When Panasonic raised the first steel beam at its $4 billion electric vehicle battery plant project in Kansas last year, the company may not have realized how prescient the celebratory message was.
“This first steel beam is more than just a piece of material,” Allan Swan, president of Panasonic Energy North America, said at the time.
He’s right: The metal has become a symbol of the high costs that Panasonic and other Asian manufacturers building factories in the United States face. People involved in the project said that steel prices have increased by more than 70% since 2020, which is one reason why Panasonic has spent most of the plant’s initial budget.
The United States is trying to attract more of East Asia’s industrial giants, despite the challenges they face.
Taiwanese chipmaker TSMC has delayed the opening of two chip factories in Arizona, South Korea’s LG Energy Solution has canceled plans to build a battery factory in Indiana, and Samsung Electronics reportedly Semiconductor factories being built in Texas are adding billions to the cost.
The Biden administration, through the Inflation Reduction Act, Chips and Science Act and other programs, is trying to entice Asian companies to bring manufacturing technology to the United States rather than export electronics from their home countries.
The Biden administration has succeeded in triggering a construction boom. But a year and a half after Biden signed the Inflation Cutting Act, difficulties are emerging that are causing some companies to delay existing projects and put new ones on hold.
“A year ago it was, ‘Let’s go to market.’ Now people are taking a step back,” said Vince DiPofi, CEO of SSOE, an Ohio-based architecture and engineering firm that designs buildings for overseas and domestic clients. American built facility.
Supply chains for components needed for battery and semiconductor factories have traditionally been concentrated in East Asia. To meet the subsidy requirements in U.S. law mentioned above, Japanese, Korean and Taiwanese companies have had to find U.S. suppliers for a significant portion of these materials and components.
Industry insiders say a sudden influx of demand in recent months has sometimes resulted in customers having to wait more than 100 weeks to receive components such as switchgear and transformers used to assist in regulating and transmitting power in factories.
Rising costs add to the challenge. As of late last year, prices associated with new industrial construction were about a third higher than they were three years ago, according to the Bureau of Labor Statistics.
It’s not just Asian companies that are affected. Intel will delay a $20 billion chip manufacturing project in Ohio due to market challenges and a slow rollout of U.S. government funding, The Wall Street Journal reported.
Kenneth Simonson, chief economist of the Associated General Contractors of America, a U.S. construction industry organization, said that this attempt to develop new industries in the United States has disrupted the supply chain in ways we did not expect.
The Building Contractors Association of America noted that costs are soaring for many goods and services needed by factories, such as lumber, plywood and trucking.
Last year, LG New Energy abandoned plans with General Motors to build a fourth electric vehicle battery plant in Indiana after cost overruns at three other battery plants it was building in the United States. According to Reuters, rising construction and material costs have led to increased spending at Samsung Electronics’ chip factory under construction in Tyler, Texas. Samsung Electronics declined to comment.
Panasonic is burning through cash in Kansas faster than expected, making it difficult for the company to quickly move forward with plans to build another similar factory in North America, people at Panasonic said.
Panasonic had hoped to build its third U.S. electric vehicle battery plant in Oklahoma, but the company said late last year that Oklahoma was no longer a candidate for the plant. In February, Panasonic Chief Financial Officer Hirokazu Umeda said the company was focusing on controlling costs and improving the efficiency of existing factories.
Umeda Hirokazu said Panasonic would not announce the construction of another electric vehicle battery factory before this month, whereas the previous plan was to make a decision before this month.
Others say the subsidies are enough to offset challenges facing factories being built in the United States. Some analysts and government officials said businesses’ complaints could be a negotiating tactic to secure more funding.
“Material costs have certainly increased,” said Greg LeRoy, executive director of Good Jobs First, a nonprofit research group that has often criticized subsidies. manner.
LeRoy said: “But didn’t the company get enough money to offset all of this? To me, this is like crocodile tears.”
In many cases, states compete with each other to attract new projects, offering substantial incentives to established foreign and domestic manufacturers. In addition to billions of dollars worth of federal incentives, Panasonic’s Kansas plant is expected to receive about $1.27 billion in state and local subsidies, according to data compiled by Good Jobs First.
In Kansas, officials hailed Panasonic’s factory as the state’s largest-ever economic development project. The battery plant is expected to generate $2.5 billion in economic activity and create more than 20,000 jobs.
The Biden administration’s subsidy program has lured some foreign manufacturers to build factories in the United States, but the problem for some of them, according to people familiar with their operations, is that their initial budgets were based on prices before this construction boom. customized.
Simonson of the Building Contractors Association of America said he believes the inflation will prove to be temporary and that things will level off in the next few years.
“You will see some projects being canceled, suspended and postponed. Some projects will be at reduced capacity, others will be built as originally planned but at a much higher cost,” he said.
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2024-03-04 06:15:00
