If there is a decision that illustrates the difficult, complicated situation traditional auto makers find themselves in these days, Ford Motor decided to pause construction of a battery facility going up in Michigan.
Halting Construction Amid Uncertainty
On Monday, Ford announced that it was halting construction, for the time being, on a battery plant going up in Marshall, Mich., a city about 100 miles west of Detroit. The plant, which was announced in February, is set to license low-cost lithium-iron-phosphate (LFP) battery technology from China’s Contemporary Amperex Technology Co. Ltd. (CATL). If the project proceeds, it will create 2,500 jobs and position Ford as a leader in the U.S. electric vehicle market.
Diverging Industry Landscape
However, the industry is moving in a different direction. The General Motors (GM)/ LG Energy Solution joint-venture battery plant in Warren, Ohio, for instance, operates as a supplier to GM and is not unionized. This highlights the contrasting approaches within the automobile industry.
Overall, Ford’s decision to pause construction reflects the challenges faced by traditional automakers navigating the rapidly evolving landscape of electric vehicles and labor dynamics.
The Impact of Unionization and Government Regulations on the Auto Industry
General Motors (GM) recently expressed its support for unionization efforts by the United Automobile Workers (UAW) in organizing battery-cell manufacturing workers at their joint venture sites. However, the type of contract under which these workers are employed remains a separate issue that needs to be addressed.
According to industry expert Rosner, the distinction between a master agreement-type relationship and a supplier-type situation can have a significant impact on the wages of battery employees. This could potentially mean an increase of $15 per hour or more, which is a crucial concern for both employees and companies alike.
Another hurdle for automakers like Ford is the government’s regulations regarding electric vehicle (EV) subsidies. As part of the Inflation Reduction Act, subsidies will be limited if batteries, battery materials, or components come from a “foreign entity of concern” (FEOC). China, being classified as an FEOC, poses a potential risk for companies like Ford and could result in their battery supplier CATL being included on a restricted list.
The consequences of such restrictions are significant. If Ford manufactures batteries in Michigan, buyers of their F-150 Lighting trucks would lose out on $7,500 worth of purchase tax credits. This uncertainty has led to cautiousness among industry analysts, with Citi analyst Jack Shang expressing the need for more clarity on the FEOC list, anticipated later this year. However, after speaking with CATL representatives, Shang remains cautiously optimistic that the company will not be included on the list.
In light of these challenges, it is prudent for Ford to exercise caution and delay its $3.5 billion investment plans. While optimism exists regarding potential resolutions, rushing into decisions without proper assessment is not advisable.
On the stock market front, Ford stock has experienced a decline of 0.3% in premarket trading. In contrast, S&P 500 and Dow Jones Industrial Average futures have seen decreases of 0.2% and 0.1%, respectively. Since the emergence of labor issues in July, Ford stock has fallen by approximately 17%, while the broader market, represented by the S&P 500, has only experienced a 2% decline.