A Glimpse Into The Turbulent EV Transition

The chairs of the three most powerful House committees have threatened to subpoena Ford if it does not provide documents detailing a deal with China’s CATL battery maker. Ford cannot ignore this request, and it might even force them to back out of the deal. It’s already pressed pause on a new $3.5 billion battery plant in Michigan.

It’s not clear what Ford will do after this, but the experience illustrates how turbulent the electric vehicle (EV) transition might be.

In 2021, President Biden announced an executive order that directs government policies to ensure 50% of all new passenger vehicle sales are electric by 2030. This year, the administration proposed that the figure increase to two-thirds by 2032. These are ambitious targets—the electric vehicle (EV) share of the new vehicle market was just 7% for the first half of this year. Getting from 7% to 67% by 2032 in a commercially viable way is going to take a massive reallocation of people, capital, and resources.

Such a monumental transition would be challenging even in the best of times. Today’s EVs are powered by lithium-ion batteries. Coupling and growing the two industries together comes with many challenges, including investing in new capital equipment, forming new business ventures, licensing the know-how, and ensuring they have the right people in place.

Mining and processing the raw materials for these batteries so far has largely been done outside of the United States. Ford found a way to domestically manufacture EVs by licensing battery cell technology from China’s CATL, a world leader in lithium iron phosphate battery technology. The arrangement was announced in February 2023 and allowed for Ford’s wholly owned subsidiary in Michigan to manufacture the battery cells using CATL’s LFP battery cell knowledge and services. In other words, Ford will control a 100% ownership stake in the plant while licensing the know-how.

Now, congressional concerns over CATL’s ties to the Chinese Communist Party have led to the subpoena, and Ford has halted work at the Michigan battery factory. It’s unclear if they will resume.

Ford’s situation provides a look into just one of the many problems the car industry faces in its transition to electric vehicles. Supply chain problems and high borrowing costs persist, as they do for many industries. But the Biden administration and Congress are doing much more than simply mandating that the transition is made—they are also imposing restrictive rules and regulations on how it’s made. That means who companies can source from, what technology to use, who they can partner with, and even how much to pay their workers.

For the first time in history, we just saw a sitting president join a picket line with the United Auto Workers demanding a 40% pay increase, a four-day work week, retirement pensions, and job security for nearly 150,000 American autoworkers. This was the first time a sitting president has ever joined a picket line (though some candidates have previously done so). Presidents typically try not to get involved, and if they must, they usually position themselves as mediators between labor and management.

General Motors
GM
President Mark Reuss said the union’s demands are “untenable.” Yet the strong signals and union support from Biden appear to be pushing the workers and the industry even further apart.

The Biden administration wants the car industry to switch to EVs, but, together with Congress, it’s tying automakers’ hands in the process. Washington may inadvertently undermine the industry’s ability to reach renewable energy goals.