The Single Biggest Industrial Transformation Ever
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The automotive industry is going through a major transformation as it transitions into electric vehicle production, pouring billions into new electric vehicle and battery factories across the South and Midwest.
Massive site selection EV-related projects across the U.S. are currently estimated to create $60 billion in capital investment and 70,000 jobs, with more to come.
"These projects are an economic developer’s dream and will transform the communities in which they locate," writes King White, the CEO of the Site Selection Group, based in Dallas.
Not restricted to only EV-related production, automakers have announced $45.9 billion of investments in southern states since 2017, while Midwest states such as Michigan, Ohio and Indiana saw $39.9 billion in announced investments in that same timeframe, according to The Center for Automotive Research, a nonprofit think tank based in Ann Arbor, Michigan.
Most of the money heading south – $34.2 billion, or 74% – has come in since last year from traditional automakers such as GM, Hyundai, and Ford Motor as well as EV startup Rivian.
Others such as Volkswagen and Nissan also continue to invest and expand their operations in the South, largely for new electric vehicles.
“We are basically undergoing the single biggest industrial transformation, I would say, not to understate it, in the history of America,” Scott Keogh, CEO at Volkswagen of America, told CNBC in June at the automaker’s new battery lab in Chattanooga, Tennessee. “It’s happening right now in this area.”
The Shift South
Southern states became a focus for Ford Motor in the 1950s and 1960s in Kentucky, followed by foreign-based, or transplant, automakers starting with Nissan Motor, which established a plant in Smyrna, Tennessee, in 1983.
Subaru, Mercedes-Benz, Toyota Motor, and BMW followed suit through the 1990s. More have followed since then, including recent announcements by Hyundai Motor and Rivian Automotive to build multibillion-dollar plants in Georgia.
As more companies look to the South, the investments are changing the landscape of towns across the region and of the automotive industry’s workforce, supply chain, and logistics.
Auto executives say they’re investing in the South for a combination of reasons: lower energy costs, lower taxes, lower wages, and an available workforce.
Many southern states are also more aggressive in granting millions in financial incentives, principally tax breaks and a largely non-unionized workforce in Republican-controlled, right-to-work states.
A New Law Shifts Incentives to Manufacturers
And now automakers and battery suppliers will be eligible for billions of dollars in federal loans and tax credits to offset those costs and spur additional investments with President Biden signing the Inflation Reduction Act into law.
Proponents say the new law bolsters incentives that can only help the EV supply chain, providing a win-win for companies and customers: It will reduce production costs and pass savings to consumers. Critics say the law is too restrictive.
Ford could get a $3 billion tax break for the twin factories it's building in Kentucky, which will be able to produce 86 gigawatt hours' worth of batteries annually. (The IRS still has to figure out how exactly the credits will work.)
There's also a tax credit for U.S.-produced battery modules — groups of cells bundled together that fit inside a battery pack. At $10/kWh, the credit would whack about one-third off the cost of assembling an EV battery pack, according to Bloomberg NEF.
Critical materials and minerals produced in the U.S. also get a 10% tax credit under the new law. That will help companies like Redwood Materials, which is investing $3.5 billion in Nevada for cathode and anode processing — essential work in the battery production process that's currently done mostly overseas.
There's also $2 billion in grants to retool existing auto plants to make clean vehicles and up to $20 billion more in loans to build new factories.
And yet automakers aren't happy about the law, largely because its strict supply chain requirements mean far fewer electric vehicles will qualify for big consumer tax credits right off the bat.
Over time, reshoring battery production should drive down the cost of EVs — and lessen U.S. dependence on China. By incentivizing a domestic EV component supply chain, the law will help reduce automakers' costs — and they'll pass those savings along to consumers in the form of cheaper electric cars.
In short, the U.S. has shifted the incentives for EV adoption from consumers to manufacturers — instead of making electrics cheaper for car buyers, the new law rewards carmakers for building EVs with U.S.-made batteries.
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