States Divide On Whether To Welcome China-Backed EV-Battery Plants

Gretchen Whitmer, governor of Michigan
Michigan’s $3.5 billion announcement with Ford and CATL is latest twist in complicated economic-development issue.

As if proliferating spy balloons and insidious TikTok feeds weren’t enough, America’s industrial relationship with China also is getting more complicated. Because China is the world leader in automotive-electrification technology, and the Chinese government is willing to invest billions of dollars in new EV-battery plants in America, states are having a hard time turning up their noses at the potential bounty in property taxes, jobs and knock-on benefits.

Take what happened last week in Michigan even amid intensifying saber rattling between the United States and China: Michigan laid out the proverbial red carpet for the Chinese by agreeing to grant $1 billion in incentives to land a $3.5-billion EV-battery plant that Ford will build and operate with the assistance of Contemporary Amperex Technology Co., or CATL, China’s huge government-owned battery company.

The plant will be the first automaker-backed lithium-iron phosphate battery plant in the United States and is slated to come online in 2026, initially creating 2,500 jobs. It’ll be built on a shovel-ready industrial site in the south-central part of Michigan that the state has been grooming for years. Ford will own and operate the plant and employ the workforce but license the battery-cell technology from CATL and tap its Chinese partner for additional services tied to manufacturing.

“I am …. proud that we chose our home state of Michigan for this critical battery-production hub,” Ford Executive Chair Bill Ford said in announcing the deal. Michigan Governor Gretchen Whitmer added, “We’re competing, and Michigan is winning against other states and nations because of our deep manufacturing roots, our tough, talented workers and willingness to work with anyone who wants to get things done.”

But Whitmer snatched up the opportunity to deepen her state’s economic involvement with Chinese industry just weeks after Virginia Gov. Glenn Youngkin pulled his state out of consideration, citing CATL’s ties to China’s Communist Party.

Not surprisingly, electoral politics in addition to economic development and national security has come into play in this equation. Both Youngkin and Whitmer are presumed potential candidates for their parties’ presidential nominations next year. While calling Youngkin’s move a “political determination,” Whitmer in an interview with the Detroit News stressed that Ford “is an American company” and a “Michigan company” and said, “We are going to compete for every opportunity for the state of Michigan.”

Michigan already had issued incentives on a bipartisan basis to China-based battery company Gotion to build a component-manufacturing facility in Big Rapids, Michigan, which is expected to create 2,350 jobs. And state officials came in for some criticism after Michigan’s most venerable automaker earlier promised $11 billion in new investments in EV and battery plants, and nearly 11,000 jobs, not to Ford’s home state but to Kentucky and Tennessee.

Some Midwestern states that compete heavily with Michigan for plant investments may be following Whitmer’s approach rather than Youngkin’s. “We welcome high-quality companies of good global standing and that are not deemed to pose national-security risks,” Brad Chambers, Indiana’s economic-development secretary, told StrategicCIO360—not exactly slamming the door on Chinese-owned enterprises. “The companies that are good for Hoosiers, that are consistent with our focus on building an economy of the future with high-wage careers, should get serious consideration.”

Some other states already have basically painted themselves into a corner on this issue. South Carolina, for instance, is home to a big car-assembly plant for Volvo, which is owned by China’s Geely Holdings. “We’ve kind of moved past that issue,” David Ginn, president and CEO of the Charleston Regional Development Alliance, told StrategicCIO360.

Yet, other states are piling up on Youngkin’s side of this divide, especially now that the Biden administration and Congress have slated billions of dollars in federal incentives for American companies to build into the domestic EV-battery supply chain. Tennessee recently withdrew financial incentives for potential Chinese plants, and similar moves have been afoot by officials of Florida and Alabama.

In the 1980s, Japan Inc.’s strategy for retaining access to the U.S. auto market was to proliferate plants across America, enlisting political support from U.S. senators and representatives, governors and ordinary citizens in each state along the way. The Japanese were seeking an end to the frustrating “voluntary” import quotas the Reagan administration imposed on vehicles made in Japan. Toyota and Honda vehicles were thoroughly besting American-made ones in the eyes of consumers, and the federal government was trying to help out its domestic automakers.

Japan’s answer was to begin making its cars in America. Honda built a sprawling plant in Ohio; Toyota put an assembly facility in Kentucky and forged a joint venture with General Motors in California; Nissan erected a factory in Tennessee; Mitsubishi went into Illinois; and Mazda even put up a plant, with Ford, near Detroit.

And after a decade, Japanese automakers had invested $25 billion in eight new auto-assembly plants and many other U.S. facilities that created more than 100,000 American jobs, and the import issue quietly went away even as Japanese brands kept gobbling up market share from domestic car companies.

But U.S. quotas on Japanese car imports were part of an economic war. America’s budding confrontation with its biggest geopolitical rival is that, yes, but potentially could become an actual war. No wonder the notion of Chinese sourcing of EV-battery technology—which is at the very heart of the U.S. government’s forced march of automakers into electrification of their lineups—threatens to become one of the biggest economic issues of the decade.

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