This week Ford Motor Company in conjunction with a two-day investor event, announced strategic commodity supply deals with four suppliers, two of which are the globe’s largest producers of lithium, a critical strategic commodity for electric-vehicle production needs. From our lens, these deals represent examples of both supply network vertical integration along with supply network resiliency moves.
According to a published report from Bloomberg (Paid subscription or metered view), “this is the second time in two years that Ford has announced direct deals with battery metal producers, following a series of agreements announced in July.”
These agreements include U.S. based Albemarle providing upwards of 100,000 metric tons of battery grade lithium hydroxide to supply 3 million Ford EV batteries starting in 2026. An agreement with Chile based SQM for lithium carbonite and lithium hydroxide will reportedly aide the auto maker to help Ford EV vehicles qualify for consumer tax credits under provisions of the U.S. Inflation Reduction Act.
Other supply agreements include Canada based Nemaska Lithium for upwards of 13,000 tons of lithium hydroxide annually with Ford reportedly becoming the first customer for this supplier, backed by Livent Corp. the globe’s third largest lithium producer, and the government of Quebec. A supply agreement starting in 2025 involves EnergySource Minerals and Compass Minerals, for lithium supply to be produced in California and Utah.
Supply Chain Strategy Perspectives
In an interview with Bloomberg Television, CEO Jim Farley pointed out the important importance of these mining and supply processing announcements: “The mining part is not the constraint. It’s really the processing. So turning those raw materials, especially lithium and nickel, into processed materials we can put into a slurry to make the (battery) cells themselves.” Farley additionally indicated that this auto maker is “pretty much done” in locking mining and processing capacity needed to support upwards of 2 million EV vehicle production needs by 2026. He further described Ford’s supply chain vertical integration strategy which will bring a considerable amount of vehicle power component production in-house and under direct control. He actually compared this vertical integration strategy to that of Ford in the 1920’s in the production of the iconic Model T.
Clearly, Ford is not the only EV producer to pursue supply chain vertical integration. Tesla remains the obvious example with supply agreements down to the commodity level, but other large producers are and will follow as well. Volkswagen’s recent announcement of plans to open a battery production facility in Canada to support North America production needs has some elements of such a strategy.
What we felt was the most insightful comment was the learning that while supply and cost can be controlled by long-term agreements, “building batteries at scale, and with consistent quality” is the most important lesson derived from Ford efforts in this area. Even Tesla, in its early days, struggled with that lesson.
In a previously published Supply Chain Matters commentary in February, we highlighted Ford’s plans to operate and manage a battery production plant in Michigan, with technology collaboration from South Korea based battery producer CATL who will license its intellectual properties for battery technologies to Ford. The battery technology involved with this collaboration is lithium ion phosphate (LFP) composed battery cells developed by CATL, a termed lower cost alternative to lithium ion cells produced with a nickel and cobalt composition which is predominant for European and U.S. powered EV’s. While the arrangement allows this automaker to reportedly qualify for production tax credits under the U.S. Inflation Reduction Act, its reinforces the strategy for added direct control of supply strategy, cost and consistent quality.
Further, from our lens, this evolving commodity supply strategy has elements of supply chain resiliency strategy which Ford has additionally previously embraced in practice. Sourcing of supply not only in North America demand and supply, but also in other countries provides elements of such a strategy. CEO Farley specifically noted that the lithium processing constraints that the automaker is facing are partly geo-political by virtue of the Biden Administration’s policies to decrease reliance on China for key commodity and processing needs required for EV production. The notion of multiple supply agreements speaks to an element of resilience.
Bob Ferrari
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