Ford continues to build for Gen-2
Localising battery materials, and thus qualifying for improved IRA economics, will play a key role in further EV generations
US OEM Ford has broken ground on a new cathode active material (CAM) plant in Quebec, as the legacy automaker takes further steps towards a self-sufficient North American EV supply chain. With all eyes on its Gen-2 and Gen-3 EV strategy — given heavy losses on its Gen-1 efforts — a supply chain that can offer both competitive costs and Inflation Reduction Act (IRA) subsidy compliance, as well as feeding a platform on which Ford can build EVs that meet its margin targets, is a key yardstick against which it will be judged.
“This new facility – Ford’s first investment in Quebec – is part of the automaker’s plan to localize key battery raw material processing in regions where it produces EVs,” the company says.
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It will invest c$1.2bn ($88mn) into the project together with its partners, South Korean battery firm SK On and Ecopro BM. The facility will produce 45,000mt/yr of nickel cobalt manganese (NCM) CAM once production begins in 2026.
Ford’s Gen-1 EV range is led by the Mustang Mach-E and the F-150 Lightning, with 57,849 of the former produced in North America in the first half of this year, all at the company’s Cuautitlan plant in Mexico.
Ford does not separate production numbers of the electric F-150 Lightning and its ICE equivalent, but the EV version is produced in its Dearborn, MI heartland. North American Gen-2 EV production looks step to have a stronger flavour of Canada as well as Tennessee.
Production of the Mach-E has not been an issue, other than temporary issues around chip availability in early 2022 and a shutdown of the Mexico plant for expansion work in Q1 this year. The issue, as with the F-150 Lightning, has been profitable sales. Mexican production of the Mach-E in the 19 months between January 2022 and July 2003 has been a cumulative 135,808, but US sales have been just 57,435 over the same period.
Sales outside of the US will make up some of that 78,373 gap, but it seems unlikely to explain it all away. EV inFocus has asked Ford for more colour on this without reply.
F-150 Lightning sales have also underwhelmed, with cumulative US sales of less than 26,000 since deliveries began at the start of last year. And these travails contributed to Ford’s $1.1bn Ebit loss on its Model e arm in Q2 and the junking of targets including that business reaching breakeven and annual production of 600,000 EVs, both pushed back by a year from end of 2023, and a 2026 2mn/yr EV production target now without a target date.
But Ford stresses that, while it may have stepped back from some Gen-1 targets, its overall strategy focused on Gen-2 and Gen-3 has not materially changed. And it rejects any suggestion of a diminished commitment to EVs.
“That is not accurate”, Ford tells EV inFocus. “If anything, it underscores the importance of the pace of what we are doing towards second and third generation EVs, which are the vehicles that are clean sheet. They are new from the ground up.”
Gen-2 will be the real test for Ford. And investors were largely patient after the Q2 target revision, owing to this emphasis.
“You can to some extent disconnect Gen 1 from Gen 2”, says Philippe Houchois, managing director at bank Jefferies. “We have known for a long time that the current first-generation EVs at Ford are not competitive. They are adaptations of existing platforms, systems which engineers at Ford can afford for their own devices and put together a product without necessarily thinking about the cost.”
The exact lineup of Gen-2 vehicles targeted for 2026 is not yet known, although Ford CEO Jim Farley at Q2 results expressed relief that “we did not bet the farm on two row crossovers or ICE-like EV platforms, like so many have”.
But Ford’s stated focus on the segments where it says it knows customers best is not exactly met with universal excitement. “I suspect a number of three-row SUVs will be [on the market by 2026], and so it is not clear that Ford will be that differentiated by that,” Houchois cautions.
In an attempt to qualify for IRA allowances that will improve its Gen-2 economics, Ford has previously signed agreements with three of the world’s largest lithium suppliers, Albemarle, SQM and Nemaska Lithium, and two US-based producers, Compass Minerals and Energysource Minerals. Sourcing lithium from these companies will allow it to comply with the IRA’s requirement that 80pc of the minerals in EV batteries be extracted or processed in North America — or a country with which the US has a free trade agreement — by 2026.
And the announcement of the Quebec CAM facility is the latest in a string of manufacturing investments made by Ford to further reshore EV manufacturing. Its process began in 2021 with an audit of 30 battery material suppliers and supply chain mapping “to better understand the origins of raw materials in its EV supply chain, including nickel, lithium, cobalt and graphite […] at all tiers to the mine site”.
A joint venture with SK On was originally announced in July 2022 to establish three new advanced battery manufacturing facilities in Kentucky and Tennessee, which are currently under construction. In June 2023, the JV received a conditional commitment for a loan of up to $9.2bn from the Department of Energy for the project, which the company says will add 120GWh per year to US battery production capacity.
Ford announced in April that it will invest $1.8bn into retooling its Oakville assembly complex in Ontario into a production hub for its Gen-2 EVs. The Oakville site transformation “is key to Ford’s plan to reach a global production run rate of 2mn EVs annually by the end of 2022”, the company said when that target was still extant.