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Ford (F) to Scale Back Michigan Battery Plant Due to Low Demand

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Ford (F - Free Report) scales back its plan for a $3.5 billion Michigan Battery plant due to lower-than-expected demand for electric vehicles (“EV”), a high cost of labor and the company’s cost-cutting strategy. The facility was announced in February.

U.S. lawmakers criticized the plant for its connection with Contemporary Amperex Technology Co. (CATL), a Chinese battery manufacturer. Ford wholly owns the plant, but it is licensing technology from CATL to manufacture lithium iron phosphate (“LFP”) batteries for EVs.

Ford announced to cut its production capacity by nearly 43% to 20 gigawatt hours per year and reduced expected employment to 1,700 jobs, down from 2,500 jobs. The automaker refused to disclose the reduced amount of investment in the plant.

The move follows a recent retreat from EVs by automakers around the globe. Demand for EVs has slowed down due to higher costs, supply chain & battery technology-related challenges.  

Last month, Ford announced to cut or delay $12 billion in its previously announced investment. The scale-back plan is part of the same announcement. Ford will also delay the construction of the Kentucky EV battery plant.

Per Mark Truby, chief communications officer of Ford, despite a halt in construction of the plant due to collective bargaining with the United Auto Workers (“UAW”), the plant is still expected to open in 2026. The construction of the Michigan plant is set to resume after being paused for two months.

Under the newly ratified contracts with the UAW, the Detroit Three automakers are facing higher labor costs in the United States.

Ford believes that licensing the technology instead of importing batteries from other countries is better business for the company and the United States. The Michigan plant is expected to be the first LFP battery plant in the United States.

The LFP battery is a cheaper alternative to the lithium-ion or nickel-cobalt manganese battery the automaker is currently using. This cheaper alternative is expected to offer different benefits to the company at a lower cost, resulting in higher EV production and profit margins.

Ford currently sources LFP batteries from CATL and uses them in portions of its vehicles, to minimize the amount of cobalt required to manufacture battery cells and high-voltage battery packs.

Zacks Rank & Key Picks

F currently carries Zacks Rank #3 (Hold).

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