Ford’s (F) new partnerships with top lithium producers give us more confidence that the automaker can accelerate electric vehicle production and reach its global target of 2 million EVs per year by 2026. We’re also encouraged by Ford’s financial roadmap for getting there, which was discussed at Monday’s investor event.

Securing Lithium Supply For EV Push

Ahead of its Capital Markets Day presentation, Ford announced strategic agreements with four of the world’s prominent producers of lithium, a key component of EV batteries. The deals are all compliant with U.S. federal government tax credits under the Inflation Reduction Act, which, in part, aims to promote clean energy.

• Nemaska Lithium, located in Canada, will supply Ford with 13,000 tons of lithium hydroxide per year over 11 years. Nemaska is owned 50-50 by Philadelphia-based Livent (LTHM) and an economic development corporation tied to the Quebec government.

• EnergySource Minerals, a privately held, California-based company, will provide Ford with lithium hydroxide produced from its new location in Imperial County. Kansas-based Compass Minerals International (CMP) will deliver up to 40% of battery-grade lithium carbonate over 5-years from its new project in Ogden, Utah.

• Albemarle (ALB), based in North Carolina, entered a 5-year agreement with Ford to deliver 100,000 metric tons of battery-grade lithium hydroxide for 3 million future Ford EV batteries.

For some context, lithium batteries are the preferred power source for EVs because they can store large amounts of energy relative to their size. Lithium batteries also have less of an environmental impact and can easily be recycled. Nickel is also used in lithium batteries. “We’ve sourced about 90% of the nickel and the lithium that underpin our capacity targets,” said Lisa Drake, vice president of EV industrialization at Ford e, the automaker’s electric vehicle division.

Financial Roadmap

During the event, management also reiterated adjusted EBIT margin of 10% in 2026 while maintaining full-year 2023 guidance of $9 billion to $11 billion of adjusted EBIT (earnings before interest and taxes). The team also stood by their full-year forecast for $6 billion in adjusted free cash flow. That’s more than double what analysts currently expect. Here’s a breakdown of Ford’s outlook by division.

• Ford Model e, which is still losing money, is expected by management to reach an 8% EBIT profit margin by year-end 2026 compared to its minus 40% in 2022. How will they get there? The company cites scaling production, design and engineering, as well as batteries as the major levers. CEO Jim Farley talked about a new three-row SUV that he called a “personal bullet train, a second-generation Lightning.”

• Ford Blue, which houses its iconic internal combustion engine (ICE) vehicles, should reach low double-digit margins, according to the company. The bulk of Ford’s overall revenue and EBIT comes from Blue and some from Ford Pro, which the company expects to achieve margins in the mid-teens on a percentage basis during the same period.

Earlier this month, Ford restored our faith in the company and Farley’s vision with better-than-expected quarterly revenue and adjusted earnings-per-share (EPS). It was a quick bounce back from the self-inflicted wounds of the fourth quarter of last year, during which the company left about $2 billion of profits on the table.

In the first quarter, management demonstrated an ability to navigate what has become a trickier macroeconomic environment filled with uncertainties ranging from the availability of credit to a potential pricing war with electric-vehicle maker Tesla (TSLA), which has cut prices several times this year. Farley has made it clear that he would not price Ford’s EVs purely to gain market share.

Bottom line

We were pleased to hear Ford’s new lithium-focused partnership announcements at Monday’s Capital Markets Day investor event. These new deals which will help secure lithium from large suppliers will help Ford get battery costs lower, drive vehicle volumes — and ultimately, help achieve a roughly 8% margin in its EV business by the end of 2026. The automaker’s transition to a new business structure — which emphasizes a boost in EVs, while maintaining the strength of its legacy ICE vehicles — is steadily taking shape.