We’re encouraged by announcements issued Thursday morning by Ford Motor (F), bolstering our long-term view that the Blue Oval will be an EV leader under the leadership of CEO Jim Farley.

The news

The most important developments Ford detailed are about securing batteries for electric vehicles.

• Ford said it has 100% of the battery supplies that are necessary to meet its goal of 600,000 autos globally in 2023.

• Ford also said it’s working with CATL, a China-based battery giant, to meet its targeted production rate of 2 million EVs in 2026.

• The automaker said it already has sourced 70% of the battery cells required to “support” its 2026 EV goals.

The details

We’ve known about Ford’s goal of making 600,000 EVs next year since late 2021, but analysts have placed doubts on the company's ability to execute, due to the shortage of battery supplies. The caution largely centered on capacity constraints, specifically on the raw materials that go into batteries. Obviously, without a battery to go in it, there’s really no electric car. Could every established automaker, plus the many EV startups hustling to bring vehicles to streets, all secure the battery supplies they need?

That’s what makes Thursday’s battery announcements particularly noteworthy. Farley has been confident Ford will be accomplish it, and Thursday’s announcement for 2023, at least, indicates the battery piece to the production puzzle is in place.

Ford’s partnership with CATL also is interesting. Ford already has a relationship with two South Korean battery suppliers, LG Energy Solution and SK On. In fact, Ford is building battery plants in Tennessee through a joint venture with SK. The decision to work with CATL introduces a second type of battery into Ford’s EV lineup and, in theory, will allow Ford to more easily ramp up vehicle production in the near term.

• CATL will be supplying Ford with what’s known as LFP batteries. To date, Ford has been using NCM batteries.

• Both are part of the larger lithium-ion battery family, but LFPs are a lower-cost option. On a call with investors Thursday morning, Ford management indicated LFP batteries are about 10% to 15% cheaper than NCM, while adding they also reduce the company’s reliance on “scarce critical minerals” like nickel.

• A major trade-off between LFP and NCM batteries is range. LFP batteries offer less range per pound.

• However, LFP batteries hold up well over time, providing customers “many years of operation with minimal loss of range,” according to a Ford investor presentation.

On the investor call, Ford management declined to detail, specifically, what it expects its global mix of batteries to be over the medium to long term. We do know that Ford’s Mustang Mach-E will be the first to have the LFP battery pack, starting in 2023, followed by the F-150 Lightning pickup truck in 2024.

Bottom line

As noted earlier, battery availability has been one of investors’ primary concerns about the auto industry’s large-scale pivot toward EVs away from the internal combustion engine. It’s never been a question about demand — it’s all about supply. The devil is in the details, and Ford gave us assuring ones Thursday.

This is incrementally positive news — especially when you consider what part shortages have done to the auto industry during the Covid pandemic. A lack of semiconductor availability, in particular, has affected production for well over a year, forcing automakers like Ford to temporarily suspend production at various times and consequentially reduced the number of vehicles available to sell. The least thing we would want to hear now is another shortage in battery. Altogether, it was good to see management is ahead of this potential issue.

Even though we're long-term believers in Ford, it is hard for us to be ultra-bullish at this moment. That's why we're only recommending a "hold" to investors. We think downside risks remain more prominent than upside risks, at least until the company's quarterly results at the end of July. We would need to hear how the company is doing with the Federal Reserve hiking interest rates aggressively, and the economy potentially being in a recession at this moment. It is worthy to note, the fact that Ford did not re-affirm its previous guidance suggests to us that the company may not be able to make the numbers this year. This means missing analysts' current estimates and forward estimates will go lower, two ingredients for a meaningfully lower stock price.