Chip shortages have disrupted the auto industry since early this year.
David Paul Morris/Bloomberg
A global semiconductor shortage has constrained auto production all year, creating production—and stock market—volatility for the entire automotive sector. Ford Motor is taking new steps to minimize the impact on its operations.
Ford (ticker: F) and GlobalFoundries (GFS) on Thursday announced a collaboration to manufacture automotive semiconductors in the U.S. The alliance shows that after their difficult 2021, car companies want more control over the supply of chips that enable almost all of the features common on new automobiles.
Car companies have long made their own transmissions and engines. The latest deal continues a trend in which they are expanding that vertical integration to include the parts vital to their future as producers of smart, electric vehicles. A number of companies have announced plans in 2021 to spend heavily on supplies of electric-vehicle batteries.
That includes Ford. Back in September, Ford announced new battery and assembly facilities going into Kentucky and Tennessee. The new facilities will cost more than $11 billion and include enough battery production to power about 1 million EVs each year. Ford battery partner SK Innovation (096770. Korea) will kick in about $4 billion of the total.
MORE TO read
While battery partnerships are becoming common, semiconductor partnerships are still new, no shock given that the shortage took manufacturers by surprise. Most industries, including cars and chips, didn’t expect the surge in demand that has come with the easing of the pandemic, and many manufactures reduced their inventories to conserve cash when the crisis was at its worst. One-off factors such as a fire at a Japanese supplier have added to the trouble.
Equally important, newer cars need increasing amounts of chips. “We see the semiconductor requirements more than doubling over the next several years as the vehicles that we produce become more of a technology platforms,” said General Motors (GM) President Mark Reuss at a Thursday investment conference. He didn’t address partnerships like the one Ford entered into Thursday, but he listed many chip makers that GM is working with to ensure access to chips while reducing complexity.
“It’s critical that we create new ways of working with suppliers to give Ford—and America—greater independence in delivering the technologies and features our customers will most value,” said Ford CEO Jim Farley in a statement. “This agreement is just the beginning, and a key part of our plan to vertically integrate key technologies and capabilities that will differentiate Ford far into the future.”
It appears to be a smart move, but Ford stock isn’t reacting all that much. Shares initially inched up, but was down about 2.5% in late day trading. The S&P 500 was up 0.2%. The Dow Jones Industrial Average is flat.
Coming into Thursday trading, however, Ford stock was up more than 125% year to date and more than 25% over the past month. A better-than-expected third- quarter earnings report helped propel shares higher in recent weeks.
GlobalFoundries stock was the one on the move Thursday. Its shares were up more than 5% in midday trading, though by afternoon the gain had faded to about 2.5%.
“GF is committed to building innovative alliances with the world’s leading companies,” said GlobalFoundries CEO Tom Caulfield in the statement. “Our agreement with Ford is a key step forward in strengthening our cooperation and partnership with auto makers to spur innovation, bring new features to market faster, and ensure long-term, supply-demand balance.”
GlobalFoundries makes semiconductors designed by others. It has manufacturing capacity all over the world, including in the U.S.
The new alliance doesn’t involve cross ownership stakes between the firms. It will deal with semiconductor supply as well as joint research and development to address the growing demand for more complicated chips as cars become electrified—and smarter.
Write to Al Root at allen.root@dowjones.com
Source: finance.yahoo.com