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How Ford's Latest Chip Deal Will Boost Its Business

By John Rosevear – Dec 21, 2021 at 6:06PM

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Under CEO Jim Farley, Ford is drawing on lessons from its early days as it moves into the electrified future.

In a change from decades of auto industry practice, Ford Motor Company (F -0.52%) has been moving to take control of important parts of its supply chain. In this Motley Fool Live video, recorded on Dec. 9, Industry Focus host Nick Sciple and Motley Fool senior auto specialist John Rosevear look at Ford's recent deal with chipmaker GlobalFoundries (GFS 2.17%) and how that fits into Ford CEO Jim Farley's plan to revamp how the company manufactures its vehicles. 

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Nick Sciple: Ford made a very significant deal earlier, about a month ago, with GlobalFoundries trying to shore up its chip supply. How does this still fit into the goings-on of the auto industry today?

John Rosevear: Well, it's interesting. In the early days of the auto business, Ford was a pioneer of vertical integration. They had this giant factory in Dearborn, Michigan, where the iron ore arrived on barges, and out the other end came finished cars. They bought rubber, they bought steel, they bought wood at the time when they were making Model Ts and so forth, all that stuff. Since then, the auto industry as a whole has gotten away from that. They depend on suppliers. They work with third parties to create parts, and so forth. What we're seeing now, and this is something that Ford CEO, Jim Farley, has been talking about is going back so that they are taking control of the critical parts of their supply chain. As we've seen over the last couple of years, chips are a critical part of the supply chain. A lot of them come from or have come from China. With geopolitical uncertainties there, also Taiwan. Taiwan is a significant supplier of chips. Likewise, geopolitical uncertainties, and so forth. I think this goes toward automakers wanting factories close to where they build cars generally so that they can drive over or fly over and keep an eye on it without needing a passport. GlobalFoundries is a significant company, an established chipmaker, and this is Ford taking control of another part of its supply chain as we've seen with batteries and other things.

John Rosevear owns Ford. Nick Sciple has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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