Ford struck a string of lithium supply deals as it revealed it needed to close a $7 billion cost gap with rivals to remain competitive.
The automaker will work with established industry giants Albemarle and SQM, as well as three developers, to supply the silver-white metal, a key material for the batteries that power electric vehicles.
The U.S. automaker also told an investor event on Monday that its total costs were $7 billion higher than rivals, largely due to vehicle complexity and “chronic inefficiencies” in its traditional-engine car business “Ford Blue.” suppliers.
Ford Chief Executive Jim Farley said reducing costs was the company’s “biggest focus” and that the supply chain deal would give the automaker a “strategic” advantage as the industry prepares to increase sales of electric vehicles.
The supply of lithium is one of the main bottlenecks for the rollout of electric vehicles as the mining and chemical processing industries struggle to meet a nearly five-fold increase in demand by 2030.
Lithium producers said the supply agreement should help Ford source enough raw materials from the U.S. and free-trade partner countries to meet the threshold for receiving a $3,750 consumer tax credit under the Lower Inflation Act. The maximum credit limit is $7,500.
Ford’s lithium sourcing strategy is more in line with Washington’s goal of making the US electric vehicle supply chain independent of China than betting on Chinese suppliers CATL and Huayou Cobalt, respectively, in battery technology and nickel.
“As demand for electric vehicles continues to grow in the U.S., our customers are looking to regionalize their supply chains to improve safety, sustainability and reduce costs,” said Eric Norris, president of Albemarle Energy Storage.
Assuming all projects are fully scaled up on time and delivered consistently, Ford could get enough lithium to produce nearly 1.1 million electric vehicles a year, based on public disclosures by mining companies and Financial Times calculations. These calculations do not include undisclosed amounts for industry No. 2 SQM and EnergySource Minerals.
Albemarle, the world’s largest lithium producer, said on Monday it plans to supply Ford with 100,000 tonnes of lithium hydroxide over five years to the end of 2030, enough to power 3 million electric vehicles.
Ford’s three supply deals with newcomers to the lithium market — EnergySource Minerals, Compass Minerals and Nemaska Lithium, a joint venture that included U.S. producer Livent that filed for bankruptcy four years ago — have come with Risk of project delays.
While Ford struck a traditional supply deal, rival General Motors took the unusual step of pledging to invest $650 million in U.S. project developer Lithium Americas and prepay nearly $200 million to Livent to secure battery raw materials.
Ford’s series of deals comes after lithium prices rebounded to about $32,000 a tonne, after a four-month slump that saw prices plunge by two-thirds due to weakness in China’s electric vehicle market.
Regarding overall group performance, Ford told investors that by 2026, the company’s profit margins will reach 10%, including “low double digits” in the internal combustion engine business and 8% in the electric vehicle business, which is currently negative 40%. % profit margin and is expected to lose $3 billion this year.
“We have to turn our cost structure and capital efficiency into a competitive advantage,” Ford Blue President Kumar Galhotra said on Monday. He noted that reducing the number of models customers can buy will result in less spending by the company on engineering and manufacturing.