Why BMW really decided to make batteries in the US


BMW recently announced a $1.7 billion investment to prepare its massive Spartanburg, South Carolina factory to produce electric cars and SUVs. That sum included $700 million to build a nearby battery factory.

Spartanburg is the largest BMW plant in the world. It employs 11,000 people and produces 40,000 SUVs annually, only 40% of which are sold in North America. The rest is exported to 120 other countries.

It’s one of several such announcements in recent months and years as automakers prepare to produce more electric vehicles. Mercedes, Hyundai, Honda and others have also announced projects to build battery plants in recent months. BMW’s announcement came after the Biden administration passed the Inflation Reduction Act, which limits tax incentives for electric vehicles to those with largely US-based battery manufacturing and raw material supply.

The regulations allow excise tax credits only for electric vehicles that meet increasingly stringent US-based manufacturing requirements for the vehicles themselves and their batteries. They also require the sourcing of battery raw materials from the United States and limit the cost of the vehicles and the income of buyers. Buyers can only receive full tax credits if they and the vehicles meet the requirements.

But that kind of regulation didn’t affect BMW’s decision to locate battery production in South Carolina, BMW Chairman Oliver Zipse said in an interview with CNN Business. Much more important was the simple logistics.

“You’re not going to fly hundreds of kilograms of batteries around the world or load them onto a ship,” he said. “You won’t do it. You’re going to locate anyway.”

Not only would the IRA’s rules make American manufacturing unnecessary, Zipse said, they also risk negatively impacting the very American jobs they are designed to protect, he said.

The IRA does not provide any benefit to vehicles, regardless of how “American made” they are, if they are not sold within the United States. More importantly, protectionist regulations that try to foreclose American-made vehicles on American buyers can trigger retaliation and jeopardize valuable export deals, Zipse said.

A BMW iX M60 all-electric Sports Activity Vehicle, manufactured at the BMW plant in Leipzig, Germany.  The BMW plant in South Carolina is also preparing for the production of electric vehicles.

“You can never enact regulation without considering the consequences of other regulators,” he said. “And I’m just warning that we’re getting a tit-for-tat settlement.”

And as a practical matter, it’s just difficult to seal off automakers’ supply chains in the way the IRA seems to be demanding, Zipse said.

“The assumption that you can promote an industry that is fully represented from A to Z in one region of the world in an industry as complex as the automotive industry is a wrong assumption,” he said.

Zipse also warned of the possible unintended consequences of regulations, such as those in some US states and Europe, that ban the sale of non-zero-emission vehicles after a certain date. For one thing, it could mean that overall industry sales will decline.

“We don’t think that one powertrain will make up the entire market of today’s size,” he said.

Not all consumers will be able to have electric vehicle chargers at home, Zipse said, as many will instead, they could choose to keep their petrol cars longer or buy used gas-powered cars.

Some automakers, like BMW rivals General Motors and Mercedes-Benz, appear unconcerned about this possibility of shrinking sales and have announced plans to go all-electric by a set future date. BMW never said public that it intends to produce only electric vehicles after a certain time.

Unlike some automakers like GM and Volkswagen, who produce electric vehicles on different technical platforms that are completely different from their gasoline cars, BMW designs its vehicles to be produced as electric, plug-in hybrid, or purely gasoline-powered vehicles be able. BMW executives praise this kind of flexibility to respond to market demands for different vehicle types.

Instead, regulators should gradually impose stricter emissions limits, leaving automakers to decide how best to meet those targets, as regulators have done in the past. To date, this approach has not stopped increasing global warming.

Zipse, however, insisted that BMW can manage whatever regulators decide.

“We can easily ramp them up,” Zipse said of the increasing regulatory demand for electric vehicles. “All of our factories are qualified to build electric vehicles. We have a flexible approach.”


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