Dive Brief:

• Ford anticipates the semiconductor shortage to get worse before supply levels improve. The second quarter is expected to be the trough for the sourcing issue, Ford CEO Jim Farley said on the company's earnings call last week.
• Farley cited the fire at a Renesas plant in March as resulting in further headwinds for the semiconductor supply, which has already been strained by increased demand and winter storms in Texas. He said nine tier 1 suppliers for Ford rely on supply from the plant that caught fire.
• "Estimates project the full recovery of the auto chip supply will stretch into fourth quarter of this year and possibly even into 2022 making industry volume recovery in the second half of this year even more challenging," Farley said.

Dive Insight:

The shortage of semiconductors across multiple industries has just about every link in the supply chain thinking what they could do differently to increase inventory resiliency. And Ford is no different.

Ford's wholesale units, the number of vehicles it sells to dealerships, dropped 6% YoY in Q1 as a result of the semiconductor shortage, according to its earnings presentation. Overall volume was down 17% YoY or 200,000 units, Farley said, which he also attributed to semiconductor supply issues.

"As you would expect, we're committed to learn from this crisis to be a much stronger company," Farley said. "We're taking this opportunity to revamp our supply chain to eliminate vulnerabilities down the road."

While Farley didn't outline what this revamp entails, he said it will cover "not only semiconductors, but also battery cells and other commodities critical to our modernization and transformation."

The company did provide a bit of insight in slides presented with the earnings call. Due to the shortage, Ford is working on a "modernization of sales processes" that relies on leaner inventory and higher turn rates. The goal is to have car buyers use an ordering process for purchasing, which would allow dealerships to hold less inventory, CFO ​John Lawler said.

"We would see better quality, because we'd have fresher vehicles and vehicles wouldn't be sitting on classes long," Lawler said. "We'd have improved dealer profitability, because they wouldn't be financing that floor plan and we'd have lower incentives."

On the production end, it has focused available capacity on "higher-margin vehicles," he said.

As Ford looks to double down on its lean supply chain, the semiconductor environment is working to build up capacity to meet ongoing demand needs.

The Taiwan Semiconductor Manufacturing Company, which controls a substantial amount of the wafer manufacturing capacity in the world, said last month that it would invest $100 billion over three years in added capacity. The company's CFO said its customers were ordering higher levels than usual in an attempt to "ensure supply security."

Samsung Electronics expects full output at its Texas facilities to resume this summer, and the Renesas plant that was shuttered due to a fire planned to resume "minimal output" last month, according to Nikkei. Farley said he expects Renesas to return to normal production levels by July.