GM tries to catch Tesla by following supply chain playbook

General Motors plans to open a fourth battery plant in the US heartland, part of its program to chase Tesla on electric vehicle sales by following a similar playbook.

Billionaire Elon Musk’s car company has adopted a vertical integration strategy over the past decade that helped make the Tesla Model 3 the best-selling EV in the country. More than three years ago GM, too, began building out its North American supply base for electric vehicles, building factories and making deals to secure raw materials to feed them.

It appears the Detroit carmaker’s plans are starting to pay off. GM overtook Ford in the first quarter for the number-two spot in North American EV sales. It will have six models eligible for the full $7,500 tax credit available to consumers through the Landmark Inflation Reduction Act — more than Ford, Volkswagen, Rivian or Tesla.

“We adopted that strategy because it was what we needed to help us grow this market,” said Sham Kunjur, executive director of GM’s EV Raw Materials Center of Excellence.

Still, the company has a ways to go from cementing its lead over Ford in EVs, let alone catching Tesla, a goal Chief Executive Mary Barra outlined nearly three years ago. Ford idled a factory producing its Mustang Mach-E for improvements during the first quarter and also halted production of an electrified version of its popular F-150 truck after a battery fire in a pick-up . Those disruptions mean the second half of the year will show more clearly whether Ford or GM is going to claim second place in North American EV sales, said analyst Sam Abuelsamid of Guidehouse Insights.

Abuelsamid said that GM is “absolutely more aggressive than any other automaker aside from Tesla”. But it is retiring its popular, first-generation electric vehicle, the Chevrolet Bolt, at the end of the year, and has its own production struggles with the Cadillac Lyric’s slow ramp. For its strategy to be successful, GM needs to show it can churn out EVs at scale. Barra has said it will produce one million EVs annually in 2025.

“If everything comes together in the second half of this year and 2024, they will be in a very good position to reach second place,” Abulsamid said. “They have arranged all the correct pieces, and now they must move those pieces in the correct order on the chessboard to reach their destination.”

Kunjur said GM’s vertical integration strategy grew out of two realities. China boosted its EV supply chain in the last decade. While Tesla partnered with Panasonic to build the Gigafactory, battery cells and components in North America available to GM were limited.

“What was available in North America wasn’t much, and we didn’t see much movement in this space by natural forces. We realized we needed to control our own destiny.”

The company’s first battery plant, owned and operated by LG Chem, opened in August near Lordstown, Ohio. Their joint venture, Ultium, has plans for two more factories in Tennessee and Michigan. A fourth plant, which Indiana’s governor announced Tuesday will be located in that state, will be built with Samsung SDI. None of Ford’s announced battery plants in the US are operational yet.

GM is also on the upswing, as it tries to secure access to the components and minerals needed to make batteries. It inked a deal with company Controlled Thermal Resources to extract lithium from geothermal brine in southern California in 2021, and five months later agreed to work with Posco Future M to process cathode active materials (CAMs) , which is an important battery material representing 40. Percent of the cost of the cell in Quebec. The carmaker this month expanded a $1 billion joint venture to increase production capacity for CAM and add production of precursor materials needed to make it.

GM also said in January it would invest $650 million in the Thacker Pass lithium mine in Nevada to control exclusive rights to the first phase of production of the commodity.

“If you would have asked us three years ago or four years ago whether we would engage directly with mining companies, we would have clearly said no, but sometimes necessity is the mother of invention,” Kunjur said. “We had to change our mindset.”

The strategy has allowed GM to benefit from the IRA not only through consumer tax credits, effectively lowering prices, but also through production subsidies—though not as much as Tesla. Production credits allow car makers and their battery partners to earn up to $45 per kilowatt hour.

Creating a US supply chain for EV batteries requires significant investment, Kunjur said, and the IRA “certainly helped”.

Tesla and battery partner Panasonic will be eligible for an estimated $1.8 billion in production subsidies this year, according to research by Manish Dua, an analyst at Benchmark Mineral Intelligence. GM and LG Chem are eligible for the second largest amount in production subsidies this year, an estimated $480 million. Ford isn’t eligible for any until 2025.

Dua said that in a decade both GM and Ford will earn more production subsidies as additional plants open.

Abuelsamid said the three battery plants that GM is either operating or building have a combined capacity of about 125 gigawatt hours per year. That’s about three and a half times as much as Tesla in North America.

If GM can stick to its plans, “they could probably catch up and surpass the North American versions of Tesla,” Abulsamid said. “But it all comes down to doing.”