Surge in Electric Vehicle Production Sparks Largest Auto Factory Expansion in Years

The U.S. auto industry is experiencing a boom in factory construction, driven by the shift to electric vehicles and new federal subsidies for battery manufacturing. This surge in spending is expected to have a major impact on the U.S. economy.

As of November, approximately $33 billion in new auto-factory investment has been pledged in the United States. This includes money for the construction of new assembly plants and battery-making facilities, according to the Center for Automotive Research.

The 11-month total for new auto-factory spending is $37 billion. This is up from $9 billion in 2017 and a more than eightfold increase from two decades ago. The center found that a number of new projects were revealed in states such as Tennessee, Kentucky and Michigan in 2021.

According to data, about two-thirds of new auto investment over the past two years has gone to sites in the U.S. South, further shifting activity away from the Great Lakes region, which has been the auto industry's stronghold for many years.

Auto manufacturers are racing to produce more electric vehicles, which is driving a major increase in factory spending. The federal climate package passed in 2022 is expected to accelerate this trend even further, with tens of billions of dollars in subsidies for EV and battery factories, as well as facilities for processing battery materials like lithium and graphite.

As some global markets weaken, foreign-owned car companies are targeting the U.S. for expansion. Meanwhile, newly capitalized EV startups, including Rivian Automotive Inc., are building out their manufacturing capabilities.

Rivian, which began building vehicles in Illinois in 2021, has committed to a second factory in Georgia to open in 2026. Hyundai Motor Co. has also revealed plans for a $5.5 billion factory complex in the state. This is a significant investment in the state's economy and underscores the commitment of both companies to manufacturing in the United States.

The car industry is betting that buyers will embrace battery-powered models in large enough numbers to justify their investment of $526 billion in electric vehicles over the next seven years. This is according to consulting firm AlixPartners.

John Lawler, chief financial officer for Ford Motor Co., said that if you don't invest now, you'll be left behind in the transition.

The wager is made riskier by signs of a possible economic downturn that could weigh on consumers’ willingness to splurge. Still, company leaders say they are confident the manufacturing investments will fuel their futures long beyond a potential recession. State officials see it as a once-in-a-generation chance to bolster local economies and secure jobs.

Southern states such as Georgia, Tennessee and Kentucky have been some of the biggest winners in the battle to land new auto-factory projects.

Pat Wilson, commissioner for Georgia’s economic development department, said that the state's success in attracting car companies is not a coincidence. Georgia has spent years investing in technical colleges and prepping project sites to make them attractive to businesses.

"I feel like we are right now riding that wave," Mr. Wilson said. He added that he is optimistic about the future and that he believes the company is in a good position.

State leaders in the South have touted the benefits of lower energy costs and plentiful developable land, according to analysts and site selectors. Car companies are also looking for shovel-ready sites, where certain infrastructure, such as roads and utilities, is already in place. This prep work can help speed up factory construction.

Energy costs are a significant factor to consider when choosing a battery-plant site. For instance, Tennessee had an average electricity industrial price of 6.89 cents per kilowatt-hour in October 2022, compared with 8.38 cents in Michigan, according to data from the U.S. Energy Information Administration.

According to Eric Stavriotis, head of location incentives for CBRE Group, some markets in the Southeast have figured out how to attract big projects. He believes that they have found a winning formula that other markets could learn from.

Within the past year, there has been a rush to move more of the battery-making supply chain to the U.S. This has led to many new factory projects, many of which are expected to open in the next few years.

The majority of EV batteries on the market today are made in Asia. However, the cost of transport and the risks associated with relying on overseas suppliers have prompted more car companies to localized battery manufacturing.

The Inflation Reduction Act has accelerated efforts to increase domestic output. It provides billions of dollars in manufacturer incentives for domestic battery production and limits the federal tax credit for EV buyers to vehicles with batteries and their mineral components sourced in North America or from trade-friendly countries.

In the past year, General Motors Co. has opened a new battery factory with LG Energy Solution in Ohio, and is developing two more in Tennessee and Michigan.

Panasonic Holdings Corp. announced over the summer that it would build a $4 billion battery factory in De Soto, Kansas. Ford, Toyota Motor Corp., and Jeep-owner Stellantis N.V. also have multibillion-dollar battery-factory projects underway.

The investments are in contrast to other belt-tightening moves made by some car companies in recent months as auto executives prepare for a possible downturn. Stellantis said last month that in February it is indefinitely idling a 1,350-employee assembly factory in Illinois that makes the Jeep Cherokee.

Despite concerns about the economy, Ford's Mr. Lawler said that auto companies can't afford to be shortsighted when it comes to investing in electric vehicles (EVs). Ford has multiple factory projects underway, including in Tennessee and Kentucky, and plans to invest $50 billion in EVs through 2026.

He noted that if investments are not made, the future cannot be put on pause. "The greater risk we see is that if you hold back, if you don’t make the investments," he said.