Shift to Electric Vehicles Triggers Biggest Auto-Factory Building Boom in Decades

Electric Vehicles are stimulating the automotive industry

The U.S. auto industry is entering one of its biggest factory-building booms in years, a surge of spending largely driven by the shift to electric vehicles (EVs) and new federal subsidies aimed at boosting U.S. battery manufacturing. 

Through November 2022, about $33 billion in new auto-factory investment has been pledged in the U.S., including money for the construction of new assembly plants and battery-making facilities, according to the Center for Automotive Research, a nonprofit organization based in Michigan. 

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

About two-thirds of the new auto investment revealed over the past two years is going to sites in the U.S. South, the data shows, tilting activity farther away from the Great Lakes region, the auto industry’s stronghold for a century. The Southeast has now emerged as the driving force for automotive manufacturing in the U.S.  Southern states are the top producers of passenger vehicles and are well positioned to produce EVs, batteries and other components.

Ford is the second-largest EV builder in the U.S. (after Tesla), and is focusing on a strategy of building its own batteries as the automaker transitions to EVs. Ford is also building three battery plants in the south; two in Kentucky and one in Tennessee. The plant near Memphis, Tennessee will be the largest in the automaker’s history, according to Ford.

Rivian Automotive will be building its second U.S. plant near Atlanta, and investing $5 billion to begin production in 2024. When completed the facility will have an annual capacity of 400,000 vehicles.  Georgia will also be welcoming Hyundai Motor Group’s first EV plant near Savannah.  Investing $5.54 billion, Hyundai plans to start production in 2025, initially producing 300,000 vehicles, with the potential of reaching 500,000 annually.

Electric Vehicles – they’ve been around longer than you might think

The first electric vehicle was produced in 1832, but they didn’t become practical until the 1870s.  Even in the early 1900’s Chicago was planning charging stations for electric cars. EVs at the turn of the 20th century had 38% of the market, with Steam at 40% and Internal Combustion Engine (ICE) at 22%. But charging stations weren’t widely available, and with the discovery of petroleum, the market was disrupted and people turned to ICE vehicles. Compare that to 2021 when only 5% of vehicles sold are hybrid and 3% are electric.

Now the tide is changing back to EVs with the EU setting the goal of 2035 to be ICE free, the U.K. working toward 2030, and Paris targeting 2024 to be diesel and emission free.

In the U.S. the inflation Reduction Act provides credit incentives to OEMs to increase U.S. investment and reboot the battery and vehicle supply chain. To qualify for the US Clean Tax Credit these are a summary of the requirements to be met (30D and 45W):

  • Vehicle must be built in North America
  • 40% of the raw materials from US and Free Trade partners by 2023
  • By 2027, 80% of the raw materials from US and trading partners
  • 100% of battery components need to be from US by 2029

Possible impacts to the automotive industry and supply chain

Consider that in 2019 there were only 7 battery electric vehicles (BEVs) in North America (which included Chevy, Nissan and Tesla) and by 2029 it is anticipated to increase to 118 unique, battery-electric nameplates.  Forty-one brands will be producing a total of 5.5 million or more units.  Not all EV manufacturers will survive the competition for buyers.

To be successful in this undertaking, there are 4 main issues that revolve around EVs that will need to be solved – limited range, charging infrastructure, resource limitations, and cost barriers. (In 2022 the average cost of an electric vehicle was about $66,500)

According to Joseph McCabe – President & CEO of Autoforecast Solutions (AFS), OEMs are targeting an average range of 300 miles (480 KM). The forecast is for global EV battery demand to exceed 1,600 GWH by 2029. That’s four times what is needed today. So 30-50 more gigafactories will need to be completed in the next 5 years to meet these production numbers.

Global production of lithium in 2021 was about 100K metric tons (MT) across all industries. AFS, which has a more conservative outlook than the OEMs, estimates that global production of lithium will need to be 260K mt to meet demand. (But, recycling of EV batteries and their materials is possible, and will decrease the reliance on mining.  According to Roger Lin of Ascend Elements, nickel, cobalt and lithium are infinitely recyclable. They have developed the technology to recover 80% of the lithium and 98% of the remaining total mass from electric batteries.)

By 2029 about 26% of vehicles produced globally are projected to be BEVs – that’s 152 million vehicles! In North America it’s projected that 32% of vehicles will be BEVs for a total of 28 million. In Europe the percentage is higher at 38% with 41 million vehicles. (Projections shared by Joseph McCabe of Autoforecast Solutions at the 2022 Southern Automotive Conference)

The capital outlays amount to a bet by the car industry that buyers will embrace battery-powered models in numbers large enough to support these investments. The global auto industry plans to spend a collective $526 billion on electric vehicles through 2026, according to consulting firm AlixPartners.

“You have to invest now, or you’re going to be left behind in the transition,” said John Lawler, chief financial officer for Ford.

General Motors is also a good example, as it is targeting 2035 to end production of ICE vehicles and has pledged to spend nearly $750 million into EV charging infrastructure.

The automotive supply chain faces the inevitability of significant change in the next few years.  This will present many risks, as well as opportunities, as the manufacturing base is restructured.  In the business model of internal combustion engine suppliers, some may refocus their business on the aftermarket and non-automotive customers (such as agriculture, mining, construction, and military). Overall, the global supply chain will need to anticipate this massive disruption; be agile to adjust to change, and rely on data driven decisions.

“The changes we are seeing are unpredictable and unprecedented. And it’s unstoppable.”                                                              Milton Punsammy, OEM Business Excellence Manager, Q2 Management Inc.

Many electric vehicle suppliers (that have never supplied the automakers or their higher tier supply base) will be entering the automotive market for the first time. While they have an advantage in that they are accepting of new technologies and are developing new solutions, this entry could present challenges, including implementing and maintaining a compliant and robust IATF 16949® quality management system. Read more in our blog – Will Automakers Require IATF 16949® Certification for Electric Vehicle Suppliers?

With the current and planned capital outlays by the automotive industry, the manufacturing transformation and electric vehicle revolution seems to be moving full speed ahead.

How do you cross the finish line to become IATF® Certified?

If you’re searching for a consultant, our team at simpleQuE is well positioned to support your IATF 16949®  certification, maintenance, and internal auditing needs. SimpleQuE also offers a full line-up of IATF 16949® training courses which includes AIAG Core Tools, Root Cause Analysis and Problem Solving, Requirements and Implementation.  Contact us to learn more about the customized services offered to match your certification and training needs.

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