US transport chief misunderstands Ford’s China ties

• By Liam Denning / Bloomberg Opinion

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Genius is only 1 percent inspiration, Thomas Edison said, but that 1 percent is crucial to making the other, sweaty 99 percent worthwhile when it comes to innovation. US Secretary of Transportation Sean Duffy appears to have missed this in sending a strongly worded letter to Ford Motor Co about its dealings with Chinese companies.

Duffy expressed “profound concern” at what he sees as an iconic US company tying its future too closely to companies from the US’ great strategic rival. Exhibit A is Ford’s plant in Marshall, Michigan, where it licenses technology to produce lithium iron phosphate batteries from Contemporary Amperex Technology Co Ltd (CATL), the world leader in that field.

Duffy also does not like Ford’s joint venture with China’s Geely Automobile Holdings Ltd (吉利汽車) to build electric vehicles (EV) in Spain, nor its talks with China’s BYD Co (比亞迪), the largest EV maker in the world, about supplying components. Duffy claims Ford proposed forming joint ventures in the US with Chinese automakers and rebuked the company for doing so.

It is a strange letter. Duffy does not cite a law that Ford is breaking, nor explicitly tell the company to end its agreements based on some statutory authority. Rather, it is a tapestry of concern, alarm and disappointment, prodding Ford to self-police itself out of any dealings with Chinese companies.

It is also somewhat at odds with reality.

“Iconic American companies, like Ford, are also expected to out-innovate competitors. To that end, they need to chart clear paths to technological self-reliance,” Duffy wrote, as if out-innovating competitors is a novel and easily achieved objective.

He ignores that Ford’s Chinese competitors are setting the pace in the global auto industry in critical fields like vehicle design and manufacturing timescales, user experience and electrification. A keystone of that leadership is the learning and technology Chinese companies obtained over the years through domestic joint ventures imposed on foreign automakers when they opened operations there. Duffy is demanding that Detroit out-innovate without being able to learn from the industry’s arch-innovators.

Ford licensed technology from CATL because it needed that to have a chance of building a competitive lithium iron phosphate battery operation in the US. It formed a joint venture, in which Ford is the majority owner, with Geely to boost production at an underutilized plant in Spain that might otherwise have ultimately faced closure.

Ford’s talks with BYD are reportedly centered on batteries for hybrid vehicles, toward which it has pivoted after Duffy’s boss, US President Donald Trump, led a Republican backlash against EVs.

In other words, Ford is working with what it can in the world as it is. The Trump administration’s objectives of reducing reliance on Chinese supply chains and reshoring industrial capacity are fair enough and relatively bipartisan. However, objectives must dovetail with reality to some degree.

Shutting out Chinese battery technology altogether, even the licensing of it, would not create an all-US, world-beating battery industry; it would prevent one from forming. Similarly, there is an inherent tension between making vehicles affordable and making them entirely on US soil.

The letter echoes Trump’s executive order banning imports of bulk-power equipment from certain countries of concern, with China at the top of the list. Again, addressing security concerns around critical infrastructure is a legitimate pursuit, but for certain types of electrical transformers, China is a key supplier to an industry that, like autos, Trump nominally favors: data centers. Depending on how aggressively the order is implemented, it could exacerbate backlogs, with the market for transformers 15 percent short this year, according to Wood Mackenzie, a consultancy.

The gap between politicking and pragmatism might be why Ford, unusually, hit back at Duffy in public. Ford disputed the claim that it proposed US joint ventures with Chinese automakers, although that would actually be a good idea. Ford also pointed out, embarrassingly, that the same battery plant Duffy lambasts in his letter was singled out for praise in terms of creating jobs by Duffy’s own boss less than two weeks ago.

Ford has already endured huge losses stemming from Trump’s EV crackdown and erratic tariffs. Its huge US manufacturing base still seems to not be enough for the White House — the same White House disrupting auto supply chains with its trade war against Canada and renegotiation of Trump’s own North America free-trade agreement. Duffy’s letter might be short on inspiration, but delivers exasperation in spades.

Liam Denning is a Bloomberg Opinion columnist covering energy. A former banker, he edited the Wall Street Journal’s Heard on the Street column and wrote the Financial Times’ Lex column. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.