Originally Published: 13 FEB 23 14:09 ET

Updated: 13 FEB 23 14:15 ET

By Peter Valdes-Dapena, CNN Business

(CNN) -- Ford is investing $3.5 billion to build a battery plant in Michigan, a move that will help the automaker take advantage of more federal tax credits for electric vehicles.

The plant will operate as a wholly owned subsidiary of Ford Motor Co. but will build batteries using "knowledge" and services from the Chinese company Contemporary Amperex Technology Co., or CATL, Ford said. CATL, the world's largest battery manufacturer, also supplies batteries to Tesla.

The plant will be located on a 950-acre site in southern Michigan near the town of Marshall. It will employ 2,500 people when it opens for production in 2026, according to Ford.

Congress passed the $430 billion Inflation Reduction Act (IRA) legislation in August to restructure how EV tax credits are allowed. Under the new law, consumers buying an electric vehicle will be eligible for tax credits of varying amounts, depending on whether the vehicle itself, as well its batteries and battery components, were manufactured and the battery minerals extracted in the US.

Ford had considered sites outside the US for this battery plant but settled on the Michigan location in part due to the tax credit rules, Lisa Drake, Ford's vice president of EV industrialization, said in a press conference.

"I think the IRA was incredibly important for us and, frankly, it did what it was intended to do," she said. "And it allowed the United States to capture 2,500 fantastic technical jobs and all the indirect jobs that go with it plus the future growth."

The plant will make lithium iron phosphate batteries, better known as LFP (lithium ferro-phosphate), batteries. This is a type of battery that uses no nickel or cobalt, elements that can be difficult and expensive to extract from the earth.

LFP batteries charge faster and last longer when frequently charged to their full capacity than the NCM, or nickel, cobalt and manganese, batteries currently used in Ford EVs. NCM batteries can store more power for similar weight, though, and they perform better in cold temperatures and when pulling heavier loads.

Later this year, Ford will start offering the less costly LFP batteries on base model versions of the the Mustang Mach-E SUV and, next year, on some versions of the F-150 Lightning electric pickup. Those batteries will initially be imported from CATL in China until the Michigan battery facility becomes operational.

The battery plant will be in addition to plants in Kentucky and Tennessee that Ford announced in 2021. Ford is building those plants with SK Innovations, a company based in South Korea. Ford has said it plans to be able to produce 2 million electric vehicles globally by late 2026.

In the short term, the company expects to have the capacity to build 600,000 electric vehicles by the end of this year.