"These guys are ahead of us": Ford’s CEO shocked by the rise of China's auto industry

Ford CEO Jim Farley was shocked by what he discovered during his most recent study trip to China.

In a story published by The Wall Street Journal, Farley, surprised by the strength and sophistication of that country’s domestic auto industry, described the situation as “an existential threat” to a fellow Ford board member upon his return to Detroit.

With heavy state subsidisation of raw materials and the key industries that supply auto manufacturers, China’s car industry has risen to a level that, according to Farley, could alter the fortunes of America’s largest automaker and one of the oldest car brands on the planet. It's not just heavy support from the Chinese government that Farley is worried about either: after sampling some of China's most recent battery-electric vehicles, the Ford CEO was reportedly blown away by their engineering, ride quality and features. The products are simply good.

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By Farley's reckoning, technological innovation in China is outpacing what’s happening in the rest of the world, and it’s not just in the electric vehicle realm either – the use of artificial intelligence is “unlike anything available in the US” according to the 62 year-old CEO.

People like Jim Farley, a 35-year auto industry veteran, don’t end up becoming CEO of a company like Ford by accident. For him to be concerned about the competitiveness of his rivals means it’s a situation worth worrying about, but according to The Wall Street Journal, Farley’s strategy is to try to beat the Chinese at their own game.

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

To help their engineers, designers and executives deliver on that promise, Ford bought a number of Chinese vehicles to be shipped to the USA to be dissected and studied in Detroit.

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Those vehicles include the Li Auto Mega, a high-tech, high-luxury people mover, and the Xiaomi SU7, an all-electric sports sedan from one of China’s biggest smartphone brands that does a decent impersonation of a Porsche Taycan.

Both launched in China earlier this year, and both represent the cutting edge of China’s car industry.

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In China, Ford will modify its tactics by focusing on commercial vehicles, though when that switchover will occur is unclear - its Chinese consumer website still lists consumer vehicles like the Edge, Equity and Equator SUVs, as well as the Mondeo and Mustang as being available.

Is it the right strategy?

“I’ve seen this movie before,” Farley said, referencing how Japanese automakers were able to penetrate the US market and steal market share from US domestic automakers last century.

Imitating – or bettering – Chinese product is one way of preventing a similar situation developing again, but Ford is also reportedly looking for other levers to pull. A supply chain rethink is one example, with Ford now investigating ways to tap into the state-subsidised supplier base that Chinese OEMs have been able to enjoy. Another is a product and engineering effort to help trim manufacturing costs further, to erode the price advantage of Chinese cars and keep Ford's own vehicles at a competitive price point.

Though protectionist tariffs are holding Chinese-built cars, particularly EVs, away from the US for now, Ford knows that won’t work forever – especially as companies like BYD and Chery are looking to Mexico (which enjoys a free trade agreement with the USA and Canada) as a manufacturing backdoor into North America.

For now, Farley’s strategy of acknowledging the strengths of the Chinese auto industry and trying to best them at their own game may just be the best option. However, what that might mean for Ford in Australia is unclear - when it comes to how it views its rivals from China, Ford's local office is maintaining diplomatic silence for now.