Ford's Jim Farley on beating China, and the storm nobody sees coming

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1:32Hey everyone, Bob here. Before we jump into today's episode, I'm joined by Jean-Marie Magneti, CEO and co-founder of CoinShares, which supports and sponsors Rapid Response, something we deeply appreciate, Jean-Marie. Hey, there's been so much change in the world of digital assets. What differentiates a crypto-native firm today? What do they understand about volatility that traditional players are still learning? Yeah, I think traditional managers study volatility. They are students of volatility. I think crypto-native firms are practitioners of volatility. We don't just package digital assets as well. We trade them. We hold Bitcoin on our own balance sheet.

2:12And so we operate in the market we invest in. That's not a marketing timeline. It's really an operating principle for us. Over the years, crypto has gone through waves of boom and bust. Is there a difference between a firm that sort of weathered the cycles versus one that learned from them? Yeah, surviving a crash is luck, I would say. Learning from it is more of a business decision. And so weathering means you survive. Learning means you change the way you operate. So sometimes this kind of bear market are a great opportunity for people to keep building.

2:46If the question in 2015 was, is Bitcoin for real? What's the defining question that we should be asking in 2026 and beyond? The question isn't, is Bitcoin real anymore? That's done. It's more what happens when every portfolio has a digital asset allocation attached to it. So the question has evolved. 2015, is it real? 2020, should I own it? 2024, how do I access it? And now what does the portfolio look like that includes digital assets as a permanent allocation pattern?

3:17The firms that will matter in the next decade are the ones that build the infrastructure during the last one. So the best time to build was a decade ago. The second best time is never because someone already did it. Jean-Marie, this has been fascinating. Thank you so much for the chat and for your support of our show. Thank you, Bob. Have a nice day. And now on to today's episode. The car business in most industrial countries is the heart and soul of the manufacturing base.

3:49It creates a lot of jobs. It has a bigger impact. For every job you create in a factory, there's like tenfold it got created in the economy. Today, the Chinese car industry, the new vehicle sold there every year, is about 29 million. But they have 50 million units of capacity. They're now the largest exporter in the world. The production capacity in China is so large, it could basically take care of the entire North America market.

4:22That's Jim Farley, CEO of the Ford Motor Company. With the Strait of Hormuz in the spotlight and gas prices high, I wanted to talk with Jim about how the auto industry is being impacted. Jim's answers surprised me, focusing as much on China as on the Middle East. We also talk about the challenge and responsibility of leading an iconic American brand right now. Plus, Ford's big bet on a new vehicle platform, his dissatisfaction with some of Ford's own products, and more. So let's get to it.

4:53I'm Bob Safian, and this is Rapid Response. I'm Bob Safian, and I'm here with Jim Farley, CEO of Ford. Jim, great to see you again. Thank you so much for having me on your show. I really have been looking forward to this. You were a big supporter of Fast Company when I was the editor there, and you were running Lincoln. Still much gratitude for that. I remember coming to Detroit 12 years ago to interview Bill Ford on stage about the future of mobility.

5:24He talked about connected vehicles and autonomous vehicles. All the seeds of today were there, you know? Yes, you got it right. It's been a long and windy road, as the Beatles would say, but things kind of happen in fits and starts, not linearly. Automated cars are here. Advanced electric architectures are here. Software-enabled vehicles are here. The public mobility solutions, all the innovation we were thinking about, you know, grid to car and, you know, intelligent cities, intelligent parking.

5:57A lot of that didn't happen, but electrification sure has, and from my perspective, after 40 years in the industry, we always kind of think about these moments like we're going to be in the fifth inning as we start the game, and we wind up realizing that there's actually four innings before that, and there's a lot of ball to play, so to speak, and it just takes time. Yeah, well, the big question mark looming over everything right now is the activity around Iran and the Middle East, what happens with the Strait of Hormuz, with oil prices.

6:31You're on the front lines of all that impact in your business. What are you seeing? What are you feeling? Are there any strategic adjustments you're making? Well, it's been an interesting couple weeks. It's very asymmetric around the world. Ford is still a global company. A lot of our North America competitors have left Europe. We're the biggest pickup truck maker in the world in Thailand and Australia. These are huge pickup markets, even China now, and we face off with Chinese in all these markets. Two things are happening while this war is going on.

7:01In the first quarter, the Chinese market, which is a third of all new vehicles sold on the planet, was down almost 30%, and they're already the largest exporter in the world, way far beyond the Japanese and South Koreans, and their exports are up 43% this year, and they were already number one. So the war is happening, and the electrification in the first quarter is happening. Of course, fuel prices weigh up. In places like Australia, where they get a lot of their oil through the Straits, they're out of fuel.

7:32And actually, most companies are asking people to stay at home. Many provinces are giving away free transportation because you just can't get fuel. You know, in places like the Middle East, the business has completely stopped, and that's very important for logistics. Commodity costs have gone up, not just oil, but all commodity costs have gone up. So we have to adjust to the higher cost level. But I would say what we've really learned is that electric cars are very vibrant. Prices have gone up almost $10,000 in the U.S. for electric cars, and electric cars are now up to 7% of the U.S. industry.

8:07Not a small amount. Yeah. With no government support. But what's selling an EV is more important, which is it's the real affordable EVs that are more popular. Used EVs right now, super popular. So the market has changed. I like to look at the used market even more than the new market to understand where consumers' headset is, and they're more interested in hybrid. Because of affordability right now, like everyone, people are moving to the used market first? Or do you always look at the used market more?

8:37I always look at it. Why? Because it's twice as big as the new market. And it also is a better predictor of consumer behavior because the prices are all lower for used cars. And so you just get to see the market play out before it actually does. And it's super instructional when our capital cycle is four years, five years. We have to make these decisions way in advance of where the market goes or even the certainty of government regulations. I mean, in our case, we have to make it against the Chinese players.

9:10Late last year, you announced some sort of scaling back on some of your electric vehicle production. Do these changes and surge in pump prices and whatever make you rethink any of that? Or what you were seeing is the same in the marketplace that you were reacting to? Yeah. Thank you for asking this question. Everything that we've seen with escalated fuel price in the U.S. is reinforcing our choices. Not because I'm the CEO of Ford and we're always right. It's because we moved first among all the competitors before Toyota, before GM, before all the traditional OEMs.

9:46We were number two to Tesla for three or four years in EVs. We moved really fast, but these were kind of designed the wrong way, let's put it. And so they lost a lot of money, but we got to see how customers choose. And we also came out with the hybrid F-150, America's best-selling truck, and we hybridized it before Ram and, well, actually, they don't even have a hybrid still. So we got to learn, Bob, before any of our competitors where the EV market was already going.

10:16And with the escalated fuel price, it's only reinforced it. We got out of our high-end EVs, but what we decided to do is double down on our affordable. And that is what's selling today around the world, not just in the U.S. You look at Australia, you look in China, you look at Europe. All those markets are moving to a pure EV being kind of a commuter-type, low-cost vehicle. That's really where the market has already gone. I mean, you mentioned China a couple of times, and I think for folks in the U.S., often it's like surprising or confusing because there's not as many Chinese vehicles.

10:53There's blockage of certain Chinese vehicles coming to the U.S. But you've had some amazing quotes, the most humbling thing I've ever seen, an existential threat, referring to their EV prowess. Like, it sounds like that is not slowed down. Oh, it's sped up. You're absolutely right. Look at it this way. I could argue that the car business in most industrial countries is the heart and soul of the manufacturing base. It creates a lot of jobs. It has a bigger impact for every job you create in a factory.

11:25There's like tenfold that got created in the economy. And it's very hard to make a car. It's tens of thousands of pieces from all over the world, and it takes heavy manufacturing and know-how. And so these are really important jobs. Well, today, the Chinese car industry, the new vehicle sold there every year, is about 29 million. But they have 50 million units of capacity to build cars. So just their factories would be half full if they just made cars for their own market.

11:57It's not excess capacity because they built that for a reason. They're now the largest exporter in the world. And, in fact, their export capacity, their production capacity in China is so large, it could basically take care of the entire North America market. Their average Chinese vehicle has $4,000 to $5,000 of subsidies, indirect and direct from the government. Yeah, because I was going to ask, is that what keeps the price down the scale of the manufacturing they're doing? Or how much of it is sort of the subsidies that they're getting?

12:29Both. It's both. The Western companies made a lot of money in China for a long time. Not Ford, but many of our competitors. They made just billions and billions. And I think the Chinese government, very practical. Hey, just like solar and others, we want to really dominate global automotive. So, we're going to bet on this change of propulsion, electrification. And they made this bet many years ago. And the thing about cars that everyone knows, but when you point it out, they're like, oh, yeah, I guess that makes sense. These cars have 10 cameras in them.

13:00They have sophisticated communication. They're all connected. They're autonomous in many ways. So, these vehicles should be reviewed by the Defense Department for national security. They have sensitive PI information. They have camera images of your whole life, where you drive, including a military base, an electrical substation, all sorts of stuff. You were personally driving a Chinese EV, which someone could see as like, oh, that's kind of a diss to Ford-branded vehicles.

13:32But it seems like maybe that was the point, to sort of motivate everybody, to say, like, you've got to get in this game. Xiaomi, yes. SU7. Why? Why? Why? If you're an American and you want us to beat the Chinese in the car business, you're all going to want to pay attention, not necessarily to Tesla. Nothing against Tesla. They've been doing great. But, you know, they really don't have an updated vehicle. The best in business for us, cost-wise and competition-wise, supply chain, manufacturing expertise, the IP in the vehicle, was really BYD.

14:08And BYD became the most volume brand in China, not VW or the Western brands last year. Geely actually just surpassed it now. If we're smart, we'll take the cost competitiveness of BYD and then we'll compete with that platform in parts of the market where we know our customers really well. And this kind of next cycle of EV customers in the U.S., they want pickups and utilities and all these different body styles. But they want it at $30,000, not $50,000, like the first inning.

14:40They want it affordably. Yes, that is the gift that China gave us, to be fearful and respectful enough of their progress that we could not organically just phone it in. We needed to do what Americans do great sometimes, which is use innovation to compete against the best in the world. Can you just, for the listeners here who may not know, can you just make sure that you explain what the UEV project is, the Universal EV project?

15:13Sure. The UEV is kind of like the Model T of the modern Ford. When Henry invented the Model T, you know, my grandfather worked on the line then. He brought a lot of innovation. He brought the moving assembly line. Cars were not made that way. He got the best materials, but he applied it to the most affordable vehicle. Universal electric vehicle platform was developed not by Ford, but by a Skunk Works team out in California, mostly motorsports and Tesla folks that we had hired. We said to the team, you can do anything.

15:46We just want you to engineer the most affordable, most efficient electric vehicle on the planet better than BYD. And they got to work. They didn't use the Ford system to develop the vehicle and the platform. And it turns out that that wound up being a really good bet. The UEV is three parts. There's a large unicasting in the front and the rear. And then the center is a battery. So radical simplification of vehicle. About 30% less parts. We don't build the car all in one sequence like we have for 125 years.

16:20We actually build the front of the car separately from the rear of the car, separately from the middle of the car. And at the end, we join them together. We've never built a car like that. And to get the cost down for our customers, we need to radically shrink the size of the battery. We couldn't BYD on the cost. We might as well out-innovate them on efficiency. So we radically engineered the vehicle for efficiency. Those are just some of the examples. People learn more. The vehicle comes out next year. We'll show it probably late this year. I'm really excited. It's a platform.

16:51It's not just one vehicle. So there'll be multiple vehicles off this platform. And it's kind of a Model T moment for us. You've always been known for your candor. You've talked about sort of no more boring products, which implies at least some of Ford's products are boring, which it doesn't necessarily have to do with the technology of it, right? Maybe it has more to do with, I don't know, the design, the passion. I would say I believe that Ford is best naturally working on, I would call, vehicles with deep passion.

17:27Work, off-road, on-road passion vehicles. I have the Mustang GTD right behind me. Mustang is a passion vehicle. But I think a two-row crossover is kind of like, I say Wolfgang Puck, he said, you know, there are a lot of really nice restaurants, but it's hard to do a buffet in Vegas. You know, if you want to do a two-row crossover in our industry, RAV4, CRV, whatever, you can make it that or you can make it a Bronco Sport.

17:58I think Bronco Sport fits our brand. I don't think Escape, the past Escape, did. And it's not that it needs to be fancy or expensive or has to be super, you know, performance-oriented. I don't mean no boring products that way. I just think, you know, some of our products, we're not differentiating. So we don't want to phone it in. We want vehicles at Ford that are truly differentiating for their customers. And if not, stop making them. I mean, which is hard to make that call sometimes when there are stakeholders who are, you know, bought into that.

18:34But sometimes you've got to move away. Especially when you compete in the middle of the market and you don't have a cost advantage. I really believe Ford is about to launch a number of affordable vehicles, not just the UEV platform, but a number of them. You'll see that come out in the next couple of years. Well, I wish we could have done affordable vehicles or sedans a long time ago, but we decide not to come out with sedans in the U.S. Because we didn't have a competitive cost base. Until our company got serious about cost and quality, we really didn't have the rights to compete.

19:08I can't allocate capital to a Fusion or a Focus if I know I'm going to lose $4,000 a vehicle compared to a Corolla or a Civic. I need to transform my costs, go back to the mountain, you know, figure out how we radically get the cost out of the platforms, and then we can compete. And if we do compete in those, I would say, ubiquitous segments, we better bring something new to the table.

19:36Jim's urgency is pretty intense, but as he explains, it's a competitive market with a lot at stake. So, is being an iconic American brand an asset or a complication in the current environment? We'll talk about that more after the break. Stay with us.

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20:31If you listen to Rapid Response on Masters of Scale, you may be missing half the show. Because every Friday, we release a second Rapid Response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely, from Ford's CEO to NASA's administrator, to the lessons from the Devil Wears Prada. It takes about 10 seconds to find. Just search Rapid Response wherever you listen to podcasts, and hit follow to make sure you never miss an episode.

21:03I hope to see you there.

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21:49Before the break, Ford CEO Jim Farley talked about fallout from war in the Middle East and how China is changing the auto business. Now, he talks about the responsibility of leading an iconic American brand, his focus on what he calls the essential economy, and why Ford has reengaged with Formula One. Let's jump back in. You mentioned Ford as a brand a couple of times. I mean, Ford is a quintessential American brand, which can seem like a double-edged sword right now.

22:23I mean, domestically, the country feels divided. Everything gets politicized, even Super Bowl halftime show. Internationally, the U.S. isn't as embraced as it once was. I'm just curious how those realities come into your calculations. We see people in America wanting authentic companies who are who they are, and they have principles. And Ford is a principal company.

22:55There's a reason why we dominate the work sector. We're 45% of the work vehicles sold in the United States. Because we earned our American credentials. We did not go bankrupt in 2008. Our employees did not let the company go bankrupt. And a lot of Americans do care about that. We don't make one F-150 outside the U.S. Our competitors all do. They make it in Mexico and Canada. And you can't tell. They don't want you to find it. But you go into that windshield, and you look at that VIN number,

23:25and you go do a search, you'll find out. So, I think we're proud of our American credentials. So, when people think of Ford, there may be a $300,000 GTD, but they know that it's the same company that makes the white F-150 for their electrician. Or the cop car. Or, you know, the first responder vehicle. And that's a positive, because they don't associate our Americanness with politics. They associate it with jobs

23:55and our understanding of how Americans use vehicles. Ford is back in Formula One after 22-year absence, partnering with Team Red Bull. Yes. I'm curious why now. Like, because, I mean, there's F1's cultural growth, there's its new lead into hybrid engines and sustainable fuels. Like, what's the motivation? We got into it for a couple reasons. Number one, that the rules were changing. They were going to 50% electric, as you said, with sustainable fuel. We like that.

24:26It's also a sport that's really captured the imagination of Americans, like football and other sports. It's an indigenous sport to our company. You know, we don't make shampoo, we make cars. Cars get raced, and the ultimate racing is Formula One. So, we like that. But we really like the tech transfer. It is predictive failure components, which we can apply to our work vehicles. We have almost a million subscriptions now at Ford. Most of it is productivity software. Predictive failure is definitely the next wave of our commercial software productivity.

24:58We want customers to know when something's going to fail on their Ford. And Formula One's really good at that. They have to do that. Look at our UEV team. We would not have the talent in our UEV team if we didn't have, you know, a connection with Formula One. I know you've said some bracing things about the U.S. workforce overall, that America's sort of sleepwalking into a crisis for essential blue-collar workers, and that AI will hammer white-collar workers. It's sort of this double whammy. And I'm curious where you are on that right now,

25:29and what you feel like can be done or should be done, whether that's in Washington, in Silicon Valley, in corporate America overall. We call this sector of jobs the essential economy. Think about it, the electricians, the plumbers, the truck drivers, the emergency workers, the construction workers, all the people in our country that make our country run. But our competitors all sent work overseas, so there was not as much need in our education system for trade schools, apprenticeships,

26:00you know, all these things that our grandparents and parents used to do. And all those jobs got shipped overseas. Well, now, oh, we have to build data centers. Now we need emergency workers. We need plumbers and electricians, especially welders for all these AI data centers. And Ford sees this to our customers because we're 45% share of the commercial market in the U.S. These are our customers. They buy our vehicles. And they all say the same thing to us. Ford, can you help me find the next generation of my team?

26:33My average electrician's 57 years old. They're going to be retiring soon. And so we decided to get serious about this. We had a conference in Detroit last fall, and we started to find like-minded companies with similar issues. We're now talking to them. We're allocating serious resources to this. We're talking to the Ad Council for starting to build awareness of how great these jobs are. You know, my son can graduate from high school, can be a technician in a Ford dealership

27:03and make $150,000 in three years. He's not going to get that opportunity if he goes to a four-year degree. So we need to build awareness that these are good jobs, that you can have a great life. And we also need to build more infrastructure in our country, trade schools, apprentice programs. We need help from the government. We also can't rely on the government. We have to do it ourselves. Your choices about what you're passionate about, your leadership, it has an echo effect beyond Ford's business itself, right?

27:35And like, how much do you think about that responsibility beyond your own shareholders? Well, I say I have no rights to play any role outside of being the CEO of Ford and making the company successful without progress at Ford. And that's the most important thing. And we need to continue to make breakthroughs in quality and cost and electrifications. We need to be profitable. We need to build a sustainable company. But I work for the Ford family. This is not a family that is interested in the car business

28:07because it's an interesting business. So they've been in it for six generations. They are all completely committed to the industrial future of our country. And yes, I want our country to succeed long-term against China and others. And I think that Ford is the kind of company that actually requires a leader like that. What's at stake for Ford right now? I think what's at stake at Ford

28:39and our story of success is pretty simple. I think it really reflects the future of our country. Not because we are a country, but because Ford is the heart and soul of our industrial base in our country. We won't be able to defend ourselves. We won't have jobs for the future generations. We won't be able to reduce CO2 at large scale without Ford being able to do that, impact our communities positively, not just with economic benefits,

29:10but with social progress. That's the kind of scale that Ford has, the kind of impact we have on our country. The importance of our sustainment is really tied to the success of the country and even the defense of the country. And that's what's at stake. It sounds like a lot of pressure the way you describe it there. Do you sleep at night or worry about it? No, no, I don't think so. I'm a problem solver.

29:41I literally love problem solving. And so, yeah, of course, anyone in my position loses sleep, especially when we do this stuff we don't want to do, like layoffs and restructuring. It's the worst part of my job. But sometimes you have to shrink to grow, like we have at Ford. And almost six years of leadership in the position, I feel like we're in a good spot. We're making progress. And we really can change, you know, our country and make our country stronger

30:13and, you know, do everything we need to do with shareholders. I really believe that in my heart or else I'm not the right leader for Ford. Well, Jim, this was great. Thanks. Thanks so much for doing it. Thanks so much. All the best to you, Bob, and appreciate the time. Thanks for having me on.

30:29Jim has always been passionate. And as Ford's CEO, that urgency is definitely front and center. I'm struck by his sense of responsibility that Ford's mission goes beyond mobility to positively impacting community and country. Now, one could look at that cynically, that he's wrapping Ford in the American flag to help differentiate it. But there's a bigger picture sensibility at play, too, a holistic view of long-term impacts that many business leaders would prefer to brush aside.

31:00There's courage in that, even if it also helps the brand. I'm Bob Safian. Thanks for listening.

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