GM and Ford need electric car batteries, but take different paths to get them

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Automakers, investing billions of dollars in the development of electric cars, now face a critical choice: whether to get more involved in manufacturing base batteries or buy them from others.

Batteries are one of the most expensive components in an electric vehicle, accounting for between a quarter and a third of the car’s value. Cutting costs is the key to profitability, executives say.

But while the internal combustion engine has traditionally been designed and built by automakers themselves, the production of batteries for electric cars is dominated by Asian electronics and chemicals companies, such as LG Chem Ltd. and Panasonic Corp., and new entrants like the Chinese company Contemporary Amperex Technology Co..

As regulators around the world push automakers to sell more electric cars, auto executives fear there aren’t enough factories building high-quality batteries.

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California, the largest auto market in the United States, announced last month that it would end sales of new gasoline and diesel passenger cars by 2035, putting pressure on the auto industry to accelerates its switch to electric vehicles.

The race to supply electric cars prompts automakers to take various paths.

While most make the battery, a large metal enclosure often lining the bottom of the car, they also need the cells that are grouped together to form the central storage of electricity.

Tesla several years ago opened its Gigafactory in Nevada to manufacture batteries with Panasonic, which in the shared space would produce cells for the packs. The electric car maker wanted to secure production specifically for its own models and reduce manufacturing and logistics costs.

He is now looking to source more of this production.

Tesla CEO Elon Musk, which is looking to source more from its battery production. (AP Photo / Marcio Jose Sanchez, file)

While Tesla will continue to buy cells from Panasonic and other suppliers, it is also working on its own cellular technology and production capabilities to ensure it can meet demand for its cars, the general manager said. Elon Musk last month.

Following Tesla’s lead, General Motors Co. and South Korean company LG Chem are investing $ 2.3 billion in a nearly 3 million square foot factory in Lordstown, Ohio, which GM says will eventually produce enough battery cells to power hundreds of thousands of cars each year.

In Europe, Volkswagen AG is taking a similar route, investing around $ 1 billion in Swedish battery start-up Northvolt AB, including funding to build a cell manufacturing plant in Salzgitter, Germany, as part of a joint venture.

Others like Ford Motor Co. and Daimler AG are avoiding making their own cells, with executives saying they prefer to contract with specialist battery manufacturers.

Supply chain disruptions have already called into question some new model launches and put projects at risk, according to automakers.

Ford avoids making its own cells. (AP Photo / Gene J. Puskar, file)

For example, Ford and VW have entered into agreements with SK Innovation to supply battery cells for future models of electric vehicles. The South Korean company is building a plant in Georgia to help meet this demand, but a fight over trade secrets has put the future of the plant in jeopardy and could disrupt the launch of new models, the two manufacturers said. automobiles in legal depots.

GM executives say the risk of relying on suppliers has driven them to produce their own battery cells, albeit with LG Chem.

“We have to be able to control our own destiny,” said Ken Morris, GM’s vice president of electric vehicles.

Bringing manufacturing in-house will give the company more control over the raw materials it purchases and the chemistry of the batteries, Morris said.

But setting up production, even in a joint venture, is an expensive proposition and won’t necessarily guarantee a timely supply of cells. There are also risks involved in making large investments in battery technology, as a breakthrough could render it obsolete.

Mary Barra, CEO of General Motors, who says she was pushed to develop her own battery cells. (REUTERS / Brendan McDermid)

Ford cites these factors in deciding against a similar investment at this time.

The company considers the industry’s conventional model of contracting with independent suppliers to manufacture parts to be better suited to its battery cell needs, Ford chief Hau Thai-Tang told analysts in August.

“We have the competitive tension of dealing with multiple suppliers, which allows us to reduce costs,” Thai-Tang said, adding that the company expects to pay prices for GM and Tesla compliant cells.

Meanwhile, Ford can leave the capital-intensive task of conducting research and setting up manufacturing facilities to battery companies, Thai-Tang said.

Germany’s Daimler tried both strategies.

The automaker made its own lithium-ion cells through a subsidiary until 2015. But the capital needed to grow was better spent elsewhere, said Ola Källenius, CEO of Daimler.

Instead, the automaker has signed long-term supply agreements with Asian companies such as Chinese battery maker CATL and Farasis Energy (Ganzhou) Co., in which Daimler invested last year.

The company said it was spending around $ 23.6 billion on purchase contracts, while keeping its battery research in-house.

“Instead, let’s put that capital into what we do best, cars,” said Källenius.

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