Ford CEO on Clearer EV Priorities, Supplier Changes and a ‘New Global Standard of Fitness’

Ford Motor Co. President and CEO Jim Farley hasn’t been shy about his team’s need to discard old ways and fundamentally reshape its design and manufacturing processes so that it can effectively compete in a world where electric vehicles will be the norm. He has talked about a California-based skunkworks team that’s designing Ford’s next-generation platforms, outlined plans to roll out more (relatively) small vehicles and set a one-year profitability hurdle for new models.

With those ideas as a backdrop, Farley recently went to Bernstein’s 40th Annual Strategic Decisions Conference for a conversation with analysts Toni Sacconaghi and Daniel Roeska. What emerged in the early part of that discussion provided as concise a summary of the state of the EV market in 2024 as we’ve seen as well as Farley’s strategic reactions to how the market has developed.

Excerpted (and lightly edited) here are parts of the chat that focused on Ford’s industrial fitness and its relationships—now and in the future—with suppliers as well as the role of Chinese car makers and the growing importance of software in automotive manufacturing. Farley’s thoughts here help put into context some of the forces Ford, General Motors Corp. and market leader Tesla Inc. are confronting as well as the struggles of smaller automotive manufacturers still looking to make a definitive breakthrough.

On what has changed over the past year in Farley’s approach to running Ford

"I come here at this moment in time […] much clearer about our executional priorities and the way we need to make our way through this successfully to be a great company. […] A natural law is emerging in attached technology, like the software and attached services that comes from tech, which was new to us—the natural law […] of cost. You're going to hear every CEO talk about the EV transition and all they’re going to talk to you about is cost—or that’s what they should talk about. So strategically, that requires a legacy company like Ford to completely disrupt the engineering, supply chain and manufacturing standards.

And so it turns out we were maybe smarter than we actually intended to be with our skunkworks because the way they’re working is completely foreign to the standard operating procedures of Ford. That was actually not something to celebrate. It was actually required for fitness, for cost, to use a completely different supply chain, to totally change the design standards for our EV components, to go vertically integrate and make the sourcing decisions to a lower part of the supply chain.

All those things were actually required now to be fit. It's not something that, maybe a year ago, we were like, “Hey, this is going to be really different.” Now I know all those things are required for excellence strategically—basically taking our skunkworks team and turning them into the standard for industrial fitness.

On the software side, it requires a laser focus with the best talent. A laser focus on leading the best, most customer-focused software deployment. I believe that the China consumer experience digitally is far beyond the West. What Huawei and Xiaomi have done inside the vehicle is far beyond what we can see with CarPlay and Google Automotive Services. That is the natural law now, in terms of great software.

So strategically, you must have the talent in the company to give the customer that functionality on the software side but do it in a way that’s compliant with the standards in the West. And that, strategically, it’s not about updating your electrical architecture or having a great software team. That’s necessary. Sufficiency or winning comes from strategically having the talent who can take that new standard—the best global standard—and execute it with a Western software tech stack. It's totally different."

On the other ways Chinese OEMs are pushing the industry toward lower-cost models

"The question is, do you want to delegate that [technology] capability to someone else or do you want to develop in your company? That’s the strategic choice. And as far as difficulty is concerned […] you don’t have a choice if you want to be the best in the world.

I think what you'll see is companies either moving off their internally developed Gen 1 EV platforms because there’s a new standard and it’s more fit. Or they will have, like Ford has done, a skunkworks team that tries to take advantage of that opportunity and build the fitness in the company."

On how supplier relations will change under the emerging model

"When we have a CEO of a part for our skunkworks team—and they’re looking at even a non-EV component, let's say, a silicon carbide inverter—and we want to make money at $25,000 or $30,000 cost, we have to have a completely new cost delivery. And when we quote this supplier or that supplier, we always start with the challenger and that automatically creates a fitness.

And it’s interesting because our current suppliers often own the design of that part. What we’re finding with the challenger suppliers is they’re willing to actually give us the IP of the part, the design itself. And then we work with them on the technology roadmap to make it better.

Then, when we go to our traditional supply chain, we have the design fixed. We know it fits a future technology road map for that challenger supplier. We have our own quality standards which we have to actually study and verify—whether those are really required to be competitive. And then, we’ll see how good the traditional supply chain is.

We’ve learned a lot. I’m not going to go into the details of who’s going to win and lose out of that; that’s not the purpose of this talk. It’s just very interesting to me that there’s a new global standard of fitness and that could be for mega castings, unit castings, something new, new technology like that, where our traditional suppliers actually aren’t used to doing that work."