Ford’s EV battery deal with China’s CATL echoes industrial history

Almost exactly a century ago, Sun Yat-sen, the father of modern China, wrote a letter to Henry Ford. He asked Ford to invest in his country and to help China build a “new industrial system.”

The response from the American industrialist and founder of Ford Motor Company to the 1924 missive was curt: No thanks.

Now, 99 years later, the tables have turned.

Spurred by global supply chain disruptions, mounting geopolitical tensions, and a high-stakes technological competition with China, the US is investing heavily in rebuilding its domestic industrial base. This comes after decades of outsourcing production abroad, which hollowed out manufacturing capabilities at home.

That’s why Ford now needs China’s help.

“Entering the US at a curve”

Ford this week announced it will build a $3.5 billion electric vehicle battery plant in Michigan, using technology licensed from the Chinese battery giant CATL.

“Reality is the US needs the expertise of China to offer low-cost [lithium-iron-phosphate] battery cells, and therefore cheaper EVs,” noted Henry Sanderson, executive editor of Benchmark Mineral Intelligence. “[It’s a] reverse technology transfer, reflecting China’s big headstart in the energy transition.”

For CATL, the world’s largest EV battery company with 37% of the global market as of 2022, the technology licensing deal with Ford grants it an important foothold in the US market.

While CATL has aggressively expanded its production footprint in Europe, it has yet to open a factory in the US. Robin Zeng, CATL’s founder, said last February (link in Chinese) that the company “will definitely enter the US market.” One year later, CATL has found a way in.

Chinese media reports describe CATL’s partnership with Ford as a strategic move with potentially huge returns in the long run. Ford will have 100% ownership of the new EV plant, while CATL will earn licensing and service fees from sharing its technical know-how.

“CATL is entering the US market at a curve…[its entry] has more strategic significance than commercial value,” wrote the Chinese business news outlet Huxiu (link in Chinese).

Motoring past spy planes and spy balloons

The Ford-CATL tie-up has another echo from recent business history, too.

In 2001, Ford snagged a foothold in the Chinese market by establishing a 50-50 joint venture with the Chinese state-owned carmaker Changan Auto. That deal was sealed at a time of heightened diplomatic tensions: A US spy plane had just collided with a Chinese fighter jet.

The contemporary parallel involves another airborne surveillance object: Ford and CATL’s agreement comes amid a continuing diplomatic crisis over a Chinese spy balloon that the US shot down last week.

Ford’s deals with Changan Auto and CATL, in spite of spy plane and spy balloon incidents, might highlight how commercial interests often override geopolitical concerns.

US senator Marco Rubio, however, is demanding an official review of Ford and CATL’s licensing agreement, saying the deal “will only deepen US reliance on the Chinese Communist Party for battery tech.” Beijing is also reportedly seeking a review to safeguard CATL’s core technology.

So geopolitics might get in the way after all.