Ford Gives Michigan a ‘Wake-Up Call’ With Out-of-State EV Expansion
Ford Gives Michigan a ‘Wake-Up Call’ With Out-of-State EV Expansion
(Bloomberg Businessweek) -- Ever since Henry Ford’s Model T brought mobility to the masses a century ago, Michigan has been America’s automotive epicenter, home to scores of vehicle parts and production plants—and the tens of thousands of jobs that go with them. Now the birthplace of the U.S. auto industry is suffering a crisis of confidence after being passed over by hometown hero Ford Motor Co. for $11.4 billion in new electric vehicle and battery factories in favor of Kentucky and Tennessee. “The reality,” the Detroit News wrote in an editorial on Sept. 28, is that Michigan is “unprepared to achieve its dreams of dominating the automotive future.”
The project includes three battery factories in Kentucky and Tennessee and Ford’s first brand-new assembly plant in a half-century, to be located in a rural area near Memphis. The four factories, which Ford is building with South Korean battery partner SK Innovation Co., will employ almost 11,000 workers.
The setback has led to criticism from pundits and politicians of Michigan Governor Gretchen Whitmer and her economic development officials for failing to get in the game because they didn’t submit a bid on the project. “It was a shock, and I’m extremely disappointed,” says Tim Walberg, a Republican congressman from Michigan. “The key question is: How did this happen on Governor Whitmer’s watch? And what is it about Governor Whitmer’s economic policies that has Ford looking out of state?”
On the defensive, Whitmer accused Ford of not giving Michigan “a real opportunity” to bid on the big deal. Whitmer declined an interview request for this story. But the governor, a Democrat, sent a letter to the Republican-controlled Michigan Legislature on Oct. 5 imploring it to use a big chunk of $6.5 billion in federal coronavirus recovery funds the state has coming to “put more tools in our economic tool box.” She also noted that the state has work to do to attract business expansion, saying, “Let’s not sell ourselves short—we have plenty to offer, but we need to do more to be the number-one destination for any business.”
Representative Debbie Dingell, a Michigan Democrat whose district includes Ford’s home base in Dearborn, says the state’s previous Republican governor dismantled some of the economic development programs that could have been used to offer incentives to rival what Kentucky and Tennessee gave. But she acknowledges that the state needs a better and less fractious approach to land the automotive factories of the future. “Pointing fingers at each other just gives another reason for companies not to come to Michigan,” Dingell says. “This is a wake-up call for all of us.”
Ford has tried to placate its unhappy neighbors, with Chief Executive Officer Jim Farley taking to Twitter to declare his “love” for the Great Lakes State, where the automaker has invested $7 billion in the past five years. Executive Chair Bill Ford, great-grandson of founder Henry, told the Detroit News that the company considered Michigan for its EV expansion, but it just didn’t have a shovel-ready location that met the automaker’s needs, including enough acreage to match the 6-square-mile megasite in Tennessee.
Behind the bickering is the uncomfortable truth for Michigan that winning investment during the century of the internal combustion engine is no guarantee of riches during the dawning electric age. Although Ford plans to produce the electric F-150 Lightning pickup at the vast Rouge factory complex that founder Henry constructed a century ago in Dearborn, no automaker has announced a single new battery factory in the state. General Motors Co. and its South Korean battery partner, LG Chem Ltd., have chosen Ohio and Tennessee for their first two plants, with no sites yet announced for two others.
Moreover, because EVs don’t use conventional engines and drivetrains, Michigan is at considerable risk as the industry transforms. The state’s factories produce 1 in 6 internal combustion engines in America and a third of transmissions, according to the Center for Automotive Research in Ann Arbor. More than 32,000 workers in Michigan built gasoline-fueled engines and transmissions in 2019, when factories were still running at full tilt before the pandemic. “What’s at stake is really the future of mobility and the automotive industry,” says Carla Bailo, CEO of researcher CAR, who counsels Michigan’s leaders on luring investment. “If all this work goes somewhere else, we have a number of plants that do internal combustion engine work that are really going to be in jeopardy. We really need to take this seriously.”
Among Michigan’s biggest drawbacks is its high cost of energy. The state has industrial energy rates of 8¢ per kilowatt-hour, more than the national average of 7.53¢ and well above its neighbors to the south, with Tennessee at 5.85¢ and Kentucky at 6.06¢, according to the U.S. Energy Information Administration.
That price premium would add up fast in the factories Ford and SK are building, which together will have the capacity to produce 129 gigawatt-hours of batteries—enough to power more than a million electric cars annually. The highly automated and antiseptic environment that battery plants require results in five times the energy consumption of a typical auto plant, according to Ford.
Making matters worse for the industry, Michigan’s utility regulations cap the amount of energy that industrial users can buy via competitive bids at only 10% of their consumption, which keeps rates elevated, says Greg Keoleian, director of the Center for Sustainable Systems at the University of Michigan. “That would account for a lot of the differences with other states that have more competitive markets,” he says.
Michigan’s reputation as a stronghold of organized labor also works against it, Bailo says. Electric vehicles are more costly to build, mostly because of high battery costs, so automakers are heading south to Kentucky, Tennessee, and other states with right-to-work laws to lower their operating expenses. The employees Ford and SK hire in Tennessee and Kentucky will choose whether they want union representation. Workers in Tennessee have already rejected organizing drives by the United Auto Workers at Nissan Motor Co. and Volkswagen AG factories.
Ford builds its electric Mustang Mach‑E in Mexico, where wages are a fraction of what U.S. workers make. The automaker has said that’s one reason it books a profit on every Mach-E it sells. “We’re seen as a union state, and that has baggage,” Bailo says. She contends that can be “turned around” by training UAW members for the high-tech jobs of the future and encouraging greater teamwork on the factory floor.
UAW spokesman Brian Rothenberg took issue with such thinking. “That is a 1980s analysis that does not apply to today’s Michigan,” he says, noting that Ford, GM, and Stellantis NV, the former Fiat Chrysler, are building and renovating factories around Detroit.
Michigan’s fractured political environment also takes a toll on economic development. Mask mandates and school shutdowns during the pandemic exposed deep divisions. Armed right-wing extremists stormed the Michigan State Capitol months before the siege on Jan. 6 in Washington, and federal investigators broke up a plot to kidnap and possibly harm Whitmer.
Those hostilities continue to simmer as Republicans seek to oust Whitmer in the gubernatorial election next year. “Our governor has been concerned about cloistering us away and putting masks on our faces and keeping us out of school and out of work and out of church for the better part of two years,” says GOP Representative Walberg. “This better just sock us between the eyes and wake us up.”
Tennessee’s Republican governor and Kentucky’s Democratic governor are boasting about their new role in ushering in the automobile’s electric era. They paid dearly for it, with Tennessee giving half a billion dollars in incentives and Kentucky forking out almost $300 million and handing over a 1,551-acre site south of Louisville.
But the Southern states’ leaders say the payoff will likely last at least as long as Michigan has been the Motor Capital. At a splashy ceremony on Sept. 28 on the vast, 3,600-acre site in Stanton, Tenn., to be known as Blue Oval City, Governor Bill Lee declared, “West Tennessee will now lead the nation in the next industrial revolution.”
©2021 Bloomberg L.P.