Why Lithium Batteries Are Like Rubber Tires

There once was a place called “Fordlândia.” Located in Brazil, it guaranteed Ford’s supply of rubber.

Looking back to 1928 and ahead to 2030, we can compare Ford’s rubber plantation to General Motors’ quest for lithium.

Ford’s Model T

Tires, Gaskets, and Tubes

Because the Model T Ford required low cost and high quality, Henry Ford introduced vanadium steel and reduced chassis assembly by almost 10 hours. As a result, his cars were inexpensive, sturdy, and user friendly. During the mid-1920s, we could have bought a Model T for as little as $260.  (According to the BLS inflation calculator, the equivalent is approximately $4500 today.)

To assure they had cost-effective rubber for tires, gaskets, and tubes, in 1927, the Ford Motor Company acquired 2.5 million acres in a Brazilian rainforest. Located 500 miles from the Atlantic Ocean along an Amazon River tributary, the site’s goal was to produce enough rubber for 2 million tires. While the equipment and management came from the U.S., Ford hired Brazilian labor to clear the land and produce the rubber. Although Ford provided housing, healthcare, and lunches, there was too much of a cultural disconnect. After 20 years (or so), they left.

For cars like this Model T-Runabout, Ford needed massive cost control:

Consequently, the company continued trying to supply its glass, iron, wood, and lumber.

General Motors’ Electric Vehicles

Lithium Batteries

Somewhat similarly, now General Motors and Ford have sought to guarantee the lithium they need for EV batteries. When GM purchased a $650 million stake in a lithium mining company, like Ford in 1927, it became an owner of one of its supply chain links. Also though, according to the NY Times, Ford has “lithium deals” rather than a Fordlândia style ownership.

Our Bottom Line: Vertical Integration

As economists, we can say that Ford and General Motors are trying to achieve vertical integration. To understand vertical integration, we can just imagine a step ladder. Production begins at the bottom with the raw materials and ends at the top with a retail network that distributes the finished product. In the middle, we have the convergence of the raw materials and the manufacturing facilities that create what is sold. When you combine all of this, you wind up with a vertically integrated firm.

Knowing that GM and Ford would like to control their battery supply chain, we could say that they hope to become more vertically integrated.

My sources and more: Having read about how General Motors plans to invest in lithium mines, I thought of Henry Ford. The ideal complement, this 99% Invisible podcast  describes Fordlandia as does the Henry Ford Center.