Ford units EV battery manufacturing unit plan with China’s CATL

DETROIT- Ford engine said Monday it will work with a Chinese supplier on a new $3.5 billion electric vehicle battery plant in Michigan, despite U.S.-China tensions.

The anticipated announcement of the deal between Ford and Contemporary Amperex Technology Co., or CATL, follows Virginia Gov. Glenn Youngkin, who said he was withdrawing the state from a competitive process to buy the proposed Ford plant because of its association with China to win business.

Lisa Drake, Ford’s vice president of EV industrialization, said the automaker will own the new facility through a wholly owned subsidiary, rather than operating it as a joint venture with CATL, which several automakers, including Ford, have done with non-Chinese partners in the US She said, the company will license CATL’s technology, including technical expertise.

“LFP technology is already here in the US. It’s in a lot of consumer electronics, it’s actually in another OEM product, but unfortunately it’s always imported,” Drake said during a media briefing. “This project aims to reduce that risk by actually building the capacity and capability to scale this technology in the United States, where Ford has control.”

Ford Chairman Bill Ford said CATL will help get the automaker “in motion so we can build these batteries ourselves.”

“Making these new batteries in America will help us build more electric vehicles, faster, and ultimately make them more affordable for our customers,” he said Monday during an event announcing the investment.

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Ford declined to comment on the financial details of the licensing agreement with CATL.

The plant is scheduled to open in 2026 and will employ around 2,500 people, according to the Detroit automaker. It will produce new lithium-iron-phosphate (LFP) batteries, as opposed to the more expensive nickel-cobalt-manganese batteries the company currently uses. The new batteries are said to offer various benefits at a lower cost and help Ford increase electric vehicle production and profit margins.

Ford follows the EV leader Tesla the use of LFP batteries in some of its vehicles, in part to reduce the amount of cobalt needed to source battery cells and high-voltage batteries.

Ford CEO Jim Farley announced a new $3.5 billion EV battery plant in the state on February 13, 2023 at an automaker’s battery lab in suburban Detroit to build lithium iron phosphate batteries, or LFP – manufacture batteries.

Michael Wayland/CNBC

Ford CEO Jim Farley said Monday the batteries will be among the cheapest to produce, citing better prices for customers and bigger profits for the automaker.

Drake said Ford isn’t particularly concerned about the Chinese government interfering in the deal, saying the companies “certainly have thought that through and those are stipulations,” including the option in the contract.

Owning Ford rather than a joint venture can help avoid additional political criticism and potentially qualify for federal EV tax credits.

Marin Gjaja, chief customer officer for Ford’s EV unit, said once production begins at the Michigan plant, the vehicles are expected to be eligible for half of the up to $7,500 federal tax incentive for consumers who buy an electric vehicle . They are expected to meet local production requirements but not battery material sourcing rules, he said.

In August, President Joe Biden signed the $430 billion Inflation Reduction Act, which included tighter excise tax credits of up to $7,500 for electric vehicle purchases and significant incentives for companies to produce batteries domestically to power the U.S. auto industry to wean off their dependence on China for batteries.

Farley said the company has “absolutely” spoken to the Biden administration about the plant, citing the IRA’s incentives to support American battery cell manufacturing. He said the “economics in the IRA really made a difference”.

Ford expects production of the battery cells to be eligible for government incentives of $35 per kilowatt-hour produced and $10 per module. The plant is expected to be able to produce 35 gigawatt hours (GWh) of LFP battery capacity

Before the IRA, Ford said it would work with CATL to research increasing battery packs for the Mustang Mach-E electric crossover in North America this year. It was part of a plan for Ford to build 40 GWh of battery capacity that can power 400,000 Ford electric vehicles, Drake said.

The new LFP plant complements Ford’s collaborations with LG Energy Solution and South Korea-based SK, including a joint venture for two lithium-ion battery plants in Tennessee and Kentucky. These systems are scheduled to go online in 2025 and 2026.

Ford plans to deliver 600,000 EVs worldwide by the end of this year and 2 million EVs worldwide by the end of 2026. The company is targeting an 8% adjusted profit margin in its EV business by then.

The automaker said it expects to offer the LFP batteries in the Mustang Mach-E later this year, followed by the F-150 Lightning pickup truck next year. It will source those batteries from CATL, the company said.

With this $3.5 billion investment, Ford and its battery partners have announced $17.6 billion in investments in electric vehicle and battery manufacturing in the United States since 2019. It is expected to create more than 18,000 direct jobs in Michigan, Kentucky, Tennessee, Ohio and Missouri and more than 100,000 indirect jobs will be created.

Michigan Gov. Gretchen Whitmer called the investment a “big win” for the state, which has been scrambling to attract more battery production after missing out on previous multibillion-dollar investments.

“We’re working together to make Michigan the next Silicon Valley,” she said at the event Monday.

– CNBC’s Lora Kolodny contributed to this report.

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