The billion-dollar part

Industry

This year’s contract negotiations between General Motors and the UAW contained a little-discussed bargaining chip from the automaker — the possibility that GM would build a new lithium ion battery factory near its idled Lordstown, Ohio, assembly plant to fuel its planned new generation of electric vehicles.

At a time when the auto industry is undergoing strategic turmoil and technological disruption, battery manufacturing plants have become a bright new promise.

The reason is simple: The entire global industry is hatching plans to introduce battery-powered cars and trucks, and at the moment, there is not enough battery production capacity to support them

That has automakers and suppliers planning factory investments — which in turn has states and cities scrambling to offer up plant sites.

Battery plants are not cheap.

A battery module is essentially just another auto part, like a seat or a transmission or a windshield. But the components are large, heavy, delicate, highly engineered and require a large work force, a big plant footprint and a considerable investment.

“We are very interested in attracting the next generation of the automotive ecosystem with electric-vehicle or electric-vehicle component manufacturers,” Bob Rolfe, the commissioner of the Tennessee Department of Economic and Community Development, told Automotive News.

Investments have been intensifying in Rolfe’s region.

Battery producer SK Innovation last year invested $1.67 billion in its first U.S. plant in northern Georgia. It later said it is considering expanding battery-production operations there by another $5 billion.

Also in 2018, Mercedes-Benz began construction on a battery production site near Tuscaloosa, Ala., as the main part of a $1 billion investment there.

Most recently, BMW Group said in July it will invest $10 million to double battery assembly capacity at its Spartanburg, S.C., plant to supply electrified versions of its BMW X5 and BMW X3 crossovers.

Rolfe’s own state, Tennessee, currently holds Nissan North America’s “old” battery plant, constructed in 2012 for $1 billion in Smyrna. This year, Nissan sold its battery operations to Chinese energy supplier Envision. The state, along with Kentucky, is one of the top contenders for another battery plant LG Chem is said to be considering, for an investment of $1.7 billion.

Automakers across the industry, from Tesla in California to Volkswagen in Tennessee, will be making battery sourcing decisions in the next few years.

With U.S. battery demand forecast to outstrip supply in the coming years, U.S. states can expect to see more battery production and assembly investments cropping up across the country, says Xavier Mosquet, a senior partner and managing director in the Detroit office of Boston Consulting Group.

Mosquet says U.S. demand for batteries will reach a measurement of about 65 to 70 gigawatt hours in 2025, based on announced vehicle programs. But only 45 gigawatt hours of battery manufacturing capacity is currently planned for that same time frame, the consultant estimated.

“There is a need for more capacity,” Mosquet said. “Today, we’re reasonably balanced between supply and demand, but in the next seven years, we may have a shortage if we don’t increase the capacity.”

Expectations that battery cells will become less expensive to produce are fueling automaker interest in EVs in general, and in battery plants specifically. A battery cell currently costs about $150 per kilowatt hour, but cell costs could fall by half by 2030. That will lead to price equity between EVs and gasoline-engine vehicles, Mosquet said, further amping up the need for more battery plants.

Rolfe believes that quality of labor will be the leading factor in where battery producers choose to locate. Labor force is the “it” conversation his team has been having with prospective battery producers.

“What trumps the conversation is being able to demonstrate to companies that we can find the work force quantity and quality that is expected by these types of companies,” he said.

The projects require plant sites of 200 to 500 acres. But Mosquet says battery manufacturers are also looking for sites that can deliver clean energy.

“Battery manufacturers are concerned that the CO2 required to produce the batteries themselves will be part of how they’re measured” for efficiency ratings, Mosquet said. “They’ll go to places that have cleaner energy, as opposed to places that have high CO2-intensive types of electricity — so states that have cleaner energy will probably attract more jobs than others.”

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