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The Dilemma Facing Traditional Automakers


If there is one decision that perfectly encapsulates the challenging and complex situation that traditional automakers currently find themselves in, it is Ford Motor’s recent announcement to temporarily halt the construction of a battery facility in Michigan.

On Monday, Ford (ticker: F) made the decision to pause the construction of a battery plant located in Marshall, Michigan, a city situated approximately 100 miles west of Detroit.

Initially announced in February, this plant was set to utilize low-cost lithium-iron-phosphate (LFP) battery technology licensed from CATL (Contemporary Amperex Technology Co. Ltd.), the world’s largest battery manufacturer based in China. This strategic move was seen as a crucial step for Ford in leading the United States towards an all-electric future, with the potential to create 2,500 jobs in the process.

On the surface, this appears to be a sound plan – embracing cost leadership, innovative technology, and employment opportunities. So, what could possibly be the issue? In an emailed statement, Ford mentioned “a number of considerations” without providing specific details.

While intentionally vague, it is highly likely that labor is a major concern at play here.

The rising demand by United Auto Workers (UAW) for higher wages is a significant factor contributing to this dilemma. Emmanuel Rosner, an analyst from Deutsche Bank, explains that the UAW desires the inclusion of battery factories or joint ventures in their master contract. This would entail unionizing the workforce and granting employees assembly-line worker wages.

However, the industry seems to be moving away from this direction. For example, the General Motors (GM)/LG Energy Solution joint-venture battery plant located in Warren, Ohio operates as a supplier to GM without unionization.

The future of Ford’s battery plant remains uncertain due to these complex considerations. As traditional automakers grapple with evolving labor demands and changing industry standards, strategic decisions like this one will continue to shape the path towards an electrified automotive landscape.

The Importance of Unionization in Battery Manufacturing

In a recent statement, GM expressed its support for workers’ right to unionize and acknowledged the unionization efforts by the UAW in organizing battery-cell manufacturing workers at their joint venture sites. However, the specific employment contract for these workers remains a separate matter.

Industry analyst Rosner highlights the potential wage disparity between a master agreement-type relationship and a supplier-type situation, with battery employees potentially earning $15 more per hour or even higher. This wage difference holds significance for both the employees and the companies involved.

Ford faces additional challenges concerning government regulations. The Inflation Reduction Act includes EV subsidies that will be limited if batteries, battery materials, or components are sourced from a “foreign entity of concern” (FEOC). China falls under this category, which could potentially impact CATL, a Chinese battery manufacturer, and their eligibility for subsidies.

If Ford were to manufacture batteries in Michigan, buyers of F-150 Lighting trucks would lose out on $7,500 of purchase tax credits.

Citi analyst Jack Shang discusses the uncertainty surrounding the FEOC list expected to be clarified later in the year. Despite this uncertainty, Shang remains optimistic, believing that CATL will not be included on the FEOC list based on his conversations with the Chinese battery maker.

However, given the circumstances, it is prudent for Ford to exercise caution before committing to an investment of $3.5 billion.

In premarket trading, Ford stock is down by 0.3%, while S&P 500 and Dow Jones Industrial Average futures are down by 0.2% and 0.1% respectively. From July onwards, when labor issues gained prominence, Ford stock has experienced a decline of approximately 17%, while the S&P 500 has only seen a slip of about 2%.


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