U.S. States Race to Attract EV Investment
- October 17, 2022
- Posted by: Quatro Strategies
- Category: Manufacturing
U.S. states have been battling with each other to attract electric vehicle (EV) investments, especially after Biden pumped hundreds of billions in federal aid into states as part of his “American Rescue Plan”. The money was meant to soften the blow of a pandemic-induced fiscal apocalypse that never happened. Instead, it’s left states flush with cash, supercharging competition to win the automotive jobs of the future and cushioning the bottom lines of companies like Ford, GM, and Panasonic, a battery supplier to Tesla.
Ford selected Tennessee and Kentucky as two sites for its $11 billion EV project. To win its favor, both states gave huge incentives to the automotive giant. After that, Michigan also signed a huge deal with General Motors (GM) for a $6.6 billion electric-truck factory and battery plant, thanks to a $1 billion fund for corporate subsidies.
There has been some failed ventures as well, like Foxconn’s heavily subsidized television factory in Wisconsin that never materialized.
Although states say they put in place protections to keep taxpayer money from getting wasted, the stakes are getting bigger. The subsidy cost per permanent job has risen by eight times the average seen less than a decade ago.
Ford’s Tennessee hub will cost about $414,000 for each direct job, Michigan is contributing $450,000 per GM job, while Georgia committed to forgo revenue that amounts to $212,000 per job to win projects from Rivian Automotive and Hyundai Motor in the past two years. The average per-job cost of economic incentives in the US was about $52,000 in 2015.
While it is not unprecedented for states to compete with each other for private investment, the scale of it now, for EV plants, semiconductor factories and other projects, are unprecedented.
But incentives don’t correlate strongly with the states’ current or past unemployment rates or economic growth.
Many analysts, officials and politicians think these incentives would be better off spent to hospitals or schools. The incentives create a race-to-the-bottom where local governments furiously try to one-up each other on handouts that deliver unproven payoffs. There’s also a question as to whether EV and battery plants will employ as many people or pay as well as combustion-engine cars.
The Congress had set aside $350 billion for states and municipalities in May 2021, which also coincided with a historic transformation in the automotive industry, as automakers phase out combustion engine vehicles in favor of electric ones. While there are strict limits on how local governments can use the Covid relief money, the aid helped free up cash for corporate incentives.
Since the start of 2021, carmakers and battery manufacturers have announced a total of at least $50 billion of investment in 10 states to build EV assembly and battery plants. The states have made commitments of at least $10.8 billion to attract those investments.
As an example, Blue Oval City, the EV hub that Ford and battery partner SK Innovation chose to locate in Tennessee, will house an assembly plant making Ford’s new electric F-150 pickup and a battery plant that together promise to create 5,800 jobs. Construction will generate 33,000 temporary jobs; once completed, the twin plants and their suppliers will support 27,000 direct or indirect positions, and add $3.5 billion annually to Tennessee’s economy, state officials have said.
When the project was announced, state officials disclosed a $500 million cash grant to be approved by the legislature; local press later reported that the real cost was at $884 million. Other reports say the value of the package could be at least $2.4 billion, including tax breaks, donated land, infrastructure improvements and short-term wage subsidies from the federal government.
Even some states that have tried to move away from incentives have had to cave to the pressure to compete for jobs.
Georgia, which has emerged as a big winner in the current investment surge, landed two $5 billion EV deals from Rivian and Hyundai that promise to create more than 15,000 jobs. The state offered incentives worth $3.3 billion to win the projects.
Subscribe to Top Insights Today
The Executive Newsletter -Top Insights Today- puts global business events in perspective through special insights
Join the ranks of global executives and subscribe to Top Insights Today
Top Insights Today covers insights on energy, clean-tech, oil&gas, mining, rare earths, defense, aviation, infrastructure, manufacturing, electrical vehicles, big-tech, finance and politics of business