The All-Electric Push

As the auto industry continues to move away from gas-powered engines, the biggest roadblock remains batteries. Made using lithium and largely produced outside the US, EV makers continuously face a battery shortage. This has raised the price of EVs and made it difficult for firms to boost production.

That ongoing trend has led to a series of tie-ups between battery makers and automakers. The latest is a deal announced this week between Honda Motor Co. (HMC) and LG Energy Solution. Together the companies will build a $4.4 billion EV battery factory in Ohio. Construction is slated to begin next year, with mass production expected by the end of 2025.

Honda Held Back

Just over a year ago, Honda announced its intention to go “all electric” by 2040. To that end, this is Honda’s first major investment aimed at building out its own EV supply chain.

Honda has lagged behind some of its rivals when it comes to offering EV models. Batteries seem to be part of the company’s plan to change that. In April, Honda pledged to spend the equivalent of $36 billion over the next decade toward the development of battery-powered cars. Its partnered with GM (GM) and Sony (SONY) to develop 30 electric models by 2030.

Battery Buddies

The Honda and LG Energy tie-up is part of a broader trend in the auto industry. GM entered into a similar agreement with LG within the past 12 months to build a multibillion-dollar plant, as did Stellantis NV (STLA) and Samsung SDI.

S&P Global Ratings sees these types of tie-ups continuing in the future as demand for EVs continues to rise, and raw material costs surge higher. The recent congressional spending bill also includes tax breaks for EVs if a certain portion of their battery components are produced domestically. Still, it’s a gradual process. Research suggests foreign production will account for over 50% of the market share for EV batteries through at least 2025.

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