Feds announce historic $9.2 billion loan for Ford-SK battery joint venture in South
Washington — The Department of Energy plans to loan $9.2 billion to a joint venture between Ford Motor Co. and South Korean battery maker SK On Co. for its battery plants in Kentucky and Tennessee, a massive loan that accounts for a majority of the $11.4 billion the companies themselves committed to invest in the project.
It marks the most significant direct government support for an auto company since the bailouts during the Great Recession and is the largest single loan the Department of Energy has ever made. It comes as the Biden administration and automakers aim to rapidly ramp up electric vehicle production in an attempt to compete with China, which currently dominates the global EV market.
The loan to BlueOval SK would support the venture's three new facilities, one in Tennessee and two in Kentucky, that will build electric vehicle batteries. Ford has estimated that the projects will create 11,000 jobs, and DOE says it will create more than 120 gigawatt hours of U.S. battery production annually.
"The goal is twofold: One is to get people to choose the United States over other countries they may have put this infrastructure in originally, and two is to get them to move faster because the terms alone make it possible to take bolder action," Jigar Shah, director of the Loan Programs Office at the Department of Energy, told The Detroit News Thursday. "I think both of those things were true in this case."
The funding does not add to the joint venture's previously-announced $11.4 billion investment. Instead, it will replace a portion of it, leaving Ford and SK to use $9.2 billion they would have otherwise borrowed or spent on it for other investments.
Shah's office funds large-scale infrastructure projects that will have a high impact on the United States' energy portfolio. It received an additional $40 billion in loan authority from the Inflation Reduction Act, sweeping legislation passed by Democrats last year that aims, in part, to accelerate the EV transition, and Shah estimates they currently have $50 billion in loan authority.
Asked why the agency chose to support a project like BlueOval SK's — which both companies had already committed to funding, rather than a project that wouldn't exist without their help — Shah said the agency has the resources to do both.
"There's a lot of companies with resources, but on a year-to-year basis, they can choose to reevaluate whether they're going to spend those resources or not," he said. "This loan represents a firm commitment on BlueOval's part to see these projects through, which is important to the president's goals."
The loan announced Thursday is by far the largest investment the agency has ever made through the program. By comparison, it gave Ultium Cells LLC — a battery joint venture between General Motors Co. and LG Energy Solutions — $2.5 billion in November.
It previously gave Ford $5.9 billion in 2009 to finance projects to increase fuel efficiency in gas-powered cars. It also gave Nissan $1.45 billion and Tesla Inc. $465 million in 2010.
All three of those loans have been fully repaid. Ford also noted that the previous loan was effective: The company's CO2 emissions improved by 12% from 2008 to 2021, even as it focused on trucks and SUVs, and passenger fleet fuel economy improved 17%.
The new loan would support President Joe Biden's "agenda to onshore and re-shore domestic manufacturing of technologies that are critical to reaching the clean energy and transportation future," the Energy Department said in a blog post about the funding, adding that expanding domestic EV battery production is critical to meeting the administration's goal of 50% new car sales being electric by 2030.
"It's a sign that (the Biden administration is) committed; they're not just putting mandates out there, requiring companies to do things like build electric vehicles," said Sam Abuelsamid, principal research analyst at Guidehouse Insights.
"They're actually committing to putting some money behind supporting those efforts and enabling companies to fund the construction of these factories. The administration clearly believes they will get this money back, plus interest, in time, and this will help create new jobs in the U.S."
DOE's announcement is a "conditional commitment," which typically means there are additional requirements companies must meet before a loan is finalized.
The agency said it could not disclose when BlueOval SK would have to repay the loan or specifically why it decided to offer this amount, citing confidential business information. But it said loan decisions take into account the borrower's request, business model, "and other due diligence items."
DOE can offer loans with a repayment timeline of up to 25 years. The interest rate on the loan is equal to the United States Treasury yield curve with zero credit spread — a more affordable rate than the joint venture could have received from private investors.
Abuelsamid said the loan is advantageous to Ford and SK On because the terms likely are more favorable than they'd get by going directly to would-be private lenders, especially in the current interest rate environment, and because they can avoid depleting their cash reserves to fund the construction and tooling of the plants.
"It's not a handout. It's not a grant," he said. "They're not just handing Ford $9 billion. It's a loan, and Ford has to pay it back."
In a statement, Ford Treasurer Dave Webb said the company welcomes the agency's support for the BlueOval SK project: "It’s going to help make great EVs available to more customers while powering thousands of good paying jobs and American manufacturing.
"Major technology transitions have always been accelerated by collaboration between the public and private sectors. The DOE’s foresight here will help do the same for the transition to zero-emissions transportation."
Shah of DOE said his office thoroughly vets applicants for innovative ventures, so much so that they have a 3.1% loss rate — on par with commercial banks, even though they're seen to be taking on extra risk. Analysts expected their first portfolio to have a default rate of 20% in comparison, he said.
"We have a very good track record, and as a result of that you see tremendous amount of support for our applicants when it comes to raising equity capital," Shah said, explaining how the vetting process includes evaluating the companies' access to materials, workforce, and market demand. "They go, 'wow, you made it through the Loan Programs Office? That's pretty hard to do.'"
The announcement also comes ahead of pivotal contract negotiations between the United Auto Workers and the Detroit Three automakers. The unionization of joint ventures and battery plants like BlueOval SK — especially in the U.S. South, a historically tough-to-organize region — is one of the UAW's top priorities.
"Employees at BlueOval SK’s battery plants in Tennessee and Kentucky will be able to choose whether they organize, a right that Ford fully respects and supports," Ford spokesperson Melissa Miller said. Ford announced the investments in Kentucky and Tennessee in September 2021. Construction is underway at both campuses.
The 3,600-acre campus in West Tennessee, BlueOval City, will be Ford's largest manufacturing complex. It will encompass a battery plant jointly operated by Ford and SK, an assembly plant that will build next-generation electric F-Series trucks, a supplier park and an upfit center. The assembly plant is slated to have the capacity to produce some 500,000 vehicles a year. Executives have said the project is on track for a 2025 opening.
Executives have touted manufacturing efficiencies the new assembly plant is expected to deliver, in part because Ford is developing the truck alongside the plant's construction. The factory will have a 30% smaller footprint than traditional plants, but a higher production capacity.
BlueOval City and BlueOval SK Battery Park, the campus that will be home to twin battery plants, are key pieces of Ford's $50 billion electrification plan, under which it plans to hit a production rate of 2 million EVs annually by the end of 2026. The company also is targeting 10% companywide earnings margins by that time, and 8% earnings margins in an EV business that is slated to lose billions of dollars this year.
The Dearborn automaker also is planning to build another, $3.5 billion battery plant in Marshall, Michigan. That operation is slated to create 2,500 jobs and involves licensing lithium iron phosphate battery technology from Chinese battery maker Contemporary Amperex Technology Co. Ltd., or CATL, an arrangement that has drawn scrutiny from Republicans in Washington.
rbeggin@detroitnews.com
jgrzelewski@detroitnews.com