Ford Just Got A $9.2. Billion Loan From The Government To Make EV Batteries (2024)

Good morning! It’s Thursday, June 22, 2023 and this is The Morning Shift, your daily roundup of the top automotive headlines from around the world, in one place. Here are the important stories you need to know.

1st Gear: Big Loan

The U.S. Department of Energy will loan Ford $9.2 billion and, in return, it will build three battery plants with its partner SK, multiple outlets reported Thursday morning. Not since the bailouts of 2008 has the U.S. government laoned so much money to a carmaker; though, to be fair, this is far lower than the combined $80 billion the U.S. government shelled out for General Motors and Chrysler 15 years ago.

The factories in question are part of the BlueOvalSK joint venture and already under construction in Kentucky and Tennessee. Both states have awarded subsidies of their own to help cover the $11.4 billion price tag for the entire endeavor. “That means taxpayers would be providing low-interest financing for almost all of the cost,” Bloomberg pointed out. The outlet also shed light on the particular program that’s enabling all of this, and it’s an interesting read:

Ford’s battery borrowing comes through a facility within the US Department of Energy known as the Loan Programs Office, or LPO, that’s disbursed nearly $33 billion over the past 14 years. Since the IRA passed, the total amount now available for lending through the LPO is around $400 billion, and loan sizes appear to be trending upward. Ford’s loan is more than triple the borrowing by General Motors Co. from the same program last year.

The office is perhaps most closely associated with the failure of Solyndra, a solar startup that received a $535 million loan in 2009. But it also made a far more successful loan to Tesla Inc. the following year, at a critical moment when the company was struggling to get its breakthrough Model S sedan into production. With the help of $465 million in federal financing, Tesla ramped up its first factory in Fremont, California, went public, and is now the world’s most valuable automaker. [...]

On funding for electric vehicles and battery supply chains, however, dazzling forays into never-before-seen tech aren’t always the hallmark of the LPO’s strategy. Nothing about BlueOval’s standard-issue EV batteries appears to be particularly cutting edge. The company declined to disclose any details of its technology. But the battery plants are looked at as important for US industrial strategy.

In an interview with Bloomberg Green, Jigar Shah, the director of the Loan Programs Office who was a pioneering solar entrepreneur, described the federal government’s battery-lending moves as a way to “onshore and reshore” manufacturing. “The goal of the program is not innovation but to get more of the supply chain to be manufactured in the US.”

That’s the key: It’s not like the Energy Department has decided Ford needs the cash because it has better technology than its competitors. The government’s only desire is to shift the EV supply chain to home soil, and it’s tapped Ford as a partner to help it do that because Ford was there and willing. And, as Bloomberg’s story later notes, it’s not like China didn’t cough up massive subsidies of its own to make CATL the behemoth it is today.

The Energy Department’s Loan Programs Office significantly cut back activity after President Obama’s first term, until about the start of President Biden’s. Ford was actually the recipient of the LPO’s first vehicle-related loan in 2009, that resulted in the manufacturing prioritization of cars like the Fiesta and Focus. It fully paid back that loan, too. Guess what Ford no longer sells today?

So this could all go upside down. But if Ford had to go it alone, or convince its investors that being so bullish on EV expansion was the right move, it probably wouldn’t take the risk. The big loan allows it to. It’s always easier with other people’s money, anyway.

2nd Gear: Car Loans Reach 125 Percent Of Car Value

An increasing number of Americans are heading into dealerships looking to trade into a new vehicle, only to find that their existing car’s value plummeted in recent months. That means they’re entering in debt and must borrow larger sums — a worrying trend that is likely to snowball as debt often does, according to TransUnion and J.D. Power. Courtesy Bloomberg:

Used car loan-to-value ratios increased to 125 in the first three months of this year from 104 for the same period in 2021, according to the study released Tuesday by credit reporting firm TransUnion and market researcher J.D. Power. A ratio of 125 means that the borrower’s loan is worth 125% of the vehicle’s value.

The loan-to-value ratios, or LTVs, could be foreshadowing higher delinquencies ahead, the study found. Negative equity, or the amount that debt exceeds a vehicle’s value, has ballooned in recent years, with some consumers stepping into car dealerships $10,000 underwater.

“As vehicle prices have risen and overall inflation remains elevated, consumers are increasingly starting in higher than average LTV positions to afford used vehicles,” Satyan Merchant, a senior vice president at TransUnion, and its auto business lead, said in a statement.

Vehicle values are expected to decline further, according to a report. That’s a red flag for lenders.

“Given the possibility that accelerated depreciation will result in negative existing LTVs for longer periods, this will be especially important for lenders to monitor,” Merchant said.

Lenders are keeping a very close eye on this. TransUnion, for example, has instructed creditors to pay attention to how much more than the minimum people are willing to pay on their monthly account balances, per the Detroit Free Press. If that amount declines, it’s a positive indicator of the likelihood of delinquency. Meanwhile, it’s not like the price of the car you’re thinking about buying is falling significantly in kind.

3rd Gear: Volkswagen’s Anxious About The Batteries

You might think a big car company like Volkswagen would have all the resources to map out and execute a global network of battery production to help it reach its decade-end electrification goals. Nope — the German automaker’s top brass wakes up in a cold sweat over the challenges ahead just like you and I. Here’s how VW’s tech chief and chair of battery-making subsidiary PowerCo, Thomas Schmall, responded to a few questions from Bloomberg. Bolding theirs:

VW is well versed in building auto factories. How is setting up a battery plant different?

It’s totally different. I think it’s one of the biggest challenges we as car guys will face. And it’s only possible because we are looking for a perfect team and have some experience doing that, technology-wise. As you know, we are a little bit behind existing players, so we need to catch up.

What can you do to avoid some of the problems your competitors have had?

Scaling up, I think we can match that at Volkswagen. We have been doing it for years worldwide. The advantage of PowerCo is that it has the whole firepower of a big group like Volkswagen, and the agility of its own legal entity to move fast.

What are the bottlenecks and the things you need to smooth out?

How much time do you have? Because everything is a challenge in that business. It’s not only a battery factory, it starts with people. There’s only a handful around the world with knowledge about the battery business that will be available. Equipment to ramp up factories is a challenge. Critical minerals is a challenge.

Schmall told Bloomberg that all this battery business “keeps us awake at night,” which is quite vivid language. I wish I could help you man, but all I can recommend is the support of a licensed counselor and that you don’t even need to bother with melatonin, because (for me) that sh*t does not work.

4th Gear: Nio Has Come Into Some Money, Too

Remember Nio? Less is being said these days of the Chinese EV startup that’s made inroads into Norway, but it’s chugging along quietly in the background, and now benefitting from an influx of cash from an investment firm backed by Abu Dhabi, as so many are. Courtesy Reuters:

CYVN Holdings, a firm backed by the Abu Dhabi government, will invest about $738.5 million in Nio Inc , the Chinese electric vehicle maker said on Tuesday, as it looks to bolster the company’s balance sheet.

Nio and peers Xpeng and Li Auto are among those competing to grab a larger EV market share in the world’s largest automotive market dominated by BYD.

Under the deal, Nio will issue about 85 million new Class A shares at $8.72 per share to CYVN Holdings.

The news sent Nio’s U.S.-listed shares down about 1% at $9.30.

CYVN has also entered into a deal with an affiliate of Tencent Holdings, under which it will pick up some shares of Nio.

Upon closing of both deals, CYVN will own 7% stake in Nio, the EV maker said, adding that the holding will entitle the investment firm to nominate one director to Nio’s board.

Nio might not have the scale of BYD, but its cars visually look better. And when comparing two cars I have no hope of driving anytime soon, looks have a habit of making all the difference.

Reverse: Started With Jacking VCRs, Now Look At Them

On this day in 2001 — 22 years ago — the concept of family was first introduced to American cinema:

Neutral: Dream Modestly

Last night I dreamed I drove a Volkswagen ID.4 and actually quite enjoyed it. I have driven a Volkswagen ID.4 before and it was all right. These are the normal things I dream about. You?