Ford announced that it needed to close a $ 7 billion cost gap to compete with its competitors.
The carmaker is working with Albemarle, SQM and three developers to provide the white metal that is a crucial material for EV batteries.
Ford Blue, its traditional business of engine-vehicles and vehicles, has been “chronically” inefficient. This is a major factor in the overall cost that Ford Blue faces compared to its competitors.
Ford Chief Executive Jim Farley stated that reducing costs is the “most important focus” for the company. He also said that supply chain agreements would give carmakers a “strategic advantage” as they prepare to increase the sales of electric cars.
The shortage of lithium will be one of the bottlenecks in the development of electric vehicles, as the mining industry and chemical processing struggle to meet a near fivefold rise in demand.
Lithium producers say that the supply agreements will help Ford source enough raw materials in the US and other free trade partners to qualify for a consumer tax credit of $3,750 under the Inflation Reduction Act. The maximum credit amount is $7,500.
Ford’s lithium-sourcing strategy is more in line with Washington’s goal of a US electric car supply chain that is independent from China, compared to the gamble it took by relying on Chinese suppliers CATL for battery technology as well as Huayou Cobalt when it came to nickel.
“With the increasing demand for EVs, our customers seek to regionalise the supply chain in order to achieve greater security, sustainability, and lower costs,” Eric Norris said, President of Albemarle’s energy storage division.
Ford, based on the calculations of the mining companies, could obtain enough lithium to produce up to 1.1mn EVs a yea, assuming that all projects are completed on time, and consistently. These calculations do not include volumes that haven’t been disclosed by the second-ranked mining company in the world, SQM Minerals and EnergySource Minerals.
Albemarle, world’s biggest lithium producer, announced on Monday it will supply Ford with 100,000 tons of lithium hydroxide over five years, until the end of 2030. This is enough to make 3 million EVs.
Ford has struck three supply agreements with lithium newcomers — EnergySource Minerals (a US company), Compass Minerals (a Canadian company) and Nemaska Lithium — whose joint venture includes US producer Livent, which filed for protection in bankruptcy four years ago. These deals come with the risk of project delays.
General Motors, while Ford has signed traditional supply agreements, has taken an extraordinary step by pledging $650mn to Lithium Americas a US project developper, and paying Livent nearly $200mn to secure raw battery materials.
Ford’s series of deals comes after lithium prices have risen to $32,000 per ton after a four month crash which slashed them by two thirds due to a weak electric vehicle market in China.
Ford’s overall performance was a success, as it told investors that the group will achieve a profit margin of 10 percent by 2026. This includes “low double-digit” margins for its internal combustion engine division and an 8 percent margin for their EV division, which has a margin of a negative 40% and is estimated to lose $3bn in this year.
On Monday, Ford Blue President Kumar Galhotra said: “We must transform our cost structure and capital efficiencies into a competitive edge.” He said that by reducing the number vehicle variants that customers could purchase, the company would spend less on engineering and manufacturing.