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Disruption in the Automotive Industry

The pandemic is yet another of a series of disruptive events that have impacted the auto industry, but the outlook is brighter.

2020 Auto/Aero Site Guide
Nikola will build electric semi-trucks in a plant under construction in Arizona that will employ 2,000 people.
Nikola will build electric semi-trucks in a plant under construction in Arizona that will employ 2,000 people.
The COVID-19 pandemic shut down the entire U.S. auto industry in the second quarter of 2020 — the most dramatic decline in vehicle production since World War II. For automakers and their suppliers, preserving cash and enhancing liquidity became primary concerns, and discretionary capital expenditures were put on hold. That’s the bad news. The good news is that most of the plants have reopened, and pent-up demand — especially for trucks and SUVs — has brightened the outlook for the industry.

For example, Ford recently announced a surprise profit for the second quarter (counting a one-time gain from an investment in an autonomous driving technology company), and its overall results were better than projected. In general, many of the automakers and parts suppliers reporting earnings for the second quarter have a consistent story: the worst is over, and they are cautiously optimistic that sales will increase, but it will take some time for sales to reach pre-pandemic levels.

Even as the pandemic has disrupted the industry, automakers continue to move forward on vehicle electrification and the development of autonomous vehicles. They are also taking a hard look at their supply chains for their North American operations because of pandemic-related concerns about relying on overseas supply and the impact of the new trade agreement, the USMCA, that replaces NAFTA.

Electrification of Vehicles Continues to Accelerate
The most valuable automaker in the world today, based on the value of its publicly traded stock, is the electric-vehicle-maker Tesla. While the stock prices of the traditional automakers fell during the pandemic, Tesla’s soared.

Electrification of vehicles has reached the tipping point. Although the transition from internal combustion engine vehicles (ICEs) to electric vehicles (EVs) will take time, the adoption of EVs will accelerate as the technology improves and becomes cheaper, and as governments around the world carry out plans to eliminate the ICE.

In a recent forecast, BloombergNEF projected that EVs will hit 10 percent of global passenger vehicle sales in five years and rise to 58 percent in two decades. EV sales in the United States will likely rise at a slower rate — with projections ranging between 10 percent to 15 percent over the next decade. But even at the low end of the projection range, by 2030, over 1.5 million EVs will be sold here — increasing the demand for battery plants, chargers, inverters, electric motors, and all of the other parts and infrastructure required to support those sales.

All of the major automakers have announced plans to spend billions to electrify their fleets and are rapidly adding new EV models. Well-funded new entrants, such as Rivian, Nikola, and Lucid Motors, are constructing new EV plants. There are EV assembly and battery plants either in production or under construction in 11 states: Alabama, Arizona, California, Georgia, Illinois, Michigan, Nevada, Ohio, Tennessee, Texas, and South Carolina.

More EV assembly plants and battery plants are on the way, and the economic impact will be substantial. Automotive News calls the battery the “billion dollar” automotive part. The largest battery plant in the United States — the Tesla/ Panasonic Gigafactory in northern Nevada — employs more than 7,000 people and represents an investment in excess of $6 billion. It has transformed the economy of the Reno area.

Here’s a summary of the major EV assembly and battery plants under construction:


Tesla is building a $1 billion factory in Texas that will produce its new Cybertruck and will employ 5,000 people. Together with its Nevada Gigafactory and its Fremont assembly plant, Tesla will eventually employ over 20,000 people building EVs and batteries.

SK Innovation, a Korean battery company, is building a $2.6 billion battery plant in Georgia that will employ 2,000.

Ultium, a joint venture between General Motors and LG Chem, is building a $2.3 billion battery plant in Ohio that will house 1,100 employees.

Lordstown Motors will begin building electric pickup trucks at the former GM Lordstown assembly plant and will eventually employ 1,000 people. The company entered into a $1.6 billion merger agreement with a Special Purpose Acquisition Company (SPAC) and expects to go public on the NASDAQ later this year.

Rivian will build electric pickups and SUVs in the former Mitsubishi plant in Illinois, with a target employment of 1,000 by 2024. The company has raised close to $5 billion and counts Amazon and Ford as major investors.

Lucid Motors began construction of its $700 million plant in Arizona last December to build an all-electric sedan. Last year, Lucid received $1 billion in funding from Saudi Arabia’s sovereign wealth fund.

Electrification, automation, and the new USMCA present challenges as well as opportunities for auto-makers, their parts makers, and the communities that host them. Nikola will build electric semi-trucks in a plant under construction in Arizona that will employ 2,000 individuals. After being acquired by a SPAC in June, Nikola began trading on the NASDAQ . At one point, its stock market capitalization exceeded Ford and FCA, but has since dropped to a still impressive $14 billion in early August.

Investors are pouring billions of dollars into EV startups, and in the process are opening up opportunities for communities with formerly shuttered auto plants (e.g., Rivian and Lordstown Motors) and in states that previously weren’t players in the vehicle industry (Nevada and Arizona).

Autonomous Vehicle Development Continues
In addition to electrification, traditional automakers and high-tech companies continue to move forward on developing autonomous vehicle systems. While the pandemic may have temporarily slowed down some of these efforts, including the interruption of testing efforts and suspension of capital expenditures to conserve cash, there is little question that the move toward autonomy will continue.

Autonomous vehicles have quickly moved from novelty items developed by Silicon Valley tech companies to mainstream products under development by the traditional automakers. Silicon Valley giants, such as Apple and Google’s Waymo division, are spending billions and using their software expertise to accelerate the development of autonomous vehicle systems.

Numerous startup companies are working on various aspects of autonomous hardware and software. Self-driving startup Argo AI, based in Pittsburgh, Pa., was recently valued at $7.5 billion — and its largest investors are Ford and Volkswagen. Argo is focused on developing an autonomous driver system, including the hardware and software for self-driving vehicles.

The speed with which autonomous vehicles will be adopted is a hot topic in the industry. Several of the traditional automakers and tech companies working on autonomous systems have cautioned that full autonomy — Level 5 autonomy — will be a long journey. But development efforts have accelerated. Waymo’s autonomous vehicle technology has logged over 20 million miles of real driving testing and 10 billion miles of simulated testing. Waymo’s fleet of self-driving Chrysler Pacifica minivans are chauffeuring passengers in the Phoenix area, without a person behind the wheel, as featured on a recent YouTube video.

Amazon recently upped the ante in the self-driving race by acquiring Zoox, a self-driving startup that has developed a bi-directional vehicle with no steering wheel. Amazon has made other investments in the self-driving space and reportedly is experimenting with self-driving trucks to ship cargo. GM’s Cruise unit recently unveiled a self-driving vehicle, and as mentioned above, Ford and VW are major investors in Argo AI.

Automated vehicles may one day alleviate projected labor shortages in the over-the-road trucking industry and can curb the spread of disease in future pandemics by enabling deliveries without human contact. The primary benefit of autonomous driving is the reduction of accidents, injuries, and deaths caused by vehicles driven by distracted or impaired drivers.

Regionalizing Supply Chains
The combination of the pandemic and the newly enacted USMCA is causing automakers in North America to rethink their global supply chains. The pandemic put global supply chains at risk, as parts plants around the world shut down. The USMCA, the successor trade agreement to NAFTA, is expected to increase vehicle parts sourcing within North America. The new agreement, one of the milestones of the Trump administration, took effect in July.

Under the USMCA, to qualify for tariff-free trade among the three countries, 75 percent of the finished vehicle content must be sourced in North America — an increase from NAFTA’s 62.5 percent content requirement. At least 40 percent of the manufacturing labor of the finished vehicles (45 percent for trucks) must be made at a wage rate of at least $16 per hour. In addition, 70 percent of the steel and aluminum used in auto production must be made in North America. The wage and metals requirements are new provisions that weren’t in NAFTA. The expected impact of the USMCA is that more auto parts and materials will be sourced within North America and the United States. For economic developers in the United States, this likely means more investment and jobs in the auto sector.

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