Ford is investing in a new U.S. company

by Anna Sanz and Katie Boyd, April 5, 2021

(CNN) — Beginning with Ford’s all-new Expedition in March, the automaker has begun using U.S.-based chip manufacturer Globalfoundries to source processors for electronics used in its vehicles.

The partnership — a deal so small that Globalfoundries’ first cost of production will be cash — will come with a non-exclusive and non-binding initial period that’s targeted to last three years. The companies will then consider the contract year-by-year for the rest of the life of the company.

Working with Globalfoundries — which, unlike the Netherlands-based Valmont Industries or Singapore-based Chartered Semiconductor, doesn’t generally manufacture in the United States — means Ford can avoid using foreign competitors, which sell their chips more cheaply.

Ford has come under fire over recent years for its use of foreign suppliers, and it’s an industry practice that some blame for keeping the automotive industry in the United States from competing with other international industries such as high-tech, aerospace and health care.

Though Globalfoundries may be better able to create hybrid chips that can be used in different vehicle systems, Ford says this isn’t the sole reason it decided to make the investment.

“Although that capability is useful, it’s not the sole reason for the decision to partner with Globalfoundries,” said Deepti Pande, Ford’s head of chip technology. “Automotive engineering and system integrations involve hundreds of different suppliers and systems in a car, and the need for innovation is wide-ranging and constant.”

The Blade Runner Effect

It’s no accident that Ford’s recent deal with Globalfoundries marks a return to America from Continental, a supplier based in the Netherlands. Continental was one of the first of several suppliers to use a foreign competitor’s chips in their U.S.-made vehicles, said Dan Culp, author of “Smart or Cheap: The Rise and Fall of American High-Tech Leaders.”

In an industry such as the automotive industry, where many components are replicated and replicated, it’s not uncommon for a company to steal a competitor’s technology — and product — the mere act of fabricating it.

But in the race to bring vehicle technology faster to market in order to stay competitive, developing new, novel parts and applications are top priorities, said Culp, a professor of strategic management at Dartmouth’s Tuck School of Business.

“It’s just like building an iPhone, almost; the initial production is kind of cheap and that’s when the real innovation happens.”

To that end, making U.S.-made chips means there can be better development and test times in the research, design and development phase, said Culp.

“Ford has seen the benefit of trying to move U.S. processors in their vehicles, and it will increase the ease with which they’re able to bring new products to market,” said Robert Hazen, chief technology officer at Globalfoundries.

By starting production for the new 2018 Range Rover SUV and the redesigned 2019 Expedition, Globalfoundries has already begun supplying this new line of vehicles with what was being made at Continental’s factory in West Point, Georgia. (In years past, Continental provided chips to Ford and GM for those vehicles.)

Culp said the extra time afforded by the Globalfoundries partnership will help Ford differentiate between its highest-end and lowest-end vehicles.

“Part of the challenge we have in the auto industry — where budgets for vehicles are often limited — is having different vehicle platforms from a cost and performance perspective that can be optimized for an end-user’s needs,” said Culp.

“If the competitive advantage you’re trying to achieve for a particular vehicle is by having lower cost, higher quality, smaller form factor, a vehicle that can be designed and tuned quicker, then working with Globalfoundries helps us address those needs,” he said.

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