Listen: Powering up the US EV battery manufacturing boom in Michigan

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Taylor Kuykendall:

Welcome to Energy Evolution, the podcast bringing you insights and analysis on the energy transition. I'm Taylor Kuykendall, co-host of the podcast, alongside Dan Testa. Hey, Dan.

Dan Testa:

Hey, Taylor. We've got another interesting topic teed up for today. This time around we're looking at electric vehicle battery manufacturing in the US. This is following an announcement from Fortescue about an advanced manufacturing center in Michigan.

Taylor Kuykendall:

That's right. And to get into this, we have our correspondent, Camellia Moors. Camellia, can you just give us a little bit of detail on what this announcement was actually all about?

Camellia Moors:

Sure, Taylor. Great to be here. So essentially, Fortescue, which is a large green tech mining and energy company that's based over in Australia, said in January that it plans to create what's known as an advanced manufacturing hub in Detroit.

Dan Testa:

So, what does that mean, advanced manufacturing? Is this just about EV batteries?

Camellia Moors:

So, according to the announcement, it's pretty broadly about EV battery systems manufacturing, although it also says the site should be a hub Fortescue's production of automotive and heavy industry batteries, hydrogen generators, fast chargers, and electrolyzers, and they expect installation of the first battery line in the first half of 2025.

Something that's actually pretty interesting about this project is that it feeds into a lot of the discussions we have on this podcast about policy support for clean energy issues, and that it has support from something called the Michigan Strategic Fund and the Michigan Economic Development Corporation. I'll hand it over to Quentin Messer Jr., CEO of the MEDC and President and Chair of the MSF, to explain how those two initiatives work.

Quentin Messer Jr.:

Thanks so much for affording us the opportunity. The Michigan Economic Development Corporation is the State of Michigan's official economic development organization. So, what does that mean? We're really focused on three things. First, executing the states, making a Michigan economic development strategy focused on people, places, and projects. We have to attract and develop people, we have to revitalize and cultivate places, and compete for and win projects. And we'll talk later today about how we compete for and win projects.

The MEDC is a quasi-public entity that makes recommendations to the Michigan Strategic Fund that will then approve whether or not the State of Michigan will support, financially, business attraction, expansion, and retention opportunities, such as Fortescue. So, the way to think about it is, really, the MEDC does all the diligence, makes the recommendation to the MSF Board, and then the MSF Board makes the official decision. It's a public body appointed by both Democratic and Republican-elected officials, then makes the decision.

In addition to making sure that we engage the public both domestically and internationally on the business environment, we also are responsible for the iconic Pure Michigan tourism and marketing campaign. We've launched a talent attraction campaign called You Can in Michigan.

And so, in addition to attracting and developing people, revitalizing, cultivating places, and competing for and win projects, we're also about messaging, because we understand that you can do the work, but if no one knows you're doing the work, then it becomes very difficult to reap the type of benefits.

So, as it relates to how we're going about supporting the state's strategy to make more in Michigan, whether it's in the battery storage, EV battery supply chain, clean energy, semiconductors, or defense and aerospace, among other sectors, we are aggressively not only trying to create the environment in which existing Michigan businesses will want to expand, but we also can welcome and compete for, like Fortescue, who had a global search that looked at well over 60, 70 different locations across the globe, and we were fortunate enough that they have decided to come to Detroit to expand their manufacturing operation.

Taylor Kuykendall:

Okay. So, Camellia, what type of support is this project getting from the state?

Camellia Moors:

Yeah, it's a great question. So, the Michigan Strategic Fund, so far, has approved a $9 million performance-based grant from the Michigan Business Development Program, along with some tax incentives. And the overall estimated private investment into this project is $210 million.

Quentin Messer Jr.:

MEDC was involved along with our local and regional partners in Detroit, the City of Detroit, the Detroit Economic Growth Corporation, which was responsible for economic development in the City of Detroit, in the Detroit Regional Partnership, which is a regional economic development partnership for 11 counties in Southeast Michigan.

So, MEDC works with our partners to, first, whether it's on the initial inbound recruitment. In this case, there were decision-makers within Fortescue who had connections to Michigan. They reached out to our governor. Our governor aggressively set a course as part of our focus on clean energy, battery supply, mobility, innovation, and it came over to MEDC to begin to execute the relationship.

It was over almost a two-year period. We looked at a number of different opportunities across the state, and then ultimately, once Fortescue got comfortable that they wanted to expand in Michigan, that's when we more closely engaged with our partners in Detroit. We are obviously, at MEDC, agnostic across the 83 counties on both of our peninsulas, but once a company says, "Look, we want to be in Southeast Michigan," in this case with Fortescue, they really want it to go to a Brownfield site because it's part of their overall belief in sustainability and as a part of their overall branding. And so that's how they narrowed in quickly on Detroit and we were fortunate enough to find a site.

Camellia Moors:

I also asked about how the project meshes with some of the MEDC's goals.

Quentin Messer Jr.:

There are certain industries that the US' federal industrial policy have identified as critical to bringing those supply chains home, whether it's in the battery electric space, whether it's in clean tech semiconductors across the entire semiconductor value chain as well as defense and aerospace. So we wanted to make sure that our policy was aligned with the Biden Harris administration's federal industrial policy and it was. And we were also very intrigued and excited by the fact that Fortescue wanted to go to a Brownfield site because Michigan has been the bedrock of American manufacturing for generations, we have a number of Brownfield sites that we would love to bring back into commercial use, and this afforded us that opportunity. So that's why we were doubly excited.

Dan Testa:

I'm interested in kind of how all this fits into the general US EV manufacturing space. There's an enormous amount of projects in the works, right?

Camellia Moors:

Yeah, exactly. So to give you a sense of scale here and to really try and put some of this into context, the White House says there's been $161 billion in private investment announcements into EVs and batteries overall since Biden took office. And while that's not poultry sum by any means, it comes as US EV demand is expected to grow 174% between this year and 2028, and that's to hit roughly four and a half million cars annually according to our S&P global market intelligence data. For more on this, here's Nick Nigro from Atlas Public Policy.

Nick Nigro:

It's great to be here. My name is Nick Nigro. I'm the founder of Atlas Public Policy. Atlas has been around for about nine years and we're based in Washington DC and the San Francisco Bay area. We're a firm focused on advancing what we like to call data-driven public policy in a number of areas. I know we're going to talk a lot about EVs today, but we also do work in the building space along with climate change, disinformation and water. We do three types of things, original research and development where we try to answer those tough questions. We also build products that help bring together data from a variety of sources for the policy community, and we do some strategic advising that build off that research and leverages our products. The industry's evolving quickly and it's hard to actually keep up with how much money is pouring into the development of batteries and the corresponding electric vehicle supply chain.

In the last few years, there's been a term that's been coined called the Battery Belt, and I think that's where we can focus most of our attention on where investments are going. It starts up in the Midwest where Michigan is, and it runs straight through the south. And depending on how you define it's about three quarters or so of the more than $230 billion invested in manufacturing for the clean economy. It's about a hundred of that billion or a hundred billion of that 230 is actually just for batteries in that region out of the 126 or so that's going into batteries nationwide.

It's important too to keep in mind that these investments, while it's a lot of big numbers, they're also historic. Three states come to mind. Kansas, Georgia and Kentucky had their single largest investments ever for batteries and EV manufacturing.

Camellia Moors:

Nick and I also talked about how EV battery production is expected to match up against that jump in EV demand that I mentioned.

Nick Nigro:

So this is a tough one just because the market is moving really quickly and mentioned over a hundred billion dollars is going into batteries and it's hard to translate that into how much energy we talking about for cars.

A few folks have taken a crack at that environmental defense fund. It's an NGO, environmental NGO, and they estimated that with the announcements, similar to what I just mentioned, there should be enough capacity to provide batteries for more than 50% of cars and truck sales at the end of the decade, which matches pretty well with some of the regulations that are under consideration right now at US EPA.

The challenge is, of course, delivering all that production and making it happen. And I'd love to just talk a little bit about an example in what it means for states. In Georgia, Hyundai who basically accelerated a lot of their investments in EVs and battery manufacturing as a result of the Inflation Reduction Act has pulled together more than seven and a half billion dollars in investments to manufacture vehicles and batteries in Georgia. I mean, obviously this is going to be a transformational moment in the state and it's going to take all hands on deck to make it happen. But if those investments like Hyundais and others succeed, I think we should have no problem meeting the demand even as EVs really ramp up in later in the decade.

Taylor Kuykendall:

So, I mean, we've talked about the Inflation Reduction Act before when it comes to battery and critical minerals issues. How does it play into some of these changes that we're hearing Nick talk about here?

Camellia Moors:

Yeah, so I think most conversations around EVs nowadays, normally, and for obvious reasons, center around the IRA. Nick also had some things to say about how US EV incentives have changed over the last several years.

Nick Nigro:

So, back in the beginning of EVs, we have to go back now 15 years or so. We had a tax credit in place called 30D for vehicles basically geared towards trying to get the market going. And it certainly did that job for many years and helped really spur companies like Tesla being able to get off the ground and build a new company.

But with IRA, it was really much more of a change in an evolution in priorities within the government going from we need to encourage transportation electrification to, we need to build a domestic supply chain so that the United States can regain its leadership for position in the global economy. For probably the early to the mid 2010s, the US was clearly trying to be a leader with that aforementioned tax credit along with other public programs at the state and federal level. But towards the end of the 2010s, we certainly lost our way. We deprioritized it at a national level and we sort of ceded that ground of leadership to China and the European Union.

The IRA is really all about trying to get it back, and it does so by altering credits like the 30D credit to require an increasing amount of the materials that go into batteries in the assembly of those batteries to either happen in North America or to have materials from countries that share our values.

And so now to be able to get those credits for vehicles, which is a huge driver, it's up to $7,500 per vehicle, you've got to meet a much more strict requirements. And that is similar to my, going back to my example to Hyundai bringing in investments into the United States that wouldn't have happened otherwise. That's not to mention the production side of credits for batteries. There's a credit in IRA that's equal to $35 per kilowatt-hour for battery cells, an additional $10 per kilowatt-hour for the battery modules. These are hugely valuable to encourage production and makes building batteries and assembling battery packs here in the United States cost competitive with anywhere.

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Dan Testa:

Going back to the Fortescue project, obviously the IRA focuses on national incentives, but in this case is the type of support Fortescue is getting unique to Michigan?

Camellia Moors:

Yeah, Dan, it's an interesting question and without doing a state by state breakdown of incentives, Michigan specifically is obviously linked to its pretty deep paths with the automotive sector, but that doesn't mean that that's the only kind of business the state is trying to support.

Quentin Messer Jr.:

We're in a very competitive market. I would say a couple of things. We like to, our governor has been very forceful with saying this is that we want to come alongside with prospective businesses, whether incumbent Michigan businesses or those who are looking to expand the business and be a thought partner and try to find solutions to whether it's a talent issue, whether it is a site issue, whether it's a streamlining permitting issue, whether it's a proximity to user customers that are here in Michigan or if there are new creative incentives. So we have a closing fund, which is for large projects, which some states have. I don't know the exact number, but I know that it's been something that's been replicated by other states and cited as a competitive advantage for Team Michigan. We also have business development grants. We have collateral support organization programs for smaller businesses or medium-sized businesses that are growing.

But I think most importantly, I think as we are expanding tools to our toolkit. Governor Whitmer in her State of the State as well as in her budget recommendations recommended an R and D tax incentive, a payroll tax incentive called H.I.R.E Michigan, as well as modernization for rezones, which allow there to be tap capture for projects like Fortescue that are coming into places that had previously been out of commerce, bringing them back into commerce.

So we are trying to make sure that we have responsible prudent tools that give honor and make sure that taxpayers dollars are being deployed in the right way. They're all performance based, but we also understand that we have to be risk investment. And what we're trying to do is the risk investment and secure investment that may not always be capital intensive. So I think the recognition that not every great deal is going to necessarily be capital intensive, but you could hire two, 300 engineers like Fortescue is planning to do in addition to folks who are actually doing the manufacturing. That's a significant addition to the knowledge base here in the state.

We are always trying to get better. We believe that if you have a holistic approach to solving the challenges that businesses frequently face from talent, and we have a myriad of talent incentives and programs with our sister agency, Michigan's Department of Labor and Economic Opportunity, as well as these three proposed tools that Governor Whitmer has suggested, the R and D tax credit, H.I.R.E Michigan, as well as rezone modernization. We feel that we'll continue to get competitive and we'll continue to look at it in future legislative sessions based upon the reaction we're getting from the market.

Taylor Kuykendall:

Okay. So just generally speaking, what's the outlook look like for US battery manufacturing?

Camellia Moors:

Great question. Here's Quentin on the MEDC's future work in this space.

Quentin Messer Jr.:

I think we are only scratching the surface and understanding the various elements of the EV supply chain from the companies that developed the actual battery chemistry to the companies that develop the anode and cathodes to the company that developed the coils to the companies that do the packing. That's just talking about the battery. We haven't even talked about the infrastructure, whether it's charging network, whether it's installing the charges, whether it's maintaining the charges. There's a whole set of companies that are looking at charging more portable. And we see companies in Michigan, for example, FLO, which is a Canadian company, opened a first US location in Michigan. There's companies like BorgWarner who have been longstanding tier one suppliers in the automotive space who are now very aggressively pushing into the EV space and developing charging infrastructure. There are companies of all sizes. Dunamis Energy is a company in Detroit that's owned by a Black woman that's doing tremendous work to making sure that accessibility to charging is spread across all parts of our community and they're countless more.

And I think the other aspect of it is we're receiving great cooperation from our two publicly traded energy or utility companies, DTE, which is predominantly in southeast Michigan and the eastern part of the state and then Consumers Energy, which is on the western part of the state in the lower peninsula. And they have been tremendous partners working with our public service commission. So we are very excited because you're not only just seeing opportunities in mobility but also energy storage. So you're seeing bilateral charging where you're seeing through energy storage opportunities to add energy to the grid, which is going to make it much more easy to expand and have more chargers and more people plugging in if we are able to have that bidirectional charging infrastructure. And so that's why this is such an exciting opportunity for us to explore.

Camellia Moors:

And on the national side of things, here's Nick on some of the changes we can expect along with how recent EV rollback announcements from companies like Ford and GM might fit into the picture.

Nick Nigro:

We are in the very early stages of a once in a century transition or changing how vehicles are powered and changing now how they're fueled as well with electric vehicles. And that is a monumental challenge from an engineering perspective, from a logistical perspective. We have to build new supply chains, we have to develop a lot more engineering talent that's focused on batteries and electric vehicles. There's going to be ups and downs and missed estimates about where the market is as we go through that. And so these announcements from some OEMs about either slowing down or revisiting certain projections or investments is no surprise. It wouldn't also surprise me that a couple years later they'll accelerate those investments in reaction to the market. It's just something that we're going to have to get used to and we don't want to spend too much time looking at what's happening in this moment and projecting it out in perpetuity because it almost certainly will change.

I mentioned at the outset that we've tracked over $220 billion that go into what we call the clean economy in the United States. This is private investments into manufacturing of vehicles, batteries and solar panels, heat pumps, hydrogen electrolyzers, and all kinds of other clean tech. This is a transformative moment for the country, both from who is going to be the manufacturing center of the country and what does that mean for those communities.

And so if I was to look ahead 10 years, it's very possible even very likely that the vast majority of auto sales here in the US are for battery electric vehicles and I mean all electric vehicles. I think hybrids and other sorts of bridge technologies are going to be less competitive. And the reason I say that is in the near term, within the next few years, many of the automakers will start to earn a profit on the selling of electric vehicles.

And by doing so, that's going to encourage them to invest more and more in electric vehicles and less in internal combustion engine vehicles. And that's going to create a virtual cycle that's going to likely accelerate the transition because there's going to be in the best interest of those businesses to do so. So they're going to build more vehicles of different types. They're going to offer them at competitive prices and more so than what we're seeing in an occasional Super Bowl ad, they're going to really try to sell these vehicles and that's going to make a big difference in consumers and the way that they look at the technology.

Dan Testa:

Okay. Well, it's been interesting to hear about all the changes happening in battery manufacturing. Thanks Camellia for bringing us those interviews.

Camellia Moors:

Of course. And thanks so much to our guests for sharing their thoughts with the show.

Dan Testa:

All right, that's going to do it for this episode. Now, before we sign off, I want to just give a shout-out to our other podcast team members that includes my stalwart co-host, Taylor Kuykendall, Camilla Naschert, Camellia Moors, Christopher Coats, and Karen Willenbrecht, as well as our agency partner, The 199.

Now to stay up to date with upcoming episodes, be sure to subscribe to Energy Evolution on your favorite platform. And if you've got any ideas for future themes or guests, we'd love to hear from you. Please shoot us an email energy evolution@spglobal.com. If you like what you heard today, consider sharing our podcast with others or leaving a review on your preferred platform. We look forward to bringing you more deep discussions in the future. Take care and we'll catch you next time on Energy Evolution.