Ford struck a series of lithium supply deals as it revealed it needed to close a $7 billion cost gap with its rivals to remain competitive.
The automaker will work with well-known industry giants Albemarle and SQM, as well as three developers, to supply the silvery white metal, an important material for the batteries that power electric vehicles.
The U.S. automaker also told those gathered at its investor event Monday that its total costs were $7 billion higher than competitors, mostly due to vehicle complexity and “chronically incompetent” suppliers in its traditional Ford Blue and Ford autos business. “.
Ford CEO Jim Farley said cutting costs has been the company’s “big focus,” and that supply chain deals will provide automakers with “strategic” advantages as the industry prepares to ramp up sales of electric vehicles.
One of the major bottlenecks expected in the rollout of electric vehicles is the supply of lithium as the mining and chemical processing industries struggle to meet the nearly five-fold increase in demand by 2030.
Lithium producers said the supply agreements should help Ford obtain enough raw materials from the United States and free trade partner countries to meet the limits for a $3,750 consumer tax credit under the Inflation Cut Act. The maximum credit amount is $7,500.
Ford’s strategy to acquire lithium represents a greater alignment with Washington’s goals for a China-independent US electric vehicle supply chain than its gamble on Chinese suppliers CATL and Huayou Cobalt for battery technology and nickel, respectively.
“As demand for electric vehicles grows in the United States, our customers are seeking to regionalize their supply chain for greater safety, sustainability, and lower costs,” said Eric Norris, President, Energy Storage at Albemarle.
Based on mining companies’ public disclosures and Financial Times calculations, Ford could secure enough lithium for roughly 1.1 million electric vehicles annually, assuming all projects can fully scale on time and deliver consistently. These calculations exclude undisclosed volumes from Industry No. 2 SQM and EnergySource Minerals.
Albemarle, the world’s largest producer of lithium, said on Monday it plans to supply Ford with 100,000 tonnes of lithium hydroxide for five years through the end of 2030, enough for 3 million electric vehicles in total.
Three of Ford’s supply deals are with new entrants to the lithium market — EnergySource Minerals, Compass Minerals and Nemaska Lithium, a joint venture that includes US producer Livent and filed for bankruptcy protection four years ago — that come with project delay risks.
While Ford made traditional supply agreements, rival General Motors took the unusual step of pledging a $650 million investment in Lithium Americas, a US-based developer of the project, and making an advance payment of nearly $200 million to Levent to secure battery raw materials.
Ford’s string of deals comes after lithium rebounded to about $32,000 a ton after a four-month crash that slashed prices by two-thirds due to a weak electric car market in China.
On the group’s overall performance, Ford told investors it will reach a 10 percent profit margin for the company by 2026, with “low double digit” margins from its internal combustion engine business and an 8 percent margin for its electric vehicle business, which currently has a negative margin. 40 percent and is expected to lose $3 billion this year.
“We must transform our cost structure and capital efficiency into a competitive advantage,” Kumar Galhotra, Ford Blue President, said Monday. He noted that reducing the number of vehicle variations customers can purchase will result in the company spending less on both engineering and manufacturing.
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