In a significant development for the electric vehicle (EV) industry, a joint venture backed by Ford Motor is set to secure a massive $9.2 billion loan from the US Department of Energy. The loan, granted under President Joe Biden's endorsement, will aid BlueOval SK, a collaboration between Ford and South Korean battery manufacturer SK On, in constructing three new EV battery plants in Tennessee and Kentucky.
The conditional commitment for the loan follows Biden's push for substantial public investment in initiatives addressing climate change and promoting US manufacturing. The battery plants will play a crucial role in reducing carbon emissions, with the agency's press release indicating that the electricity produced by these batteries will replace approximately 455 million gallons of gasoline throughout the lifetime of the vehicles.
The project is expected to generate significant employment opportunities, with 5,000 jobs in construction and 7,500 positions in operations once the plants become operational. The Department of Energy's commitment is subject to additional conditions, including obtaining approvals from local authorities.
To ensure adherence to the Biden administration's "Justice40 Initiative," which emphasizes the distribution of benefits to disadvantaged communities, the White House has demanded robust labor agreements and support from the BlueOval project. It is required that 40 percent of the overall project benefits go to these communities, as both the Tennessee site and the surrounding communities in Kentucky are categorized as disadvantaged.
This loan is a historic milestone for Ford Motor, representing the largest loan ever granted by the Department of Energy's Loan Program Office. The company plans to utilize the funds to establish three state-of-the-art EV battery factories, a crucial step in increasing domestic production capacity.
The announcement of the loan also marks a significant moment since the US auto bailout during the global financial crisis in 2009. According to Bloomberg, the $9.2 billion loan is by far the largest since that time.
Under the project, Ford aims to develop the BlueOval City, a sprawling auto complex, which will house the three battery factories in collaboration with SK Innovation. One factory will be located at the West Tennessee site alongside an assembly plant, while the other two will be built at the BlueOvalSK Battery Park in Central Kentucky.
Collectively, these three factories are projected to produce 129 gigawatt-hours (GWh) of battery cells annually, supporting Ford's ambitious EV production targets. By 2026, Ford plans to manufacture approximately two million EVs per year, a significant increase from the roughly 132,000 produced in 2022. Once the factories are fully operational, Ford's EV models, including the upcoming electric truck codenamed "Project T3," will be eligible for substantial incentives under the Inflation Reduction Act (IRA).
Presently, only the Ford F-150 Lightning qualifies for the full $7,500 tax credit, while the Mustang Mach-E and E-Transit are eligible for a credit of $3,750.
Ford's $9.2 billion loan aims to enhance EV battery production in the United States, thereby strengthening the domestic supply chain and reducing dependence on China. BlueOval CEO Robert Rhee expressed confidence in Ford's ability to make the most of the loan and create 7,500 jobs for Americans. The IRA, which supports US automakers in the global transition to fully electric vehicles while significantly reducing greenhouse gas emissions by 2030, is playing a crucial role in enabling such initiatives.
The Loan Programs Office (LPO), established in 2005 to promote clean energy projects, has provided nearly $33 billion in funding over the past 14 years. Notably, Tesla received a $465 million loan in 2010 to accelerate production at its first factory in Fremont, California.
With lending through the LPO amounting to around $400 billion since the passage of the IRA in August of last year, Ford's $9.2 billion loan stands out as a significant boost for the company. General Motors received $2.5 billion in funding from the LPO in 2022, significantly less than Ford's latest loan.
This substantial funding injection arrives at a critical juncture for Ford's EV expansion efforts. Following its restructuring into three separate businesses to enhance individual strengths and accelerate overall progress, Ford's EV division (Model e) is projected to incur a loss of $3 billion this year due to scaling production.
However, by the end of 2026, the company anticipates a turnaround, targeting an 8% EBIT margin for the Model e division. According to Ford CEO Jim Farley, scaling up battery production is the most significant factor in achieving this goal.
