Shifting policies and regulations, increased consumer spending, significant investments by leading automotive original equipment manufacturers (OEMs), continued environmental concerns, high gas costs, decreasing battery prices, and charging system technology advancements are among the many components contributing to electric vehicles (EVs) record-setting sales in the second quarter of 2022. By 2030, automakers are anticipated to invest over $500 billion, globally, in EVs and associated components, forging ahead with plans to predominantly shift to production of EV platforms by the end of the decade — if not sooner — as EV utilization has already seen mass adoption in Europe and Asia and is reaching a tipping point in the U.S.
As a result, there is currently a global race by automotive companies and suppliers to identify adequate greenfield development sites and/or transform existing operations to align with EV production needs. In response, governments, economic development organizations, utilities, and others have been aggressively readying sites and communities, as the full EV value chain pursues market share and searches for critical locations that can successfully support new project investment.
“Mission Critical” Factors
The successful siting of any new facility is a complex process that coalesces around combinations of quantitative and qualitative factors, often with several tradeoffs. When considering the expanded needs of the many EV-related projects seen globally today, the tension between “nice-to-have” and “mission critical” is brought into focus as the quantity of truly investment-ready sites continues to decrease in an increasingly competitive environment. While there are often standard industry needs, understanding unique operational requirements and corporate success factors — and how they interact with each other — at the outset of any new site selection analysis is a vital step that requires input from multiple business segments to identify measurable criteria (critical location factors) and relative importance for informed, and efficient, decisions to be made.
Proximity to suppliers and customers, type of material and mode of transportation frequency, performance, and cost must all be considered in a dynamic and fast-changing supply chain environment.
Though every project is unique to a specific company’s needs with variety among key requirements, common themes considered for a successful site selection analysis include logistics, real estate, utilities, workforce, costs, and operating conditions. Logistics are typically the tip of the iceberg for large, capital-intensive projects within the EV sector, with the general understanding that manufactured goods have both inbound and outbound requirements that must be met and the recognition that supply chain service levels, reliability, and costs can significantly alter the viability of a manufacturer’s product. Proximity to suppliers and customers, type of material and mode of transportation (e.g., truck, rail, intermodal, etc.) frequency, performance, and cost must all be considered in a dynamic and fast-changing supply chain environment that has seen uncommon shipping disruptions and cost variability over the last several years. While a detailed transportation analysis is required during the course of a major project, upfront probability models and center of gravity analyses help to identify preferred geographic regions that can satisfy primary transportation needs.
Projects Going Mega
Once an appropriate geographic region has been identified, the focus begins to shift to real estate and core utility (e.g., electricity, natural gas, water, sewer) requirements. Project needs vary, but generally, even routine EV projects are trending into “mega” project territory and demanding sites in excess of 500 acres that have the ability to access massive utility requirements such as electric capacity exceeding 100 megawatts, 100 percent renewable power generation, and more than two million gallons of process water per day. While acreage and utility requirements are typically the primary limiting factors, other factors such as proximity to workforce, community receptivity, compatible land uses, minimal natural hazard risk, multimodal transportation access, and development approval processes must be considered and optimized.
Given the multiple, demanding requirements of EV-related projects, it is unlikely that a “perfect” site with all necessary attributes can be identified; however, communities that have invested in site-readiness initiatives typically have an advantage and are better positioned to facilitate appropriate paths forward for development. Development timelines for EV projects are longer than most general manufacturing projects so senior and local governments that have clear processes and expedited timetables for development approvals and infrastructure upgrades will be preferred.
Even routine EV projects are trending into “mega” project territory and demanding sites in excess of 500 acres that have the ability to access massive utility requirements.
Assuming all site and infrastructure factors are met, any potential EV investment location must also be able to support the deployment of thousands of construction workers and the hiring of thousands of new permanent employees with aligned skillsets ranging from advanced electronics technicians to quality and chemical engineers. Tight labor markets — exacerbated by pandemic-related factors — will impact the search region with complex and shifting workforce dynamics. Commuting tolerance within a site’s “true labor shed” is a salient discussion point when considering urban, suburban, exurban, and rural submarket optimization factors.
An area’s ability to satisfy both the initial hiring demands and provide the necessary talent pipeline for future needs is critical as a project’s intended scale and planned functions can significantly alter the equation of a location decision. Like infrastructure needs, markets likely will not possess a workforce with the “perfect” initial skillset. Rather, while there must be sufficient initial capacity, the more critical component is a location’s ability to satisfy long-term needs through appropriate training resources and upskilling programs.
Attractive Cost Structures
Though operational and workforce requirements must be met, cost is still a significant driver with considerable bearing in decision-making, as small deviations can create billion-dollar differentials in terms of the total life of an investment. Many jurisdictions have structural cost advantages in place such as lower wages, taxes, utility rates and personal property tax exemptions or reductions that are beneficial to capital- and utility-intensive projects. Other states and provinces, even those already seeing success in attracting large EV projects, continue to modify legislation to make their cost structures more attractive.
Understanding the quantitative and qualitative factors that impact a site’s and location’s suitability remains a nuanced process that sits somewhere between an art and a science.
Take, for example, Arizona, where in March 2022 the state passed HB2822, which sets the full cash value of business and agricultural personal property in certain property tax classes initially classified during or after tax year 2022 to 2.5 percent of the property’s acquisition cost. In 2021, the Michigan Public Service Commission provided approval that enables electric utility providers to offer special reduced rates to high-volume users, and Illinois passed the Reimagining Electric Vehicles (REV) Program specifically for the EV industry with financial assistance related to tax credits and tax exemptions. And in Ontario and Quebec, federal, provincial, and local governments are collaborating with new economic incentives and utility cost reduction programs to appeal specifically to large industrial projects. Programs such as these continue to place North American locations in more competitive positions to attract future multi-billion dollar EV opportunities.
Tradeoffs will always be a critical component of any successful location decision. Understanding the quantitative and qualitative factors that impact a site’s and location’s suitability remains a nuanced process that sits somewhere between an art and a science. Ultimately, the final question that must be answered is how geography can create or sustain a competitive advantage by understanding long-term opportunities and risks. Both “hard” factors — site availability, utility adequacy, labor supply and cost — and “soft” factors — political considerations, regulatory environment, continuity and scalability, and community fit — impact operational efficiency and are critically important to the long-term success of a project. The site selection team must employ an appropriate level of due diligence and strategic guidance that creates optionality and identifies an executable solution that produces an optimal combination of cost, quality, and risk.