‘Nasty battle’: States fight states for EV, battery plants

By Hannah Northey, Mike Lee | 05/03/2023 01:34 PM EDT

Luring electric vehicle and battery companies with hefty subsidies and tax incentives is the new frontier in states’ always-heated economic development competitions. State leaders see it as a way to stay vital as the industry takes hold, but others caution the big spending isn’t always necessary.

Michigan Gov. Gretchen Whitmer.

Gov. Gretchen Whitmer (D) speaks during a news conference in Lansing, Mich., on Jan. 25, 2022, as General Motors announced a plan to convert a factory to make electric pickup trucks and to build a new battery cell plant. Paul Sancya/AP Photo

Michigan Gov. Gretchen Whitmer didn’t waste any time pitching her state as a destination when General Motors and South Korea’s Samsung SDI announced plans last week to build a new electric vehicle battery cell factory.

The Democrat said she immediately reached out to GM CEO Mary Barra to telegraph that Michigan should be a top contender for hosting the $3 billion plant. GM, which is headquartered in Detroit, has yet to say where it plans to build the facility.

“We take nothing for granted,” Whitmer told reporters while touring an EV charging station in Auburn Hills on April 26. “We know it will be competitive, and we are going to put our best foot forward and move fast.”


Michigan’s jockeying to maintain its status as the nation’s automaking hub is part of a broader and intense competition among states that holds enormous financial and political consequences for the winners.

The lucrative federal incentives in last year’s Inflation Reduction Act are playing a key role in luring automakers and others to open EV-related businesses in this country. Separately, states and municipalities are on a “megadeal spending spree,” offering up around $14 billion in subsidies to attract EV and battery plants, according to a study by Good Jobs First, a nonprofit watchdog critical of government economic development subsidies.

Electric vehicles are the new frontier in what has always been a fraught process — states competing to devise ever enticing tax and subsidy packages to attract hot companies. State leaders are looking at EVs and related industries as key to future economic development, particularly as the auto industry moves away from gas-powered cars. They want the jobs and tax revenue. These initial projects might also be the seeds for future industry investment, as other companies sprout up near those at the vanguard.

But economic development subsidies can be a drain on state and local government coffers, leaving some critics to question whether they are worth the public investments.

Six states — Georgia, Kansas, Michigan, Nevada, North Carolina and Tennessee — have already pledged more than $1 billion each to EV or EV battery facilities, according to Good Jobs First, including Georgia awarding the two largest auto subsidy packages in U.S. history, worth a combined $3.3 billion, to Rivian and Hyundai.

“It’s unprecedented when it comes to the amount of subsidies offered for these projects by state and local governments,” said Kasia Tarczynska, a senior research analyst with Good Jobs First.

Michigan, for example, has offered up more than $1 billion to support Ford’s plans to build a $3.5 billion EV battery plant near Marshall, Mich., using Chinese technology. The deal — and Michigan’s competitive support — arrived on the heels of Ford announcing it was also building EV and battery plants in Tennessee and Kentucky.

And Ford isn’t alone. Michigan has given almost $1 billion in incentives to GM for four projects, including EV manufacturing plants.

Other states are jumping in. In October, South Carolina Gov. Henry McMaster (R) signed an executive order setting up a “one-stop shop” for companies that want to build plants in the state. Pennsylvania Gov. Josh Shapiro (D) said in April he wants to “get in the game” after neighboring Ohio attracted projects.

At the same time they’re fighting over factories, state governments are also making overtures toward working together.

“While they’re competing with other states — and sometimes other nations — to bring jobs to their states, governors are also coordinating on national priorities like permitting reform, interstate charging networks, project delivery best practices and other policies that lay the groundwork for infrastructure investments to succeed,” Tom Curtin, infrastructure program director at the National Governors Association, said in an email.

Still, states and cities have always competed aggressively for new business, and the race for the vehicle and battery plants is unusually intense, said Nate Jensen, a professor at the University of Texas who studies economic development policy.

“It’s a pretty nasty battle between states,” said Jensen.

‘We’ve got to compete’

Some states are already emerging as leaders as a dizzying number of EV-related businesses, projects and plants proliferate.

And they straddle the political spectrum.

So far, companies’ biggest investments were made in Georgia, Kentucky, Tennessee, Nevada, California and Michigan, according to a report from the think tank Atlas Public Policy, which tallied announced domestic EV projects. The research, released last fall, was supported by the Alliance for Automotive Innovation.

Those announcements largely align with federal research projecting Georgia, Kentucky and Michigan will likely dominate EV battery manufacturing in the U.S. by 2030. A report from the Department of Energy’s Argonne National Laboratory predicted that the trio of states would take the lead, while Kansas, North Carolina, Ohio and Tennessee would be key players.

In addition to battery plants and vehicle factories, there’s a growing demand for equipment to charge electric vehicles, according to the Boyd Co., a site selection consultant. While the electric vehicle industry was born on the West Coast and in the Midwest, states in the Southeast like Tennessee and South Carolina have a built-in advantage, with lower labor and utility costs, according to Boyd research.

A lot of Southeastern states have “right-to-work” laws that make it harder for labor unions to maintain a foothold, which also makes those states attractive, said John Boyd, the company’s owner.

“Right to work has always been a recruiting tool for companies,” Boyd said in an interview.

The states are also competing against Mexico, where Tesla announced a new factory earlier this year, and Canada, where the nationalized health care system results in lower labor costs, Boyd said.

Michigan’s experience shows the road to landing new business can be bumpy — and expensive.

Michigan, according to Whitmer’s office, has seen more than half a dozen new EV investments since the beginning of last year, including multibillion-dollar projects from companies including GM; South Korea-based LG Energy Solution; Ford; Michigan-based energy storage company Our Next Energy; and Gotion, a Chinese manufacturer building a factory in the state to produce EV battery components.

Whitmer last year was asked during an interview with CNBC about Ford and battery maker SK Innovation’s decision in 2021 to spend billions to construct an EV production facility and battery plant in Tennessee and Kentucky — and not Michigan.

The governor said no state expects to land all investments from any particular company, but she quickly noted that Ford has since announced projects in Michigan. Whitmer also acknowledged the state offered generous incentives and that she was able to come together with a Republican Legislature to make it happen.

“The historic knock on Michigan was that we didn’t have the same tools that other states had to compete,” she said. “Unfortunately, we were viewed as moving too slow and our political environment was viewed as dysfunctional.”

Ford announced it was building its battery plant in Michigan after Virginia Gov. Glenn Youngkin, a Republican, questioned the company’s plans to use technology from a Chinese company, Contemporary Amperex Technology Co.

Whitmer during the interview with CNBC said the state isn’t taking for granted that it may not always be the nation’s auto capital.

“We cannot assume that’ll always be the case,” she said. “We’ve got to compete.”

Risks and rewards

The competition comes with obvious rewards — the companies wind up with smaller tax bills, and the winning states can bring in thousands of new jobs in a growing industry.

But there can be downsides for the states, for local communities and even for the workers. For starters, many of the companies are startups and may not wind up staying in business. This could already be playing out in Oklahoma. Republican Gov. Kevin Stitt committed up to $300 million last year in tax breaks and other incentives, including $15 million in direct funding, to attract the EV maker Canoo.

Then Canoo announced in March that it lost $487 million in 2022, and it paid a $1.5 million fine to the Securities and Exchange Commission to settle an investigation into its business practices. Stitt’s administration hasn’t paid any funds to the company and it canceled part of its agreement with Canoo, The Frontier reported in April. Canoo didn’t respond to a request for comment.

Tax breaks are the most popular deal sweetener, but they can backfire.

Tarczynska with Good Jobs First said money that’s given away means governments have less to spend on public services like schools, food assistance, health care and affordable housing. That can also fuel inequalities, she said.

Companies, said Tarczynska, often decide first where they want to invest and build based on business reasons — proximity to customers, infrastructure and labor forces — and afterward approach state and local governments for subsidies or threaten to go elsewhere.

She pointed to research that found at least 75 percent of companies receiving subsidies would have decided to locate, expand or retain staff in the same location even without the incentives. Local and state officials, she said, “have to pay this game where they’re competing against someone else.”

Those concerns, along with a sense that big companies are getting tax cuts at the expense of local businesses, have led to protests in Georgia and other states. Last year, a judge blocked part of the incentive deal that state and local governments in Georgia worked out to attract Rivian’s $5 billion electric truck plant.

To be sure, not all the incentives are cash, and they’re not all paid at once. Michigan used a combination of tools to support the Ford battery plant in Marshall, including $772 million in tax breaks, a $210 million grant and $630 million in state funds for site preparation. The state also contributed $120 million to a local economic development corporation to pay for site preparation and wastewater upgrades, according to local media reports.

Most economic development deals require companies to repay any incentives if they don’t meet employment and other goals, but there are still risks for the states that win, said Jensen, the University of Texas professor.

If local governments cut their property taxes to attract new plants, Jensen said they create a perverse incentive for companies to invest in robots and other forms of automation. Some states levy a property tax on industrial equipment, so cutting those taxes lowers the cost of buying and owning automated systems.

“If these companies are making a decision on robots versus employment — you just lowered the cost of robots,” he said.

The Associated Press contributed.