Ford's deal with China's CATL on $3.5B battery plant faces geopolitical headwinds

The news: Ford announced plans to build its $3.5 billion EV battery factory in Michigan using technology from China-based Contemporary Amperex Technology Limited (CATL).

• Under the arrangement, Ford would own 100% of the plant, allowing the batteries to be covered under Inflation Reduction Act (IRA) tax credits while relying on CATL’s technology and services, per The New York Times.
• CATL is the world’s largest EV battery producer, with components in a third of EVs globally, including in Tesla and BMW models.
• The deal will help Ford build more EVs faster using CATL’s lithium-iron-phosphate (LFP) battery production technology, which results in cheaper and more durable batteries compared with those containing cobalt and nickel.
• Ford executive chairman William Clay Ford Jr. said working with CATL will help the automaker gain the technical expertise needed to eventually build the batteries without assistance.

The big failed diplomacy problem: Ford’s CATL partnership represents ongoing US-China interdependence. Many decades of US companies outsourcing production to China helped it reach global superpower status through manufacturing prowess.

• The US has since grown uncomfortable with trade dependence on China, and relations have soured amid failed diplomacy.
• Virginia Gov. Glenn Youngkin called Ford’s relationship with CATL a “Trojan horse.”

We expect partnerships like Ford’s to be under scrutiny by the increasing bipartisan hawkishness over China among US politicians.

• Ford’s CATL contract includes provisions to work through problems created by geopolitical tensions.
• Such provisions might lack teeth given Beijing’s heavy hand on its private sector and possibly more restrictive policies from US lawmakers on companies doing business in China.

Prepare for supply chain pain: Rising tensions between the nations creates more urgency for the US to diversify manufacturing out of China. However, the Ford-CATL partnership illustrates that the plan isn’t easy to achieve.

• US manufacturers will have to find creative ways to reduce higher domestic production costs to avoid passing them on to inflation-burdened consumers.
• Apple, one of many US companies seeking to diversify away from China, is running up against production speed and quality problems at plants in India.
• Tensions between the US and China could escalate faster than China’s production expertise can be replicated elsewhere.
• Military conflict involving the nations could harm the global economy and supply chains and be another blow to the struggling tech industry.

This article originally appeared in Insider Intelligence's Connectivity & Tech Briefing—a daily recap of top stories reshaping the technology industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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