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00:00This is a story about the essential economy.
00:03That's what Ford CEO Jim Farley calls the part of the U.S. market where things get built, moved, or fixed.
00:09This week, he held a series of meetings at the restored Michigan Central Rail Station in Detroit.
00:14And we traveled there to hear directly from him what needs to be done.
00:2095 million people, huge part of our GDP, that basically build things.
00:25Think about factory workers, construction workers, the people who move things, rail workers, truck drivers, and the people who fix things.
00:35Think about plumbers, electricians, people who are mechanics on your vehicle.
00:40That's the economy. It's huge. And we have about a million people shortage today.
00:46What's going on there? Why are we short that many essential workers?
00:50It'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.
01:01You know, people all want to go to a four-year degree, and then they want to go into the white-collar workforce.
01:06That's what my grandfather told me. He was a factory worker.
01:08Hey, Jim, I don't want you to have to work this hard. Go to college.
01:12And the irony of the irony is we have all these data centers, all this new technology to roll out.
01:18It still requires electricians, construction workers, you know, and we have this huge shortage.
01:24The second thing is our country has really pulled back on investing in education programs, the local college support for these kinds of jobs.
01:33There's no high schools around vocational programs anymore.
01:36That's the exception, not the rule anymore. I think the last thing is permitting all the regulatory requirements on these jobs is really tough, especially for small business.
01:47And it just makes these jobs hard and complicated.
01:50How does AI fit with the essential economy?
01:54Well, I hope that it will be a help, but it's hard to say that today.
01:58We're going to have a lot of tailwinds for the essential economy of the AI.
02:02For example, we have to build all these data centers, all the transmission lines.
02:06That's going to require plumbers, you know, electricians, a lot of technical people to do all that, construction workers.
02:14But 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 to 30 percent.
02:24That's like for the average essential worker, that's like $30,000 a year.
02:30So we don't have a good track record here of applying new technology like AI to make these jobs more productive.
02:38You know, automation, things like that, those innovations really took jobs out of the job market and out of the essential economy.
02:46I think we'd have to twist the technology through the lens of these critical jobs for it to be the opposite.
02:54The government plays a central role in turning around the essential economy, with President Trump emphasizing manufacturing and the need for trade schools.
03:03But Farley has yet to see the real results, including with those auto tariffs.
03:09It's too early to tell.
03:11I haven't seen a lot of new plant announcements of my competitors who import.
03:15You know, our market is 50 percent import.
03:18So what I was looking for is how many of those imported vehicles are now being built in the U.S.
03:23We haven't seen too many announcements.
03:25What hasn't changed is Ford's commitment to the U.S.
03:27We build 80 percent of our vehicles here with the largest employer UAW workers and we're the largest exporter by far from the U.S.
03:36I would say it is too early to tell.
03:39But I'm seeing the tone at the top in D.C. be very thoughtful about the parts tariffs, which more than 20 percent of our tariff of our profits is lost on these parts tariffs.
03:54So, yes, we make in the U.S., but we import parts from all around the world because some of them, like wiring looms, we can't even buy in the U.S.
04:02The tariffs on those parts, maybe 20 percent of your F-150, is 20 percent of our profit gone.
04:10And I'm seeing a tone at the top in D.C. 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 U.S., especially for a company like Ford.
04:26I don't know what they're going to do, but boy, have we had a lot of conversations with Commerce and the president about this.
04:33And I remain very optimistic that they'll make the right adjustments.
04:37If 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 U.S.
04:47industry in the coming years.
04:48And I'm sure hopeful of that.
04:50When 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.
05:01Since then, EV policy has been turned on its head, making automakers' lives dramatically more complicated.
05:08Roger Penske, founder of the Penske Corporation and owner of IndyCar, says it's the result of ignoring what the customer wants.
05:15No one asked the customer what they wanted.
05:18Number one and number two, we didn't have the infrastructure and the expectation on range wasn't there.
05:25So everything came together, the way they sold electric vehicles, with government support.
05:31The $7,500 is going away.
05:34When you think about that, that's $50 billion that the government's going to be able to put, hopefully, towards something that's better off, you know, for our economy and better off for the country.
05:43But I would say they're going through a transition.
05:46All of them have said Mary Barra has, Jim Farley has.
05:50You know, they're moving to lower-cost EV vehicles.
05:53You at Ford, like the other automakers, have really made a lot of capital investment commitments for an EV future.
06:01What happens to those investments now?
06:03Well, it's an important question for our country.
06:05First of all, Ford never talked about an all-electric Ford.
06:09We always said about customer choice.
06:11We have hybrid, the F-150, best-selling vehicle in the United States.
06:16Almost a third is now hybrid.
06:18So we never bet the farm on electrification.
06:21And we were a first mover.
06:23We've been number two to Tesla, I think, for three years now.
06:26But that is the biggest next-up question.
06:29How does Ford adjust its assets from moving to making large-scale battery operations?
06:37We have three battery plants in Kentucky and Tennessee, another one here in Michigan, in Marshall.
06:42So four plus two assembly plants dedicated to electrics.
06:48You know, what do we do with those assets?
06:50I'm not going to go into the details, but all I say is they're some of the best factories we've ever built.
06:55We've designed them flexibly, and we'll make the right decision for the company.
07:01We're not going to allow these to be mothballed.
07:05And we have more decisions to make on those battery plants and assembly plants in the coming months and years with this change.
07:11Because a year ago, we didn't see the customer like we do today.
07:14And, boy, are we seeing customers buy hybrids and partial electric solutions.
07:20So America is moving more to low-CO2 footprint powertrains, but they are not accepting full electrics anywhere near what we thought.
07:30When you talk about some of the policies coming out of Washington, on the one hand, as you mentioned, there's the $7,500 credit.
07:35Yes.
07:35On the other hand, you've got the cafe.
07:38Yes.
07:38So there's some gives and takes on this.
07:41How does that all come up for the Ford Motor Company?
07:43Well, it's accelerating this awkward moment, basically.
07:47The $7,500, which could be up to 20%, 30% of the purchase price, is gone.
07:54That makes EVs a lot more expensive.
07:56But think about Ford as a global company.
07:58We're not just the most American company.
08:00We compete around the globe.
08:02And in China, 50% of the vehicles are electric.
08:05In Europe, it's 30%.
08:07So 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 E-REVs.
08:17But in China or the rest of the world, we still have to make this EV future profitable.
08:24To do that, we made a big bet four years ago.
08:26We did it in secret.
08:28We came up with a small group of people on the West Coast.
08:30And we redesigned the way we make and design a vehicle.
08:34We call it the universal electric vehicle.
08:36It's kind of a Model T kind of moment for the company.
08:38That vehicle will be coming out in about a year and a half.
08:40That is our way of competing with BYD's cost.
08:44They've been at it for 20 years.
08:46These markets are huge outside the U.S.
08:48We still have to be successful globally.
08:51We can't just draw a big wall around the U.S. and say that's what Ford Motor Company is.
08:57Another subject we discussed a year ago was China and what's going on.
09:00Bring us forward one year and what's going on, for example, with BYD.
09:04Yeah.
09:04I mean, a year ago, Tesla was the number one seller globally of electric vehicles, and VW was the top brand in China.
09:11The world's biggest market is almost 27 million.
09:14The U.S. is 16 maybe on a good day.
09:17Imagine how big that is.
09:18It's not twice as big, but it's a big market.
09:22Now BYD is not only outselling Volkswagen, they're now the number one electric player in the world a year later.
09:28Very powerful company, vertically integrated like Henry Ford did in the 30s.
09:33We're very humble, but at the same token, Ford has announced our universal electric platform to be built in Louisville, Kentucky,
09:40and we think it's basically a wash with BYD made in Mexico because we've thrown innovation at it.
09:47So a lot has changed, and we've seen Europe has been really the battleground globally for the Chinese.
09:57Now, it looks like this month, I bet you the Chinese will be close to 10% of the European EV market.
10:04Many of the brands weren't even on sale a year ago.
10:07MG, Geely, others.
10:10Now they're very successful like BYD in Europe.
10:13It's a really a moment, a transitional moment for our industry, where everyone used to talk about South Korea or Japan.
10:21In my eyes as a CEO, China is the place where the most fit industrial systems are getting created, not just for electric vehicles,
10:30but for internal combustion vehicles.
10:32And without projects like UEV, companies will be under threat of existence.
10:37You were on the front lines when Japanese manufacturers stole market share from the United States.
10:44But bringing forward to today, there is a different economic structure in China that involves subsidies.
10:50Yes, there is.
10:51Can the American auto industry out-compete those subsidies, out-innovate those subsidies?
10:57That's a very difficult answer to give you right now.
11:01I think it's too early to answer your question, because we're only in the second inning of these pure electric vehicles,
11:08and the innovation cycle is so fast.
11:10We could be talking in a year or two of a whole new battery technology that could either change that equation.
11:16But I will say, at this point, they have a big lead.
11:21When you look at a BYD, we think, on average, $4,000 to $5,000 a vehicle of direct support from the Chinese government
11:29that's exported to Europe and New Mexico and places like that, can we make up for that?
11:35Plus their scale, their industrial scale of being 10 times bigger than the U.S.?
11:40I'd say it's pretty difficult at this point.
11:42I will tell you, the level of risk that we've had to take on UEV, on the execution side, large unit castings,
11:50building a vehicle in a way we've never built before, it's not a guaranteed project.
11:54This is all going to come together just like we thought.
11:56And so we think we're even with them right now, but the speed of innovation we're seeing is very humbling for me.
12:04Even if we have a stable platform on cost today, will that platform be competitive in five years
12:09when the battery tech does another full cycle of innovation?
12:13Hard to say.
12:14I'm thinking about 2032 right now.
12:18To answer your question, I'm there.
12:20I have to make those capital choices now for 2032.
12:23To answer your question right now, I think there's a chance, but without huge support,
12:30where it's more of a level playing field, where it isn't in Europe, I think it's going to be really tough.
12:38Maybe the toughest battle of my career.
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