Ford has struck a series of supply deals for lithium as it revealed that it needs to close a $7bn cost gap with its rivals to remain competitive.
The carmaker will work with established industry giants Albemarle and SQM, as well as three developers, to supply the silvery-white metal, a critical material for batteries which power EVs.
The US carmaker also told those gathered for its investor event on Monday that its overall costs were $7bn higher than competitors, mostly stemming from vehicle complexity and “chronically inefficient” suppliers in its traditional engine-vehicle business “Ford Blue”.
Ford chief executive Jim Farley said reducing costs was the “biggest focus” of the company and supply chain deals would offer carmakers “strategic” advantages as the industry prepares to increase sales of electric vehicles.
The supply of lithium is one of the key bottlenecks expected in the rollout of electric vehicles as the mining and chemical processing industries struggle to meet the near fivefold increase in demand by 2030.
The supply agreements should help Ford to source sufficient raw materials from the US and free trade partner countries to meet thresholds to receive a $3,750 consumer tax credit under the Inflation Reduction Act, the lithium producers said. The maximum credit is valued at $7,500.
Ford’s lithium sourcing strategy represents greater alignment with Washington’s goals for a US electric vehicle supply chain independent of China compared to its gamble on Chinese suppliers CATL and Huayou Cobalt for battery technology and nickel, respectively.
“With the growing demand for EVs in the United States, our customers are seeking to regionalise their supply chain for greater security, sustainability and lower costs,” said Eric Norris, president of energy storage at Albemarle.
Based on the public disclosures by the mining companies and Financial Times’ calculations, Ford could secure enough lithium for up to almost 1.1mn EVs a year, assuming all projects manage to fully scale up on time and deliver consistently. Those calculations exclude undisclosed volumes from the industry number two SQM and EnergySource Minerals.
Albemarle, the world’s largest lithium producer, said on Monday that it plans to supply Ford with 100,000 tonnes of lithium hydroxide for five years to the end of 2030, enough for 3mn EVs in total.
Three of the supply deals for Ford have been struck with newcomers 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 — which come with risks of project delays.
While Ford has struck traditional supply agreements, rival General Motors has taken the extraordinary step of pledging to invest $650mn in Lithium Americas, a US project developer, and making a near $200mn prepayment to Livent to secure battery raw materials.
Ford’s string of deals come after lithium has bounced up to about $32,000 per tonne after a four-month crash that slashed prices by two-thirds owing to a weak EV market in China.
On overall group performance, Ford told investors it will reach a 10 per cent profit margin for the company by 2026, with “low double digits” margins from the internal combustion engine business and an 8 per cent margin for its EV business, which currently has a negative 40 per cent margin and is expected to lose $3bn this year.
“We must turn our cost structure and capital efficiency into a competitive advantage,” said Ford Blue president Kumar Galhotra on Monday. He noted that reducing the number of vehicle variations that customers can purchase would lead to the company spending less on both engineering and manufacturing.
