Ford CEO Jim Farley on the Future of the Essential Economy

[00:00:00]This is a story about the essential economy.

[00:00:03]That's what Ford CEO Jim Farley calls the part of the US market where things get built, moved, or fixed.

[00:00:10]This week, he held a series of meetings at the restored Michigan Central Rail Station in Detroit, and we traveled there to hear directly from him what needs to be done.

[00:00:20]-95 million people, huge part of our GDP, that basically build things.

[00:00:25]Think about factory workers, construction workers.

[00:00:29]The people who move things, rail workers, truck drivers.

[00:00:33]And the people who fix things.

[00:00:35]Think about plumbers, electricians, people who are mechanics on your vehicle.

[00:00:40]That's the economy.

[00:00:42]It's huge, and we have about a million people shortage today.

[00:00:46]Westin: What's going on there?

[00:00:47]Why are we short that many essential workers?

[00:00:51]- It's a combination of things, David, but I think the biggest thing is the societal prestige of these jobs has changed from our parents and our grandparents.

[00:01:01]You know, people all want to go to a four-year degree, and then they want to go into the white-collar workforce.

[00:01:05]That's what my grandfather told me.

[00:01:07]He was a factory worker.

[00:01:08]"Hey, Jim, I don't want you to have to work this hard.

[00:01:10]"Go to college."

[00:01:12]And the irony of the irony is we have all these data centers, all this new technology to roll out.

[00:01:18]It still requires electricians, construction workers, you know, and we have this huge shortage.

[00:01:24]The second thing is our country has really pulled back on investing in education programs, the local college support for these kinds of jobs.

[00:01:33]There's no high schools around vocational programs anymore.

[00:01:36]That's the exception, not the rule anymore.

[00:01:38]I think the last thing is permitting all the regulatory requirements on these jobs is really tough, especially for small business.

[00:01:47]And it just makes these jobs hard and complicated.

[00:01:50]Westin: How does AI fit with the essential economy?

[00:01:54]-Well, I hope that it will be a help, but it's hard to say that today.

[00:01:58]We're going to have a lot of tailwinds for the essential economy of AI.

[00:02:02]For example, we have to build all these data centers, all the transmission lines.

[00:02:06]That's going to require plumbers, you know, electricians, a lot of technical people to do all that, construction workers.

[00:02:14]But on the other hand, over the last 20 years, the essential economy productivity has actually gone down, whereas white collar productivity has gone up 20 or 30%.

[00:02:24]That's like, for the average essential worker, that's like $30,000 a year.

[00:02:29]So we don't have a good track record here of applying new technology like AI to make these jobs more productive.

[00:02:39]You know, automation, things like that, those innovations really took jobs out of the job market and out of the essential economy.

[00:02:47]I think we'd have to twist the technology through the lens of these critical jobs for it to be the opposite.

[00:02:54]Westin: The government plays a central role in turning around the essential economy, with President Trump emphasizing manufacturing and the need for trade schools.

[00:03:03]But Farley has yet to see the real results, including with those auto tariffs.

[00:03:09]-It's too early to tell.

[00:03:11]I haven't seen a lot of new plant announcements of my competitors who import.

[00:03:16]You know, our market is 50% import.

[00:03:18]So what I was looking for is how many of those imported vehicles are now being built in the US We haven't seen too many announcements.

[00:03:25]What hasn't changed is Ford's commitment to the US.

[00:03:27]We build 80% of our vehicles here.

[00:03:30]We're the largest employer, UAW workers, and we're the largest exporter by far from the US.

[00:03:36]I would say it is too early to tell.

[00:03:39]But I'm seeing the tone at the top in DC be very thoughtful about the parts tariffs, which more than 20% of our tariff, of our profits, is lost on these parts tariffs.

[00:03:54]So, yes, we make in the US, but we import parts from all around the world.

[00:03:58]Because some of them, like wiring looms, we can't even buy in the US.

[00:04:02]The tariffs on those parts, maybe 20% of your F-150, is 20% of our profit gone.

[00:04:10]And I'm seeing a tone at the top in DC where they are listening to us very carefully, because they understand long term that $22 billion of headwind for us will not be good for the US.

[00:04:24]Especially for a company like Ford.

[00:04:27]I don't know what they're going to do.

[00:04:29]But, boy, have we had a lot of conversations with commerce and the president about this.

[00:04:33]And I remain very optimistic that they'll make the right adjustments.

[00:04:37]If they make the right adjustments on tariffs with the EPA rule, some of the tax changes, like PTC, I think we will see a much stronger US industry in the coming years.

[00:04:48]And I'm sure hopeful of that.

[00:04:50]Westin: When we spoke to Farley a year ago, before President Trump's election, the auto industry was working and investing hard to meet government targets for electric vehicles.

[00:05:01]Since then, EV policy has been turned on its head, making automakers' lives dramatically more complicated.

[00:05:08]Roger Penske, founder of the Penske Corporation and owner of IndyCar, says it's the result of ignoring what the customer wants.

[00:05:16]-No one asked the customer what they wanted, number one, and number two, we didn't have the infrastructure and the expectation on range wasn't there.

[00:05:25]So everything came together, the way they sold electric vehicles was with government support.

[00:05:31]The $7,500 is going away.

[00:05:34]When you think about that, that's $50 billion that the government is going to be able to put, hopefully, towards something that's better off, you know, for our economy, and better off for the country.

[00:05:43]But I would say they're going through a transition.

[00:05:46]All of them have said, Mary Barra has, you know, Farley has, they're moving to lower-cost EV vehicles.

[00:05:53]Westin: You at Ford, like the other automakers, have really made a lot of capital investment commitments for an EV future.

[00:06:00]What happens to those investments now?

[00:06:03]-It's an important question for our country.

[00:06:05]First of all, Ford never talked about an all-electric Ford.

[00:06:09]We always said "customer choice."

[00:06:12]We have hybrid, the F-150, best-selling vehicle in the United States.

[00:06:16]Almost a third is now hybrid.

[00:06:18]So we never bet the farm on electrification.

[00:06:21]And we were first mover.

[00:06:23]We've been number two to Tesla, I think, for three years now.

[00:06:26]But that is the biggest next-up question.

[00:06:29]How does Ford adjust its assets from moving to making large-scale battery operations?

[00:06:37]We have three battery plants in Kentucky and Tennessee, another one here in Michigan, and Marshall.

[00:06:42]So four plus two assembly plants dedicated to electrics.

[00:06:48]You know, what do we do with those assets?

[00:06:50]I'm not going to go into the details, but all I say is they're some of the best factories we've ever built.

[00:06:56]We've designed them flexibly and we'll make the right decision for the company.

[00:07:01]We're not going to allow these to be mothballed.

[00:07:05]And we have more decisions to make on those battery plants and assembly plants in the coming months and years with this change.

[00:07:11]Because a year ago, we didn't see the customer like we do today.

[00:07:15]And boy, are we seeing customers buy hybrids and partial electric solutions.

[00:07:20]So America is moving more to low CO2 footprint powertrains, but they are not accepting full electrics anywhere near what we thought.

[00:07:30]Westin: When you talk about some of the policies coming out of Washington, on the one hand, as you mentioned, there's the $7,500 credit, goes away this week.

[00:07:36]On the other hand, you've got the CAFE.

[00:07:38]So there's some gives and takes on this.

[00:07:41]How does that all come up for the Ford Motor Company?

[00:07:43]- Well, it's accelerating this awkward moment, basically.

[00:07:47]The $7,500, which could be up to, you know, 20%, 30% of the purchase price, is gone.

[00:07:54]That makes EVs a lot more expensive.

[00:07:56]But think about Ford as a global company.

[00:07:58]We're not just the most American company.

[00:08:00]We compete around the globe.

[00:08:02]And in China, 50% of the vehicles are electric.

[00:08:05]In Europe, it's 30%.

[00:08:07]So we have to set up our industrial system to compete not just in the 4% or 5% here in America, with maybe a higher mix of hybrids or EREVs, but in China, or the rest of the world, we still have to make this EV future profitable.

[00:08:24]To do that, we made a big bet four years ago.

[00:08:26]We did it in secret.

[00:08:28]We came up with a small group of people on the West Coast.

[00:08:30]And we redesigned the way we make and design a vehicle.

[00:08:34]We called it the Universal Electric Vehicle.

[00:08:36]It's kind of a Model T kind of moment for the company.

[00:08:38]That vehicle will be coming out in about a year and a half.

[00:08:41]That is our way of competing with BYD's cost.

[00:08:44]They've been at it for 20 years.

[00:08:46]These markets are huge outside the US.

[00:08:48]We still have to be successful globally.

[00:08:50]We can't just draw a big wall around the US and say that's what Ford Motor Company is.

[00:08:56]Westin: Another subject we discussed a year ago was China and what's going on.

[00:09:00]Bring us forward one year.

[00:09:01]What's going on, for example, with BYD.

[00:09:03]-Yeah, I mean, a year ago, Tesla was the number one seller globally of electric vehicles.

[00:09:09]And VW was the top brand in China.

[00:09:11]The world's biggest market is almost 27 million.

[00:09:14]The US is 16, maybe, on a good day.

[00:09:17]Imagine how big that is.

[00:09:18]It's not twice as big, but it's a big market.

[00:09:21]Now BYD is not only outselling Volkswagen, they're now the number one electric player in the world a year later.

[00:09:28]Very powerful company, vertically integrated, like Henry Ford did in the 30s.

[00:09:33]We're very humble, but as the same token, Ford has announced our universal electric platform to be built in Louisville, Kentucky.

[00:09:40]And we think it's basically a wash with BYD made in Mexico, because we've thrown innovation at it.

[00:09:48]So a lot has changed.

[00:09:49]And we've seen Europe has been really the battleground for... globally for the Chinese.

[00:09:58]Now it looks like this month, I bet you the Chinese will be close to 10% of the European EV market.

[00:10:04]Many of the brands weren't even on sale a year ago.

[00:10:07]MG, Geely, others.

[00:10:10]Now they're very successful like BYD in Europe.

[00:10:13]It's a really a moment, a transitional moment for our industry, where everyone used to talk about South Korea or Japan.

[00:10:21]In my eyes as a CEO, China is the place where the most fit industrial systems are getting created, not just for electric vehicles, but for internal combustion vehicles.

[00:10:32]And without projects like UEV companies will be under threat of existence.

[00:10:38]Westin: You were on the front lines when Japanese manufacturers stole market share from the United States.

[00:10:44]But bringing it forward to today, there is a different economic structure in China that involves subsidies.

[00:10:50]-Yes, there is.

[00:10:51]Westin: Can the American auto industry out-compete those subsidies, out-innovate those subsidies?

[00:10:57]-That's a very difficult answer to give you right now.

[00:11:01]I think it's too early to answer your question, because we're only in the second inning of these pure electric vehicles, and the innovation cycle's so fast.

[00:11:10]We could be talking in a year or two of a whole new battery technology that could either change that equation.

[00:11:16]But I will say at this point, they have a big lead.

[00:11:21]When you look at BYD, we think on average, four to five thousand dollars a vehicle of direct support from the Chinese government that's exported to Europe, and New Mexico, and places like that.

[00:11:33]Can we make up for that?

[00:11:35]Plus their scale, their industrial scale, of being ten times bigger than the US?

[00:11:40]I'd say it's pretty difficult at this point.

[00:11:42]I will tell you, the level of risk that we've had to take on UEV, on the execution side, large unit castings, building a vehicle in a way we've never built before, it's not a guaranteed project.

[00:11:54]This is all going to come together just like we thought.

[00:11:56]And so we think we're even with them right now, but the speed of innovation we're seeing is very humbling for me.

[00:12:04]Even if we have a stable platform on cost today, will that platform be competitive in five years?

[00:12:09]When the battery tech does another full cycle of innovation?

[00:12:13]Hard to say.

[00:12:14]I'm thinking about 2032 right now.

[00:12:18]To answer your question, I'm there.

[00:12:20]I have to make those capital choices now for 2032.

[00:12:24]To answer your question right now, I think there's a chance.

[00:12:27]But without huge support, where it's more of a level playing field, where it isn't in Europe, I think it's going to be really tough.

[00:12:38]Maybe the toughest battle of my career.