellation of a future Ford Explorer-size electric SUV.”
The trips to China have served as a wake-up call for Ford, emphasizing the importance of staying competitive in the rapidly evolving EV landscape. Will other automakers realize the same?