Unpacking The Jim Farley Interview With Bloomberg

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There is a torrent of news this week about Ford, the legacy US automaker that seems most committed to pushing the EV revolution forward. (Yes, GM is doing so as well, but any company that leads with the 9,000-pound Hummer EV and the $200,000 Cadillac Celestiq can’t be all that serious, can it?) This week, Ford CEO Jim Farley sat down for an interview with Bloomberg Television to answer questions on a broad spectrum of topics. Here are some excerpts from that conversation.

The Jim Farley Interview

Farley began the interview by alluding to how Henry Ford originally structured the company more than 100 years ago. He valued self sufficiency and wanted to source all the resources needed to produce automobiles internally. Farley said he sees value in reversing decades of outsourcing and doing more in-house. Astute readers will recognize that philosophy also pervades operations at Tesla as well.

“We’re going back to kind of where we started as a company in the 1920s, when Henry Ford built the Rouge, and everyone kind of copied the Rouge. We are definitely going much deeper in vertical integration,” Farley told Bloomberg. “Batteries, we’re going to have our own plant and our own labor here in Michigan. That will be a big lesson learned.”

“What we’ve found on batteries on the manufacturing side, scaling for quality is a lot harder than we thought. Actually building the buildings, getting the raw material, processing is difficult, but the hardest thing we’ve found is to build, at scale, quality batteries.

“Vertical integration is going to be the theme of the day, because the gearboxes, the electric motors, the inverters, the whole electrical architecture, we farmed out to all of our suppliers for decades. We’re bringing all that in now, inside the company. It’s hard, but it helps with the costs, and we think all those are difference-makers. We want to be doing those things and solving the hardest problems at Ford.”

The ICE Vs. EV Challenge

It’s no secret that Ford and other established automakers are doing a delicate dance. They can’t just stop selling internal combustion-powered vehicles and switch to building EVs. They would quickly go bankrupt if they tried. But juggling the ICE piece of the business and the EV piece is a challenge. Ford says it lost $2 billion on its EV operations last year and expects that figure to balloon to $3 billion in 2023.

“We’re making progress,” Farley said. “It needs to go faster, but a new culture is setting in in the company. A lot of other competitors have made a lot of personnel reductions. What we want to reduce is more like the bill of material costs, the industrial costs in the plants, a lot of extra inventory, as well as our negotiated costs with the suppliers. Our cost we want to get out is actually in the heart of our industrial system, it’s not just people.”

Bloomberg next asked about where EV prices are headed. The price of the contractor grade F-15o Lightning has increased significantly since it was first introduced. “We’re assuming, in our plan this year and next year, five-plus percent reductions. It’s kind of in between where we were in 2019 and where we’ve been,” Farley said.

“I don’t think we’re going to go back to the days a couple years ago of 100 days’ supply. Some are in the 50 days’ supply range. You’re starting to see now low APRs from a lot of brands that have older product. What’s unique about Ford is we have an all-new lineup. But the background pricing will be more difficult.”

Asked about Ford’s plan to reach an 8% profit margin on its electric vehicles and get near Tesla’s gaudy, industry-leading profit margins, Farley had this to say.

“Both are going to happen. Tesla has had the market to themselves, they had a big head start, and now they’re seeing a lot more pressure. We’re going to see that, especially in the two-row crossover. We think there will be like 50 to 100 new models, and a lot of people want to grow, so it’s going to be a great time to buy a two-row electric EV like the Mustang Mach-E.

“Where we compete in electric pickup trucks, three-row crossovers that we’re going to show people today, and the electric commercial vehicles, we don’t see as much price competition because there aren’t as many choices there, and we’ve seen that on the F-150 Lightning. The price of the Lightning has increased mightily over the last two years, while the Mustang Mach-E has been more competitive.

“What we have to do as a company is reduce the bill of material cost. So on Mustang Mach-E, we’ve gotten the cost of the vehicle down $5,000 this year. We’re going to need to do the same thing, and even faster, on our second-generation product.”

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Farley, Ford, & CATL

Ford has entered into a novel arrangement with CATL to build a battery factory in Michigan. That happened after Glenn Youngkin, the governor of Virginia, told Ford and CATL to take their clean energy jobs and shove ’em. America is having a xenophobic moment that threatens to revive the days of Tail Gunner Joe McCarthy and the House UnAmerican Activities Committee. Ford is trying to sidestep all that drama by structuring their partnership so that Ford will own and operate the factory while licensing CATL technology to manufacture batteries.

The new Ford/CATL plant will be in southern Michigan, while upstate, certain Michigan residents are railing about plans announced recently by Gotion to build a battery factory there. The paranoia about every Chinese company taking orders directly from Chairman Xi is increasing, although China has not helped its cause any by flying intelligence-gathering balloons over the American heartland.

Asked about the CATL arrangement, Farley told Bloomberg, “The Inflation Reduction Act was a game changer for companies like Ford. Tesla has been importing CATL batteries for a long time and we don’t really want to import them. We’d rather build them, and not just in Mexico but here in the US.”

“The company has great LFP technology. That’s a really affordable battery, it also has twice the charge cycles that are great for our commercial customers. It’s a Ford factory, it’s Ford workers, Ford is building the factory. It’s the right kind of structure of a deal for the IRA, to build 3,000 or 4,000 jobs in the US, instead of importing.”

The Takeaway

The message from Jim Farley is that, yes, transitioning to electric vehicles is difficult, but Ford has a plan to get there and is working the plan. That’s no guarantee of success, of course, but it is comforting to see the company negotiating the crosscurrents of technical and political upheaval with some degree of aplomb.