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What Scared Ford’s CEO in China

By Mike Colias. WSJ. Sept. 14, 2024.

Jim Farley is changing strategy to combat what he calls an ‘existential threat’ from China’s electric carmakers

Jim Farley had just returned from China. What the Ford Motor chief executive found during the May visit made him anxious: The local automakers were pulling away in the electric-vehicle race.

In an early-morning call with fellow board member John Thornton, an exasperated Farley unloaded.

The Chinese carmakers are moving at light speed, he told Thornton, a former Goldman Sachs executive who spent years as a senior banker in China. They are using artificial intelligence and other tech in cars that is unlike anything available in the U.S. These Chinese EV makers are using a low-cost supply base to undercut the competition on price, offering slick digital features and aggressively expanding to overseas markets.

“John, this is an existential threat,” Farley said.

For years, Tesla was the main source of consternation for auto CEOs trying to tackle a transition to electric vehicles. Now, it is the rapid rise of nimble automakers in China that have rattled executives from Detroit to Germany and Japan. Even Tesla’s Elon Musk recently called the Chinese the “most competitive” carmakers in the world.

In the span of a few years, Chinese EV maker BYD, backed by Warren Buffett, and other domestic brands have clawed away gobs of market share in China from once-dominant foreign rivals, through a combination of lower prices, high-tech interiors and rapid vehicle updates. Today, they are quickly expanding in Europe, the Middle East and other Asian markets.

In the U.S., carmakers see EVs as their future, but for now, EV sales growth has slowed, as high prices and charging hassles turn off some shoppers.

Shortly after the trip, Farley arranged to have Chinese EVs shipped to Michigan for executives and directors to check out and sit in. The models were displayed in a Ford conference center near its headquarters. During board-meeting coffee breaks, directors took turns fiddling with cars.

One was the first EV from smartphone giant Xiaomi, which has drawn comparisons to a Porsche and sells for $30,000 to $40,000, below Ford’s similarly sized Mustang Mach-E SUV. The Xiaomi has a fragrance diffuser and an infotainment system that can connect to devices inside the home when the car approaches—turning on the home lights or air conditioner, for example.

There was also a $77,000 futuristic-looking electric minivan from Li Auto. The plush seats in the rear rows have heated arm and leg rests, and massive multimedia screens controlled by hand gestures. Ford brass compared the setup to business-class air travel or a home theater.

“Executing to a Chinese standard is going to be the most important priority,” Farley said.

Humbling trips

Chinese brands have so far been kept out of the U.S. by steep tariffs, geopolitical tensions and regulatory hurdles. But some have established a toehold in Mexico, where China-built vehicles—both EVs and combustion-engine vehicles—now account for about 20% of sales.

Governments around the world are worried about China’s EV expansion, citing everything from potential job losses to data-security concerns. In the European Union, where Chinese imports make up about one-fifth of electric sales, regulators recently disclosed plans for tariffs up to nearly 50%. The Biden administration went further with a roughly 100% tariff.

Farley, a 62-year-old, blunt-talking car fanatic who spent the early part of his career in marketing at Toyota Motor, sees Chinese EVs as an immediate threat in Europe and other overseas markets, and a long-term risk in Ford’s profit engine of North America, regardless of protectionist measures

Farley often reminds his executive team of how Toyota and other Japanese car companies grabbed market share from the U.S. automakers in the 1980s and 1990s, followed in recent decades by Korea’s Hyundai and Kia, which have found success