Big Board Alerts

September 26, 2023
Ford pauses work on $3.5 bln battery plant in Michigan

Ford Motor (F.N) said on Monday it has paused work on a $3.5 billion electric vehicle battery plant in Michigan, citing concerns about its ability to competitively operate the plant at a time when it remains locked in broader contract negotiations.

United Auto Workers (UAW) President Shawn Fain blasted Ford, saying the announcement was “a shameful, barely-veiled threat by Ford to cut jobs…. We are simply asking for a just transition to electric vehicles and Ford is instead doubling down on their race to the bottom.”

Ford has repeatedly raised its offer to the union in contract talks without securing a deal, while the fate of battery plant workers has remained a key issue in negotiations with the Detroit Three.

“We are pausing work and limiting spending on construction on the Marshall project until we’re confident about our ability to competitively operate the plant,” Ford said on Monday, declining to say what specific reason triggered the decision but adding there were a number of considerations. “We haven’t made any final decision about the planned investment there.”

President Joe Biden on Tuesday is set to visit Michigan to join a UAW picket line in support of striking workers at the Detroit Three automakers.

Ford in February announced plans to build the plant in Michigan, betting that making the batteries in the United States would help it and Chinese partner CATL (300750.SZ) attract U.S. customers to embrace a lower-cost technology pioneered in China.

Michigan Governor Gretchen Whitmer said: “Ford has been clear that this is a pause, and we will continue to push for successful negotiations between the Big 3 and UAW so that Michiganders can get back to work doing what they do best.”

The UAW and some in Congress want automakers to pay workers at battery plants the same higher wages that workers at assembly and engine plants receive.

Republicans in Congress have been probing Ford’s battery plant plan over concerns it could facilitate the flow of U.S. tax subsidies to China and leave Ford dependent on Chinese technology.

Representative Mike Gallagher, the Republican chair of a House select committee on China, said lawmakers were “encouraged to see Ford take a crucial first step to reevaluate its deal” with CATL. “Now, Ford needs to call off this deal for good,” he added.

Ford in July forecast a full-year loss of $4.5 billion on its EV unit – 50% higher than projected earlier this year – and said it was slowing its EV production ramp up. Ford also has said it plans to quadruple sales of gas electric hybrids over the next five years.

The industry is watching how new rules around future EV tax credits will be implemented as automakers make investment decisions on producing batteries for the transition to EVs.

In 2022, Congress passed the $430 billion Inflation Reduction Act (IRA), which will bar $7,500 in future consumer EV tax credits if any battery components are manufactured or assembled by a “foreign entity of concern.”

Ford has been awaiting guidance to determine if batteries operated by the Marshall plant would run afoul of the requirements.

It had urged the Treasury to take a narrow view of the restriction, warning that “an overly expansive interpretation of this provision risks … making the clean vehicle credit largely unavailable.”

Some Michigan Republicans have questioned the $1.7 billion in planned state incentives for the Marshall plant that Ford has said is expected to employ 2,500 workers.

 

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