Ford will licens the battery technology from China’s Catl for a factory worth 3.5 billion US dollars

Ford plans to license the technology from Chinese battery giant CATL for use in a $3.5 billion factory to be built in Michigan to accelerate its push into electric vehicles.

The automaker’s deal with the world’s largest battery maker comes as new U.S. tax credits for electric vehicles come into effect under the climate change Inflation Reduction Act passed last year.

However, the law prevents cars containing components from a “foreign company of concern” – a reference to China, Russia, Iran and North Korea – from receiving these tax credits.

The license agreement with CATL differs from other recent agreements between automakers and battery makers, in which General Motors, Stellantis and Ford have formed joint ventures with manufacturers LG, SK and Samsung, all headquartered in South Korea.

“There’s a strong possibility that if it wasn’t a Chinese company, it probably wouldn’t have been a joint venture,” Guidehouse Insights analyst Sam Abuelsamid said of Ford’s announcement. “It’s likely that CATL and Ford looked at the political landscape and decided this was the best solution to minimize policy backlash.”

The plant will be wholly owned by a Ford subsidiary and will employ 2,500 people when it opens in three years, executives said. The Michigan-based automaker pays to use the CATL formula to make lithium-iron-phosphate batteries, a chemistry that’s cheaper but less energy-dense than today’s EV batteries, which contain nickel, cobalt and manganese.

“A more affordable battery will lead to greater adoption of electric vehicles,” said Marin Gjaja, Ford’s chief customer officer.

Ford and CATL agreed last year that the Mustang Mach-E vehicle will begin using CATL batteries this year, followed by the F-150 Lightning truck in 2024. The new lithium iron phosphate batteries will power both models to be available.

Lisa Drake, Ford’s vice president of EV industrialization, said the company had considered the possibility that the Chinese government might ban licensing technology outside the country and built contingencies into the contract with CATL. Catl employees will help with the commissioning of the system and part of the equipment will come from China.

Ford expects consumers who buy electric vehicles with these batteries to initially claim half of the $7,500 consumer vehicle purchase tax credit, Gjaja said, although the total will increase to the full amount over time could, depending on where the car manufacturer procures minerals. Ford has been lobbying the US government since the fall to clarify rules on how far electric vehicles can contain battery components manufactured by “a foreign entity of concern.”

The manufacturer considered locations in Canada and Mexico, but chose to locate the plant in southwest Michigan due to regulations in the IRA encouraging US manufacturing.

“The IRA was incredibly important for us, and frankly she did what to do,” said Drake.

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