Ford is downsizing its electric vehicle battery plant in Michigan

DETROIT — Ford Motor Co. is scaling back its plans for a $3.5 billion battery plant in Michigan, as consumers shift to electric vehicles more slowly than expected, labor costs rise and the company moves to cut costs.

Ford executives, including CEO Jim Farley and Chairman Bill Ford, initially announced the facility in February. It quickly became a political target because of its association with Chinese battery maker Contemporary Amperex Technology Co., or CATL. The plant is a wholly-owned subsidiary of Ford, but the US automaker is licensing the technology from CATL to produce new lithium iron phosphate, or LFP, batteries for electric vehicles.

Ford said Tuesday it will cut production capacity by about 43% to 20 gigawatt hours annually and reduce projected employment from 2,500 jobs to 1,700. The company refused to reveal the amount it will invest in the factory. Based on the reduced capacity, the investment would still be around $2 billion.

The decision adds to the recent retreat from electric cars by automakers globally. Demand for vehicles is lower than expected due to higher costs and challenges with supply chains and battery technologies, among other issues.

The cuts at the Marshall, Michigan, plant are part of Ford’s plans announced last month to reduce or delay about $12 billion in previously announced electric vehicle investments. The company will also postpone construction of another electric vehicle battery plant in Kentucky.

“We looked at all the factors. Those factors included demand and expected growth for electric vehicles, our business plans, our product cycle plans, affordability and the business to make sure we could achieve a sustainable business from this plant,” the Ford president said. Communications Officer Mark Truby said during a press conference. “Having evaluated all of this, we can now confirm that we are moving forward with construction of the plant, albeit at a slightly smaller size and scope than we originally announced.”

The plant is still expected to open in 2026, although the company halted production at the facility for about two months during collective bargaining with the UAW, Truby said. The talks ended last week when Ford-UAW employees ratified a deal that included significant wage increases and a path to include battery workers at the plant in the standard agreement, if organized by the union.

The UAW did not immediately respond to a request for comment.

Rising labor costs factored into Ford’s decision to scale back its plans, according to Truby. Ford CFO John Lawler said last month that the new deal would add between $850 to $900 per vehicle assembled in labor costs.

Lawler declined to estimate how much the deal, which runs through April 2028, would cost the company. Deutsche Bank estimated the increase at about $6.2 billion during the terms of the deal.

“We remain very optimistic about electric vehicles and our electric vehicle strategy, but it is clear that although there is growth, both in the U.S. and around the world, the growth is clearly not at the rate that we and others expected,” Truby said. . “We’re trying to be smart about this and how we move forward.”

The plant has received political opposition from federal and local officials, including protests by residents in a rural Michigan city. US lawmakers have also sought to review the licensing agreement between Ford and CATL amid escalating tensions between the US and China.

Truby confirmed on Tuesday that the company still believes it is better for the company and the United States to license the technology rather than import batteries from abroad. The plant is expected to be the first in the United States to produce LFP batteries.

The lithium iron phosphate, or LFP, batteries the plant will produce will be deployed in place of the more expensive lithium-ion or nickel-manganese-cobalt batteries that Ford currently uses. The new batteries are expected to offer various benefits at a lower cost, allowing Ford to increase electric vehicle production and profit margins.

Ford, which currently sources LFP batteries from CATL, is following Tesla in using LFP batteries in some of its vehicles in part to reduce the amount of cobalt needed to make battery cells and high-voltage battery packs.