Ford, GM launch expansion plans as Biden charges up battery strategy

The Biden administration's 100-day review of critical supply chains yielded detailed policy recommendations across four major sectors — large capacity batteries, key minerals, semiconductors and pharmaceutical ingredients.

In the case of large-capacity batteries, the review is coming just as the autos industry goes through a once-in-a-generation restructuring of supply chains with the shift to electric vehicles. The relative simplicity of supply chains versus combustion drive trains and the importance of batteries within the product from a scale and expense perspective makes capturing battery manufacturing both an employment and security-of-supply issue.

Indeed, the U.S. Department of Energy said in the review that there are "benefits from co-location," citing "cost and flexibility benefits from placing battery pack and cell manufacturing near EV demand" as examples.

That comes as Ford Motor Co. and General Motors Co. have both announced long-term investment plans to increase EV manufacturing. The "Ford+" plan will involve investments of over $30 billion in electrification in the period to 2025, including shifting half the production of its Lincoln brand to electric drive trains over that period.

Meanwhile, General Motors plans to spend $35 billion in electrification in the 2020-2025 period, with an annual global EV sales target of one million by 2025. Both will likely be looking to secure incentives from the Biden administration's plans.

The Energy Department made 26 recommendations in four broad categories that include incentives "needed to incentivize every stage of the U.S. battery supply chain including boosting demand for products like EVs and stationary storage that use high-capacity batteries." That suggests demand- and supply-side measures are needed.

On the demand side, there are recommendations to electrify the federal fleet of vehicles, offer commercial rebates, roll out charging infrastructure and promote utility-scale use of battery storage to support renewables.

The supply side is more complex. Battery production will largely depend on private capital investment, with proposals to provide federal grants as well as renew manufacturing tax credits. The policies will require coordination with lithium, nickel and cobalt strategies covered in the key minerals review, as discussed in Panjiva's research of June 15. Those are complicated by incorporating investment in mines in allied countries and emerging markets, which may also want to foster their own battery and EV businesses.

The peril from U.S. automotive supply chains' reliance on overseas battery supplies can be seen in the recent acceleration in U.S. imports of large-capacity batteries. Panjiva's data shows U.S. imports of lithium-ion batteries for automotive applications climbed 128% year over year in the three months to April 30. That was largely down to a surge in shipments from China, a strategic adversary as defined in the administration's supply chain review, while imports from Japan fell and those from South Korea rose 71.7%.

There has been significant volatility, however. Imports in the three months to April 30 were down 36.8% versus the three months to Jan. 31, including a 32.9% drop in shipments from China and an 81.8% drop in shipments from South Korea. Supplies also have been complicated by the now-settled intellectual property lawsuit between LG Chem Ltd. and SK Innovation Co. Ltd.

The settlement allowed SK Innovation to launch its battery joint venture with Ford to enable the delivery of the development plans flagged above. Despite that, there has been a marked decline in U.S. seaborne imports of batteries linked to SK Innovation, with a 54.0% drop in the three months to May 31 versus the three months to Feb. 28 even though shipments are still 6.3x higher than a year earlier and 166% above those in the three months to May 31, 2019.

Shipments linked to LG Chem are in a longer-term decline, with a 13.3% sequential drop and a 62.2% slide versus a year earlier. It remains to be seen whether the settlement with SK Innovation will result in a renewed surge in shipments.

The largest importer remains Tesla Inc., with growth of 47.5% sequentially and by 170.2% year over year as the company continues to expand shipments of the mass-market Model 3 and Model Y vehicles.

Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.