Ford CEO Jim Farley calls chip shortage ‘greatest supply shock'

Ford Motor Co. CEO Jim Farley said the worsening semiconductor shortage has prompted "perhaps the greatest supply shock" he's ever seen, as dealer lots dry up and the company juggles production shutdowns across the globe.

Speaking to Automotive News Group Publisher KC Crain as part of Automotive News' Congress Conversations series, Farley said the challenges are similar to what the industry faced in the early days of the coronavirus pandemic.

"As scary and difficult and challenging as the early days were in COVID, the current supply shock is just as frustrating, if not more frustrating, for our team," Farley said. "Everyone is trying to do their best to deal with the constraints. It reminds me of the early days [of the pandemic] when we had to come up with the playbook. That's how big of a work statement this supply chain shock is."

Dearborn, Mich.-based Ford, along with other automakers, has been forced to halt production at a number of plants in recent months because of the scarcity of microchips that help power a number of functions within a vehicle. It also has resorted to building F-150s without the chips and storing them in lots until more supply becomes available.

Dealers are feeling the pressure as inventory dwindles. One retailer recently told Automotive News: "It's going to be a pretty desperate April."

Farley said the crisis has led Ford to rethink how it sources critical components such as chips and that he has spent the past several weeks benchmarking other industries to see whether there are any takeaways for Ford.

"What I've seen is a couple of key themes," he said. "Most other industries use safety stock for critical components like chips. And the other one is they have multiple sourcing. And many of these companies pay for chips upfront years and years ahead of the capacity requirements. So there's a lot of lessons to be learned for our whole industry."

Farley said the issue of sourcing chips was especially relevant given auto makers' increasing reliance on new technology and the growing need for batteries to power a coming wave of electric vehicles.

Farley previously said Ford was considering manufacturing its own batteries, as Tesla does, but that a decision was not yet made. Those comments were an about-face from the stance under former Ford CEO Jim Hackett, who said last year there was "no advantage" to Ford having its own plants.

Since Farley became CEO last October, he has likened the electric revolution to a baseball game, saying Ford was in the first inning.

Farley on April 22 appeared to take a more firm position on battery production.

"In the first inning, you could buy batteries and you could cherry-pick the technology, energy density and cost from multiple sources," he said. "We're in the second inning now. The volumes are going to grow. We've committed $22 billion to converting the factories and engineering the new products. The next thing is going to be allocating the cost of batteries. Our $22 billion does not include any resources for batteries. So you can imagine and you can expect from Ford lots of announcements."

He did not rule out building a dedicated battery plant in the U.S.

"We'll see," he said. "We're going to need lots of battery plants."