Ford Motor Company and South Korean battery manufacturer SK On have agreed to a $9.2 billion loan from the Biden Administration to build three electric vehicle manufacturing plants in Kentucky and Tennesee. The loan is the latest from DOE's Loan Programs Office, and as Liam Denning lays out in this piece, published originally by Bloomberg Opinion and shared by VX News with permission, is a large part of Biden Administration's foreign policy strategy aimed at taking on China's dominance in EV manufacturing.
The US administration’s green industrial policy is drawing on the most proven playbook out there: Beijing’s.
In lending $9.2 billion to Ford Motor Co., the Biden administration is taking cues from two sources with whom it has a complicated relationship: Elon Musk and the Chinese Communist Party.
The Department of Energy loan will cover most of the cost of building three battery factories in Tennessee and Kentucky that are jointly owned by Ford and South Korea’s SK On Co., according to a Bloomberg News exclusive on Thursday morning. In doing so, Ford aims to close the gap on electric vehicles with Tesla Inc. and the US aims to close a similar gap with China. On both counts, and as with any loan, much depends on how well the money is spent. But the provision of that money, from ultra-deep pockets, is the essential first step.
President Joe Biden has been framing his green policies as a weapon to confront China almost since taking office. Doing so not only fits with a tenet of his foreign policy, but also helps justify climate and industrial policy platforms that remain divisive in the US. In short, if you can’t bring yourself to buy an EV for the sake of the planet, do it for the sake of jobs or superpower status.
Electrified transport presents a suitable battlefield on a number of fronts. The car industry is deeply embedded in American habits, economics and labor. Whether the encroachment of Japanese competitors in the 1980s or the near-death experience of the 2008 crash, threats to the auto sector tend to galvanize action. China has emerged as an EV superpower, leading the world in sales of such vehicles — on track to account for a quarter of its giant vehicle market this year — and locking down the supply chain on batteries and the critical minerals that go into them. How did it do this? Ingenuity and manufacturing skill, yes. But the essential nudge, in the form of subsidies from the factory foundation to the dealer lot, came from Beijing. China’s leaders saw a chance to leapfrog the West in an essential technology — and to help tame its imported oil addiction — and then put tens of billions of dollars behind it.
As with semiconductors, the US is waking up to the risk of relying on its chief geopolitical rival for a range of clean technologies, EVs included. So it is fighting Beijing with the most proven playbook out there: Beijing’s. Subsidies from the Inflation Reduction Act and Infrastructure Investment and Jobs Act are spread throughout the value chain. There are tax credits for sourcing critical minerals within the US or friendly countries, more credits for manufacturing or assembling the batteries and EVs they go into, yet more credits for the consumers who eventually buy the vehicles and then even more credits for anyone building public chargers to make those vehicles go. If green industrial policy is, in some sense, economic warfare, then this is carpet bombing.
The Department of Energy’s Loan Programs Office has flown somewhat under the radar, in part because fights over the IRA, especially within the Democratic Party itself, centered more on the shape of those tax credits. Yet with around $400 billion of capacity, the LPO is a behemoth hiding in plain sight — and one squarely within the executive branch’s purview.
In the grand scheme of things, the $7.5 billion earmarked for EV buyer credits under the IRA is a drop in the bucket. At a nominal $7,500 per vehicle, in theory it covers only around one million new EVs. That isn’t much when your administration wants to turn half of the roughly 15-million strong new vehicle market electric by 2030. More important is turning over the fixed asset base of the domestic autos industry: Once the factories only make EVs, those are what will be available to buy. Hence, the $9.2 billion loan to Ford’s joint-venture BlueOval SK is more important than consumer credits in terms of forcing through a structural change in the industry.
Think of this in terms of Tesla, an earlier recipient of an LPO loan that has since become the biggest battery-EV maker in the world. Tesla racked up enormous losses for more than a decade in order to build the manufacturing capacity and charging network required to get to the one thing all automakers need to survive: scale. It could do this mainly because of the Svengali-like hold its chief executive Elon Musk has over capital markets. The NYSE effectively acted as venture capitalist to Tesla.
Ford, which is attempting the highly risky strategy of building a new EV business that competes with its legacy one, needs scale, and quickly, if it is to succeed. Unlike Musk and Tesla, Ford can’t count on endlessly patient investors to pull this off. That’s why it has both engaged in a price war with Tesla in order to move product quickly and struck a deal with Tesla to tap into the latter’s charging network. And that is why it is turning to a different kind of deep-pocketed, patient venture capitalist in order to scale up quickly: Uncle Sam.
Ford has been here before of course. When Biden’s former boss was in the Oval Office, it got a $5.9 billion loan in 2009 to help the company upgrade plants to meet tighter fuel-economy standards. (Inflation-adjusted, the new loan is worth only about $1 billion more.) The government’s ambitions for vehicle drivetrains have moved on in the intervening decade or so, not least because China has taken the lead. Only this week, Beijing extended its tax credits to encourage EV sales further. The US effort begins from way behind, not on vehicle-design itself but the raw capacity to make those vehicles. The money it is now putting behind addressing that doesn’t guarantee success. But China’s own experience, as well as Tesla’s, strongly suggests that it will shift the balance of power.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.