FORD

Ford CEO gives employees sobering data about Tesla, challenges ahead

Phoebe Wall Howard
Detroit Free Press

When Ford CEO Jim Farley spoke to employees during an internal meeting at the end of October, he struck a serious tone while discussing the automaker's most formidable competition, according to video obtained by the Detroit Free Press. 

He outlined who is operating from a position of strength, what they're doing right and what Ford must change to not just compete but aggressively strengthen the finances of the company and improve market value. He used charts to assess financials of the all-electric car market. He made specific comparisons between Ford and Tesla, and explained what Tesla is doing well.

Ford CEO Jim Farley is focused on transitioning the company to electrification and controlling its needed battery supply.

He talked about all-electric truck maker Rivian. And Volkswagen.

He made no jokes. He did not diminish the successes of other companies. He looked into the camera of the Webex from his office at Ford World Headquarters in Dearborn and acknowledged the achievements at Ford since he took the helm 13 months ago.

He presented sobering and, to some, chilling data about challenges ahead. 

The automotive industry is transitioning from the internal combustion engine (ICE) to battery electric and a shakeout within the next five years could determine who survives. 

Farley told employees they cannot rest.

'Obsession'

During a virtual town hall attended by some 20,000 employees globally, Farley told the company why Ford must take Tesla seriously as the dominant player in the all-electric market. He noted that Hertz just ordered last month 100,000 Tesla vehicles worth more than $4 billion and pushed Tesla's market value past $1 trillion for the first time. And then he went into detail: 

"If Ford was a trillion-dollar company, our stock would be worth about $250 a share.  Think about the value creation of Tesla right now. And they have resources, smart people, the Model 3 is now the bestselling vehicle in Europe. Not electric. Flat out. It was the bestselling vehicle in the UK. Most months, it’s the bestselling vehicle in California. Not just electric, but overall. If we’re going to succeed, we can’t ignore this competition anymore.

"Look at Tesla, why are they doing what they're doing and what can we learn from them. First, they have a direct model ... There’s no one in between. They make it so easy. Three or four clicks configuring the vehicle with not a lot of complexity to delivering it to the customer. Simple, non-negotiated pricing. A large reservation system as well as remote service.

"Second, Tesla maximizes use of electrons in the vehicle. No one does it better than they do. Their customers pay less for a better battery. Their focus ... after they launch the vehicle, their obsession after the launch of the vehicle, to make the customer experience better, to re-engineer the electronic components, to simplify, to address quality based on data coming off the vehicles, to reduce the bill of material based on how people actually use the vehicle, to drive vertical integration, so they do more and they solve the hardest problems at Tesla. And they manage every electron so they can be as efficient as possible with the expense of battery

"Third, the product itself is highly differentiated from the rest of the ICE field and complexity is tiny, compared to OEMs," Farley said, referring to automakers by their old-fashioned trade term, original equipment manufacturers.

"... That allows them to have enormous reuse. Reuse that we’ve never seen in our ICE business. Tesla can scale quickly because of that complexity reduction. They can drive cost down, which they have. They can keep processes simple."

He urged employees to think differently, to be creative, to help look for ways to make Ford more efficient, more nimble, more cost-effective.

The Tesla Cybertruck speeding along a highway toward sunrise over the mountains.

Ford has seen incredible success with its award-winning all-electric Mustang Mach-E.

As the maker of America's bestselling F-Series, and now the all-electric F-150 Lightning, Ford is widely viewed as coming from a position of strength in terms of understanding a massive volume of consumers and what they want and need. But it has legacy costs and protocols that can be paralyzing versus a startup.

Farley, 59, wanted to make clear that no one can get complacent.

He and his executive team repeat again and again that the time is now to reposition the company and it's clearly a survival play. 

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Reflecting on what's happening now, and looking into 2022, Farley said, "We need to be honest with ourselves about the market, the strength of our competition and the work we need to do together."

'Something ... never seen'

Putting a chart on the screen during the town hall, Farley said, "Look at this chart, the market is evolving rapidly towards electric. While we're making progress, and we are, we have a lot of work to do. But our competitors are unbelievable in this space, something we have never seen."

This photo from Rivian shows the 2022 Rivian R1S. The R1S is an electric midsize SUV and of two new electric vehicles from this startup American electric vehicle manufacturer. (Rivian Automotive via AP)

He cited Rivian and pointed out it's now shipping a pickup truck, an SUV and "importantly, a dedicated electric van, which is our home turf, to Amazon (corporate), at high volume."

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While noting that Ford's investment in the all-electric startup is expected to pay off, Farley said, "it’s also a formidable competitor with us."

He went on to spotlight VW as the second-largest producer of EVs in the world, just behind Tesla. 

VW began production of its ID.4 electric SUV in Germany and China during the first quarter.

After Farley spoke to employees, chief financial officer John Lawler and Kumar Galhotra, president of the Americas & International Markets Group, detailed realities and challenges involving financial strategy and product strategy.

Felt like Bill Belichick

For Ryan McManus, 44, of Belmont, Massachusetts, watching and listening to the Ford meeting on Oct. 28, the day after third-quarter earnings had been released and the stock price was steadily climbing, wasn't like previous meetings over his past four years with the company.

Performance was making headlines but the tone was notable.

"It’s not a rah-rah. But it's also not a chew-out," McManus told the Free Press.

"It was almost like taking apart a close win after a football game. You feel good about the win. You come into the locker room, the coach says 'great win' and here are the places you didn't come through, you need to work on, and this is where we'll practice this week," said McManus, who is based at D-Ford in Palo Alto, California, the company's human-centered design group.

"We are a group of diverse design talents and skills that employ design thinking and prototyping to uncover new ways Ford can meet the needs of customers," McManus said. "The inclusion of lie-flat seats and the fold-out workspace in F-150 are a few direct results of our work."

Ryan McManus, design strategy director at D-Ford Palo Alto,  sits on his 2017 Mustang GT California Special in 2018 at Greenfield Labs in Palo Alto, California.

He said Farley and Lawler and Galhotra made it clear the team is sticking to a clear and defined plan rolled out over the past year, and while the company is started to see positive returns, there are places to close gaps.

"The tone of the meeting wasn’t negative, it was very positive. Kumar said simple things in manufacturing have major effects and we have to make sure we're not missing a major detail," McManus said.

The team cited specific examples, such as touch screens, pointing out that Tesla has just a few versions and Ford has so many, McManus said. "We need to try and get down to less complexity and fewer screens. Simplicity is hard. Challengers, especially startups like Tesla, have the advantage of a clean sheet ..."

McManus, who was contacted directly by the Free Press after he tweeted about the meeting as @ryantomorrow, sought permission from the company to speak openly about the meeting in an interview. The company granted it.

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He had tweeted, "Not telling tales out of school, but if you thought the $F Q3 news would mean a victory lap inside @ford, you are mistaken. We are spending the morning hearing on all the places we need to improve, accelerate, and innovate. Just relentless push these days to be better."

'Really pushing'

After the meeting, McManus sent Farley an article about the U.S. Army Special Forces, about the idea of natural lines of drift — where soldiers resist hiking where a trail might be and force themselves into exhaustion and hunger to look for the harder path — because you're less likely to be followed. 

"I keep hearing that theme in my head," McManus said. "Essentially, that's where we're at. We have been pushing ourselves out of our comfort zones at Ford. Really pushing."

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While some employees may want to let their guard down, no one has made it to base camp, he said. "Jim and the team have said we haven't. If we are to keep bringing success, we cannot let up. You’d think it’s exhausting but, because it’s a team, we're all in it together."

Incoming Ford CEO Jim Farley is pictured here in July 2018, when he was selected to enter his 1965 Ford GT40 in the biennial Le Mans Classic in France. The vintage racing event replicated the 24 Hours of Le Mans, but instead of running 24 hours nonstop the classic runs three 45-minute heats over a 24-hour period that includes night racing. Vintage racing in Europe is highly competitive.

"I’m a (New England) Patriots fan," McManus said. "This reminds me a lot of (Bill) Belichick’s coaching style. The Patriots' mantra is always do your job. If everyone does their job, you win. It’s a team. Don’t worry about anyone else doing their job, focus on your job."

Be afraid

This approach should unsettle competitors and fuel employees, said a business strategy expert based at the University of Michigan Ross School of Business,

"Most of the time that top management thinks it’s speaking to its employees, top management is really just making itself feel good. The employees walk away thinking either they’re clueless or they’re full of baloney. Employees are not stupid," Professor Erik Gordon, a longtime observer of the auto industry, told the Free Press. 

"It’s unusual for top management to speak forthrightly and dispassionately about the reality that the company faces," he said. "I think it tells you, and this starts with the CEO, that Ford's top management is not frightened by the facts, is not afraid of how employees will react to the facts. It shows a lot of respect for employees."

A red Tesla vehicle on a road in front of a mountain range. The all-electric automaker, led by CEO Elon Musk,  reached unprecedented success with a $1 trillion market value in October.

Meanwhile, this approach also demonstrates to employees that top management at Ford really knows what’s going on, Gordon said.

"It’s scary for a competitor. It shows a lot of confidence," he said. "The middle school kid on the playground who’s making fun of another kid is not the confident kid, he's the frightened kid. Mocking a competitor is a sign of weakness. Showing that you understand the competitor's strength is a sign of confidence." 

Farley is exhibiting good management practice, which balances praise with humility and maintains a firm grip on reality, said Melissa Bradley, a business professor at Georgetown University. “He is recognizing milestones in what is a long journey that will require dedication, commitment and excellence to be able to remain competitive amongst a fierce category of car companies and electric vehicles.” 

'Pulling one oar'

When top executives demonstrate what they know, how they understand problems and their strategy, the result is a more motivated workforce, Gordon said.

"People fear the unknown and people’s fears often are twice as horrible as the reality. So if you can get people away from generally being afraid to, OK, there’s this, that and other thing, we understand them and here’s what we’re going to do," he said. "Now the focus isn’t this free-floating fear of, 'Oh, we’re doomed.' Instead, it's here’s what we need to do and that sounds feasible."

The open-book management style that involves showing employees finances and explaining it all tends to unify workers who better understand key decisions.

"Toyota was doing this way before the idea spread to others. Toyota very much tells its employees about the business Toyota is in," Gordon said. "The side effect is to build one team — not us in product development or manufacturing or finance. We are all pulling one oar for this company."

Alan Mulally's legacy

Of course Farley was recruited to Ford from Toyota by then-CEO Alan Mulally and arrived in 2007. But Farley's ties to Ford dated back to his grandfather.

Now Farley is being compared to Mulally by the business press. When Farley assumed leadership of Ford on Oct. 1, 2020, the stock price was $6.66.

On Tuesday, media reports pointed out that the stock at $18.01 is the highest it has been since January 2011 under Mulally, who left the company in 2014. 

Farley also restored dividends to shareholders, including Ford retirees, and set aside $31.5 billion in cash for capital investment crucial to electrification.

He talked during the town hall of a dynamic time that could determine who will survive in the industry. 

Mark Truby, vice president of Ford global communications, declined to comment on the internal meeting. He did say, "I don’t think Jim wants anybody to kid themselves about how competitive this business is or how good some folks are that want to enter the space."

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Contact Phoebe Wall Howard at313-618-1034orphoward@freepress.com.Follow her on Twitter@phoebesaid. Read more on Ford and sign up for our autos newsletter.