Funding spurs US auto industry to make electric shift

For its first manufacturing plant, Moshiel Biton’s battery technology start-up, Addionics, has turned not to Europe or Asia, but the US.

The decision allows his Israel-based company to benefit from the $370bn of funding offered by the US to claw back domestic production of electric cars and, crucially, batteries.

“With the incentives that the US government is providing, it’s a crime not to try to do it in the US,” he says. “We haven’t found any other location that provides similar incentives.”

The world’s tilt towards electric vehicles has set off a global technology race to attract the best talent and secure investments. China has taken the lead in batteries, to the alarm of the engine-era strongholds of Germany, Japan and the US.

Europe has been more uncertain in its response, but the US, through its incongruously titled Inflation Reduction Act, has already spurred significant investments. More than $90bn of new battery-related projects were announced in the year following the act’s introduction in August 2022 — more than the previous eight years combined, according to announcement data collated by the Environmental Defense Fund.

We haven’t found any other location that provides similar incentives

It represents “a renaissance in the manufacturing landscape in North America as new factories sprout across the country and the initial success of the onshoring objectives of US industrial policies”, says Kendra Blacksher, an analyst at advisory group RSM. “Construction spending on new manufacturing plants has surged, doubling over the past year to reach $190bn by April 2023.”

This month, another company announced plans: Jeep owner Stellantis will invest $3.2bn alongside Korean battery maker Samsung SDI to build a second battery facility in Indiana. 

“Samsung SDI, the state of Indiana, and the city of Kokomo have created a compelling case for locating our sixth gigafactory in Kokomo,” says Mark Stewart, head of Stellantis operations in North America.

For companies large and small, the funds available prove too enticing to resist. “When we decide where to run a factory, and know we get 50 per cent sponsorship for the [capital expenditure], it’s a big factor in the decision,” explains Addionics’ Biton. 

“It’s not only money towards building the factory, or taxes, or employees, but it’s about creating an ecosystem that will all get this benefit and attract companies simultaneously.”

Yet to build a healthy industry for decades to come, parts-makers as well as plants are needed. This is a lesson learnt from the UK which, for years, struggled to attract auto investors after losing many of its parts suppliers to lower-cost regions.

Some of the largest US names are adapting. Around a quarter of Michigan-based Borg Warner’s global plants are “zebra” factories, which make electric car parts on the same line as those destined for engine vehicles. The set-up allows the company to flex supply based on demand, easing the long process of winding down its legacy products. 

However, there will still be a significant jobs impact. 

Ford chief executive Jim Farley has already said that electric cars require 40 per cent fewer workers to put together than their petrol forebears. His warnings are part of the backdrop for the bitter strike that has hit the Detroit car giants Ford, GM and Chrysler-owner Stellantis. 

Workers from the UAW union have staged a rolling strike since mid-
September as they argue for higher wages and more protections in the
electric-led future. In the third week of the strike, GM offered a major concession: it would place battery plants under a union deal. The move piles pressure on Ford and Stellantis to follow suit. 

But the US faces a larger risk: losing cost competitiveness with other rivals.

This has led some carmakers to pare back the segments where they compete. “If your strategy is two-row crossovers [small SUVs], you better have the cost structure of [Chinese EV maker] BYD,” Farley told a recent investor event.

And, while adopting a protectionist worldview may help the US to garner short-term interest, it leaves the country open to countermeasures from China, which has already locked up much of the world’s raw material processing capacity. 

Carlos Tavares, chief executive of Stellantis, has warned that US protectionist measures may see it cut off from areas of the world where raw materials are produced.

“It’s hard to minimise the impact of 30 years of [battery] advancement,” says Biton, whose business develops and manufacturers extremely thin coverings for battery cathodes. He claims the coverings can reduce metal use within batteries by as much as 60 per cent, cutting their prices and allowing faster recharging time. 

It also remains unclear how the IRA will be implemented. Currently, the number of EVs that meet its strict criteria, including localisation requirements on battery parts, is zero. 

Even so, the EV shift remains deeply political. Last month, Donald Trump told auto workers they should vote for him as he seeks re-election as president next year, warning: “They want to go all electric and put you all out of business.”

“It’s a transition to hell,” he added. “It’s a transition to unemployment and to inflation without end.”