Since the onset of the pandemic, the entire automotive industry has experienced extreme volatility due to semiconductor shortages that wreaked havoc on its ability to meet production targets. Ford (ticker: F) and GlobalFoundaries announced a collaboration to manufacture automotive semiconductors in the U.S. The difficulties faced with the acquisition of vital semiconductors awoke car manufacturers to their need for more control as far as where they source these vital inputs.
Semiconductors are necessary for different interactivity features that a driver and passengers access. They are also used for batteries and power trains in an EV which is important to the essential firmware found in most modern vehicles.
The move towards vertical integration comes as no surprise since car companies have always made their own transmissions and engines. Unlike previous times where the more sophisticated manufacturing needs were outsourced, car companies now include the production of vital parts, which fits perfectly into their strategy to produce smart electric vehicles.
Several companies have announced their 2021 plans to spend heavily on supplies of electric vehicle batteries.
In September, Ford announced plans to build battery and assembly facilities that will cost $11 billion and include enough battery production to power about 1 million EVs yearly. The facilities will be located in Kentucky and Tennessee and will have Ford’s battery partner SK Innovation (096770. Korea) contribute a total of $ 4billion.
The easing of restrictions implemented at the onset of the pandemic left many industries unprepared for the current surge in demand- many manufacturers reduced their inventories to conserve cash when the crisis was at its peak. Before this partnership, battery partnerships were commonplace, but a semiconductor partnership was previously unheard of.
The drive-in demand for EVs has created a high demand for the chips. “We see the semiconductor requirements more than doubling over the next several years as the vehicles that we produce become more of technology platforms,” said Mark Reuss, General Motors President.
In a statement made recently, Ford CEO Jim Farley emphasized the importance of creating new ways of working with suppliers to give Ford, and America by extension, greater independence in manufacturing to allow companies to deliver real value to their customers. “This agreement is just beginning, and a key part of our plan to vertically integrate key technologies and capabilities that will differentiate Ford far into the future,” he concluded.
With news as monumental as this, it would be expected that Ford stock would respond with an upward trajectory; however, this wasn’t the case. Shares initially inched up but slugged about 2.5% in later day trading. On Thursday, however, Ford stock was up more than 125% year to date and more than 25% over the past month. This stock rally was due to a better-than-expected third-quarter earnings report that boosted shares in recent weeks.
Interestingly, GlobalFoundaries stock registered a more than 5% surge until midday, where it finally settled at a 2.5% gain.
GlobalFoundaries is a multinational corporation that designs and manufactures semiconductors on a contract basis. The company has manufacturing capacity across the world, with locations in the U.S as well.