By Ben Foldy

Ford Motor Co. has struck a deal with South Korean firm SK Innovation Co. to form a joint venture to build electric-car batteries in the U.S., the latest in the auto industry's efforts to fortify supplies of this critical part ahead of the rollout of more plug-in models.

The No. 2 U.S. auto maker by sales said Thursday it had entered into a memorandum of understanding with the battery-making company to establish the joint venture, which will be called BlueOvalSK. The partnership aims to build batteries and related components in the U.S. with the goal of producing approximately 60 gigawatt hours annually by mid-decade, the two companies said.

Ford executives said the target output would likely lead the joint venture to build two new battery plants in North America, but details have yet to be completed and are expected to come later this year. The venture and ownership structure are also still under discussion and will be subject to regulatory approvals, the executives said.

"This is all intended to help Ford build the capabilities and expertise to develop and manufacture batteries at scale," said Hau Thai-Tang, Ford's chief product and operations officer.

Ford shares were up 4.2% in trading Thursday morning.

SK Innovation is one of the world's largest battery producers and Ford already has a supply relationship with the firm to make batteries for some models, including its coming electric F-150 truck.

Ford, like many other major car companies, is investing billions to develop more battery-powered models, a shift being spurred on by tougher tailpipe-emissions regulations globally and more governments setting target dates for phasing out the sale of gasoline-engine vehicles.

Ford CEO Jim Farley said last month that the company intends to get into the battery-making game with plans to develop its own lithium-ion batteries for electric cars. Other legacy auto makers are also taking a similar route, following the lead of electric-car maker Tesla Inc. in making electric-vehicle components in house rather than relying on outside suppliers.

Rival General Motors Co. is already building an electric-car battery plant in Ohio through a joint venture with LG Chem Ltd., set to open next year. Earlier this year, the Detroit-based car maker said it would construct a second $2.3 billion battery factory in Tennessee through the partnership as it gets ready to introduce more plug-in models.

As car companies look to expand their electric-model lineups, the race to secure battery supplies is intensifying, as some analysts raise concerns that the fast-growing demand will quickly outstrip the existing manufacturing capacity.

The Biden administration has made building up domestic manufacturing capacity for electric-car batteries a priority and earlier this year ordered a broader review of the nation's supply chains with the aim of localizing more production.

In joining forces with SK Innovation, Ford executives said they hope to expand their know-how of the battery chemistry and the manufacturing process with the aim of lowering costs for consumers.

The partnership marks a shift in strategy in Ford, which had previously sought to lean more heavily on outside suppliers to source its electric-vehicle batteries, an arrangement that is more traditional in the auto industry for other parts.

Mr. Thai-Tang said that the company within the past year has expanded its commitment to electric vehicles and sees value in vertically integrating this piece of the supply chain.

"We now have sufficient volume to justify this level of investment," he said. "It gives us the ability to secure supply in a commodity that we see potentially could become constrained."

On Wednesday night, Ford rolled out its latest entry into the electric vehicle market -- a battery-powered version of its bestselling F-150 pickup truck. The company has also said it plans to spend $22 billion through 2025 to electrify more of its vehicle lineup.

On Thursday, a leader at the United Auto Workers union pressed Ford in a statement to ensure that any future battery-making jobs will go to unionized workers, regardless of the joint-venture arrangement.

When asked about the potential for creating union jobs, Lisa Drake, Ford's North American chief operating officer, said that discussions aren't at that stage yet and the joint venture's labor strategy will be determined after a final agreement is reached later this summer.

Write to Ben Foldy at Ben.Foldy@wsj.com

(END) Dow Jones Newswires

05-20-21 1121ET