The announcement two weeks ago that Commerce was selected as the home of a new South Korean electric vehicle battery factory is a big deal. The facility is predicted to employ 2,000 people, cover 2-million sq. ft. and be an investment of $1.6 billion. This will be the firm’s first EV battery plant in the U.S.
But it is a curious project coming at an odd moment in the national and international business/political atmosphere.
A little background.
The South Korean firm behind this project is SK Innovation, a division of a huge conglomerate known as the SK Group. It is the third largest conglomerate (known as “chaebols”) in South Korea and has over 30 different divisions. The Commerce plant will fall under a subdivision of SK Innovation to be called “SK Battery America.”
One of the questions surrounding the project is why is the firm building this plant now and why in Jackson County?
SK Innovation has an EV battery plant in South Korea and is in the process of completing battery plants in China and Hungary. China is a key EV market where in 2016, twice as many EV vehicles were sold than in the United States. To a large extent, Asia and Asian companies dominate the EV market and battery production.
The move to build a U.S. plant appears to be part of SK Innovation’s effort to expand its worldwide market share in EV batteries as an offset to its main source of income from oil refiners. Oil generates about 75 percent of SK Innovation’s revenues. As electric powered cars grow and combustion engine vehicles decline, SK Innovation apparently fears a loss of its main traditional revenue source. By investing in EV battery production, SK Innovation is hedging its bets on a future of EV replacing gas vehicles.
But SK is a very small player in the global EV battery market with just around a 2-percent share. It is not a major force today in the EV battery universe, although it appears to want to grow that segment of its business.
There is some thought that the decision by SK to build this facility is tied to a deal it concluded last month with Volkswagen to become one of that firm’s battery suppliers for its electronic vehicles. Volkswagen is looking to become a major source of EV vehicles worldwide and says it plans to introduce 50 EV models by 2025.
Volkswagen has an assembly plant in Chattanooga and there is some indication that plant may become the company’s first U.S. EV production facility. If so, SK’s Commerce plant would be a close source to supply EV batteries to that facility.
SK also supplies some EV batteries to Kia, Hyundai and Daimler (Mercedes-Benz), but not exclusively. In October, Daimler announced it is building a $1 billion EV battery plant at its Mercedes-Benz factory in Tuscaloosa, Ala., so it’s unlikely the Commerce SK battery plant will be a major supplier to Daimler in the Southeast.
It appears that SK is gambling on a boom in the North American EV market in the coming years. But there are some headwinds.
For one thing, the political environment is currently very unstable for this market. Most countries, including the U.S., offer some kind of tax incentives or subsidies to promote the development of EV cars. But following the recent announcement that GM plans to close several automotive production plants in the U.S., president Trump said he wanted to punish the auto-maker by killing the U.S. subsidy for their EV cars. That is a tax credit of $2,500 to $7,500 per car. Take that credit away and it would deeply hurt the EV market in the U.S. (It’s unlikely Trump will do that; it would be illegal to target one company with such a punishment.)
In addition, the Trump Administration’s denial of climate change data and its moves to weaken environmental rules for combustion engine vehicles could weaken market demand for EV vehicles. Growth in the EV market is driven by consumers who are concerned about climate change linked to gasoline engine exhaust. Without continued government support and a governmental focus on climate change itself, the EV market in the U.S. could stagnate rather than grow.
On top of all that, the on-and-off trade war with China looms over the EV market. Many of the minerals used in EV batteries comes from South America and Australia. If a global trade war upends this supply chain, that could raise the cost of EV batteries to a point that they become too expensive to produce in the U.S.
Regardless of the business dynamics affecting this plant, this project will change the focus of industrial development in Jackson County. Over the past 20 years, much of the area’s development has been in the Braselton and Jefferson areas along I-85, both of which are closer to Metro Atlanta.
But both of those markets are becoming saturated with distribution center projects and there has been a growing pushback from citizens in both communities. Especially in Braselton, there seems to be a sense of “development fatigue.”
This Commerce project, along with a large GE Appliance distribution center (owned by a Chinese conglomerate) announced earlier this year, could signal that large industrial and distribution firms are starting to move further up the interstate to the Commerce area where there will be less public backlash.
Especially for the Commerce City School System the SK plant could be a much-needed financial boon. The system stands to get $75 million over the next 20 years from the company’s “payments in lieu of taxes.” It will have to share some of that with the county school system, but it still represents a large amount of money for a small school system.
Overall, the SK plant is a big deal in Jackson County. If the firm really does invest $1.6 billion here, that will almost equal the total current net tax digest of Jackson County, which is $1.7 billion.
What remains to be seen is where SK gets its workforce for the facility. Finding 2,000 employees in NE Georgia at a time when the area’s unemployment is at a historical low will be difficult.
Maybe SK plans to “import” workers from Korea for the highly-skilled jobs at this facility, a move that could run into the Trump Administration’s anti-immigration policies and limits on visas.
It will be interesting to see how this project plays out over the next decade. Stay tuned.
