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Increased funding drives US auto industry towards electric vehicles

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Increased funding drives US auto industry towards electric vehicles

The Rise of US Manufacturing in the Electric Vehicle Industry

In a surprising move, Moshiel Biton’s battery technology start-up, Addionics, has chosen the United States as the location for its first manufacturing plant. Many companies in the electric vehicle (EV) industry have traditionally looked to Europe or Asia for production facilities, but Addionics sees immense opportunities in the US market. The main driving force behind this decision is the generous funding provided by the US government to incentivize domestic production of electric cars and batteries. With $370 billion available, it would be a missed opportunity not to tap into these resources, according to Biton. He goes on to say that no other location offers comparable incentives.

This shift towards US manufacturing is a response to the global race to attract top talent and secure investments in the fast-growing EV industry. China has taken the lead in battery technology, causing concern among long-established automotive powerhouses like Germany, Japan, and the US. While Europe’s response has been somewhat uncertain, the US has already taken significant steps to bolster its position in the market.

The Inflation Reduction Act, an ironically named US government initiative, has played a crucial role in driving investments in the battery sector. In the year following the act’s introduction in August 2022, over $90 billion worth of new battery-related projects were announced. This amount exceeded the combined investments made in the previous eight years, highlighting the success of the incentives.

The surge in investments has led to a manufacturing renaissance in North America, with new factories popping up across the country. By April 2023, construction spending on these new manufacturing plants had doubled to reach $190 billion, creating a positive outlook for the industry. This month, Jeep owner Stellantis announced a $3.2 billion investment alongside Korean battery maker Samsung SDI to build a second battery facility in Indiana. The competitive funding from the US government has proven too enticing for companies of all sizes to resist. The availability of subsidized capital expenditure, coupled with other benefits like tax breaks, has become a significant factor in companies’ decisions to establish factories in the US.

To ensure the long-term growth of the industry, it is essential to not only focus on manufacturing plants but also parts suppliers. This has been a lesson learned from the UK, which struggled to attract automotive investors after losing many of its parts suppliers to lower-cost regions. Major US names are adapting to this reality, with around a quarter of Michigan-based Borg Warner’s global plants now being “zebra” factories. These factories produce electric car parts on the same assembly lines as those used for traditional engine vehicles. Such a setup allows for flexible supply adjustment based on demand, easing the transition away from legacy products.

However, the transition to electric vehicles will inevitably lead to a significant impact on jobs. Ford CEO Jim Farley has already acknowledged that electric cars require 40% fewer workers to assemble compared to their gasoline-powered predecessors. These warnings serve as a backdrop for the ongoing bitter strike affecting Detroit car giants Ford, General Motors (GM), and Stellantis. Members of the United Auto Workers (UAW) union have been staging a rolling strike since mid-September, demanding higher wages and more protections in the electric-led future. In response to the strike, GM made a major concession by offering a union deal for their battery plants. This move puts pressure on Ford and Stellantis to follow suit.

While the US is making strides in the electric vehicle industry, it also faces the risk of losing cost competitiveness to other global rivals. Some carmakers have chosen to focus their competition on specific market segments, acknowledging that cost efficiency is paramount. As Ford’s CEO highlighted, having the cost structure of Chinese EV maker BYD is necessary to succeed in the two-row crossover segment. While protectionist measures may initially boost domestic interest, they leave the US vulnerable to countermeasures from China. China already controls a significant portion of the world’s raw material processing capacity, putting the US at a disadvantage in the global supply chain.

Carlos Tavares, CEO of Stellantis, has warned about the impact of protectionist measures on the US’s access to raw materials. Over the past 30 years, advancements in battery technology have become significant, making it challenging for any country to minimize their reliance on international supply chains. Addionics’ Biton, whose company specializes in developing thin coverings for battery cathodes, recognizes this challenge. His innovative product reduces the use of metals in batteries by up to 60%, resulting in lower costs and faster recharging times.

Despite the potential benefits, the implementation of the Inflation Reduction Act remains unclear, mainly due to the stringent criteria for EVs and battery parts. Currently, there are no EVs that meet the act’s requirements. Nevertheless, the transition to electric vehicles remains a deeply political issue. Former President Donald Trump, in his bid for re-election, warned auto workers about the potential consequences of going all-electric, claiming it would lead to unemployment and endless inflation.

In conclusion, the US has emerged as a significant player in the rapidly expanding electric vehicle industry, thanks to its generous funding and incentives. The country’s drive to onshore manufacturing has led to a surge in investments and the establishment of new manufacturing plants across the nation. However, concerns regarding job losses and cost competitiveness remain. To build a sustainable industry for the future, attracting parts suppliers is as crucial as nurturing manufacturing facilities. Ultimately, striking the right balance between protectionism and global collaboration will be vital to the US’s success in this transformative industry.

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