Tag Archives: Volkswagen AG

Biden’s IRA has left Europe blind-sided. And playing catchup could lead to 2 big mistakes

US President Joe Biden, front, and Ursula von der Leyen, president of the European Commission.

Bloomberg | Bloomberg | Getty Images

The European Union is working against the clock to create a program to rival President Joe Biden’s unprecedented climate subsidies. But it’ll face two key issues in the process.

The EU had, for a long time, asked the United States to be more active on climate policy. Biden delivered on that with the Inflation Reduction Act. But it has raised competition issues for European businesses — which has upset politicians in the region. Brussels has been left considering how best to respond.

“U.S. legislation doesn’t pass overnight,” Emre Peker, director at the consultancy group Eurasia, told CNBC, adding that the EU could have acted faster.

“The EU was asleep at the wheel … with 28 representations in Washington, Europeans could’ve done more to counteract the IRA before its adoption.”

The U.S. Inflation Reduction Act, also referred to as IRA, was approved by U.S. lawmakers in August and includes a record $369 billion in spending on climate and energy policies.

Among other aspects, it provides tax credits to consumers who buy electric cars that were made in North America — this could automatically make European-made EVs less attractive to buyers because they are likely to be more expensive.

We will continue to further invest into the region to achieve significant growth.

Some European firms have recently announced investment plans in the U.S. to benefit from an anticipated pick-up in demand. And more could follow suit.

Volkswagen has ambitious targets for the North American region. We now have a unique chance to grow profitably and to grow electric in the U.S.,” a spokesperson for the German company, one of the biggest car manufacturers in Europe, told CNBC via email.

Enel, an Italian energy firm, is concentrating 85% of its 37 billion euro ($40.2 billion) investments between 2023 and 2025 in Italy, Spain and the U.S.

“Specifically relating to public support policies, the IRA encompasses unprecedented measures on green tech and we think it could act as a stimulus for the EU to move forward in that direction, in order to support a substantial scale-up of renewable technologies which are key for our continent’s energy independence,” a spokesperson for the company told CNBC via email.

Luisa Santos, deputy director at BusinessEurope, a group of business federations, told CNBC that “it is still a bit early to say who will invest where.” “But it is very clear some companies will invest in the U.S. in any case,” she added, referencing an expected surge of investment toward the U.S. — at the expense of Europe.

Outspending others

European officials are currently looking at relaxing state aid rules so governments have more room to financially support key companies and sectors.

The European Commission, the executive arm of the EU, is due to present a proposal in the coming weeks.

But this solution might not be ideal. Countries with bigger budgets will be able to deploy more funds than poorer nations, which risks the integrity of the EU’s much-vaunted single market — where goods and people move freely and which accounts for more than 440 million consumers.

Belgian Prime Minister Alexander de Croo told CNBC that more state aid “is not a good answer.”

“There’s a level playing field [in Europe]. Belgium is a small market, very open economy, Germany is a big market. If this becomes a race of who has the deepest pockets we are all going to lose and it would lead to a subsidy war with the United States,” de Croo said earlier this month.

Several other experts have also raised concerns about easing state aid rules. Former Italian Prime Minister Mario Monti told Politico Europe this is a “dangerous” approach.

In a letter issued last month and seen by CNBC, Europe’s Competition Chief Margrethe Vestager said: “Not all member states have the same fiscal space for State Aid. That’s a fact. And a risk for the integrity of Europe.”

Slow to respond

In addition to challenges with state aid relaxation, timing is also a risk.

European officials will discuss and decide how to provide more green incentives for the medium to long-term. On the one hand, some argue that current European investment programs should be redeployed toward these subsidies. But on the other hand, others argue that the bloc will need to raise fresh cash to implement such a huge project.

Thus, it’ll likely turn into a deep and strained political matter that could drag for awhile.

Paolo Gentiloni, Europe’s economics commissioner, said Tuesday in Berlin that there are “different views” on the table.

“But I am satisfied there is a clear intention to engage in this discussion,” he said following conversations with Germany’s Finance Minister Christian Lindner, who’s previously stated he would not support new public borrowing.

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Europe shows a united front against Biden’s Inflation Reduction Act

German Federal Minister of Finance Christian Lindner (L) and French Minister of the Economy, Finance and Recovery Bruno Le Maire (R) both criticized the U.S. inflation reduction act for discriminating against European companies.

Thierry Monasse | Getty Images News | Getty Images

EU member states are standing resolutely firm against President Joe Biden’s Inflation Reduction Act amid fears it will harm their domestic companies and economies.

The sweeping U.S. legislation, which was approved by U.S. lawmakers in August and includes a record $369 billion in spending on climate and energy policies, was discussed by the 27 European Union finance ministers on Tuesday. This came after the European Commission, the executive arm of the EU, said there are “serious concerns” about the design of the financial incentives in the package.

“Each minister agreed that this is a subject of concern at the European level and that we need to see what is the best response,” an EU official, who followed the ministers’ discussions but preferred to remain anonymous due to the sensitive nature of the issue, told CNBC.

The same official added that “there is a political consensus (among the 27 ministers) that this plan threatens the European industry.”

The EU has listed at least nine points in the U.S. Inflation Reduction Act that could be in breach of international trade rules. One of the biggest sticking points for the Europeans is the tax credits granted for electric cars made in North America. This could bring challenges to European carmakers that are focusing on EVs, such as Volkswagen.

“That’s what we’re eventually seeking: that the EU should be, as a close ally of the U.S., in a position which is more similar to that of Mexico and Canada,” Valdis Dombrovskis, the EU’s trade chief, said at a news conference Tuesday.

We don’t want to see any kind of decision that could harm this level playing field.

Bruno Le Maire

France Finance Minister

South Korean officials have also raised similar concerns to Europe, given the set of measures in the U.S. could also restrict Hyundai and others from doing business in America.

A second EU official, who also followed the ministers’ discussions but preferred to remain anonymous due to the sensitive nature of the issue, said the conversations were “not very deep” — highlighting unity among the ministers on a broader level.

The same official said that France’s finance minister, Bruno Le Maire, told his counterparts that he was not asking for a strong negative decision against the EU’s American friends, but rather asking for a “wake-up call” for his European counterparts who need to protect the interests of European businesses.

Earlier on Monday, Le Maire told CNBC, “We need to be very clear, very united, and very strong from the very beginning explaining [to] our U.S. partners [that] what’s at stake behind this Inflation Reduction Act is the possibility to preserve the level playing field between the United States and Europe.”

“The level playing field is at the core of the trade relationship between the two continents and we don’t want to see any kind of decision that could harm this level playing field,” he said.

French officials have for a long time advocated for strategic independence — the idea that the EU needs to be more independent from China and the U.S., for instance, by supporting its own industry. Last month, French President Emmanuel Macron suggested that the EU should also look at a “Buy European Act” to protect European carmakers.

“We need a Buy European Act like the Americans, we need to reserve [our subsidies] for our European manufacturers,” Macron said in an interview with broadcaster France 2, adding, “You have China that is protecting its industry, the U.S. that is protecting its industry and Europe that is an open house.”

A taskforce between European and American officials, which had its first meeting on this subject last week, will now meet every week to discuss how to address Europe’s concerns over the Inflation Reduction Act.

The idea is “to continue promoting deeper understanding of the law’s meaningful progress on lowering costs for families, our shared climate goals, and opportunities and concerns for EU producers,” the White House said in a statement.

Despite the regular contact, U.S. officials are dealing with the midterm elections and the Inflation Reduction Act has already been legislated, meaning that any changes would have to come during the implementation phase.

Fredrik Erixon, director of the European Centre for International Political Economy, told CNBC that “it is obvious that the EU has legitimate concerns about the Inflation Reduction Act and direct and indirect discrimination in it.”

“Many of IRA policies that take a ‘America first’ attitude will hurt competition and EU firms, and especially so in sectors where the EU is competitive, not least green industries and cleantech. The EU may go to the WTO [World Trade Organization] to sort these issues out but it is far more interested to get them addressed bilaterally,” he added.

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Lidar makers Ouster and Velodyne agree to merge

The New York Stock Exchange welcomes Ouster Inc. (NYSE: OUST), today, Friday, March 12, 2021, in celebration of its Initial Listing. To honor the occasion, Ouster CEO Angus Pacala, joined by Chris Taylor, Vice President, NYSE Listings and Services, rings The Opening Bell®.

NYSE

Lidar makers Ouster and Velodyne have agreed to merge, combining roughly $400 million in market value.

The companies said on Monday that they will join forces to increase their competitiveness in a market segment that has seen valuations plummet as investors have grown disillusioned with autonomous-vehicle technology.

Lidar, short for “light detection and ranging,” is a sensor technology that uses invisible lasers to create a highly detailed 3-D map of the sensor’s surroundings. Lidar sensors are considered important components of nearly all autonomous-vehicle systems currently under development, and are finding increasing applications with advanced driver-assist systems as well as other areas of robotics.

Intense investor interest in the potential of self-driving vehicles led many lidar startups to go public over the last few years. But valuations are now a fraction of what they were two years ago, and prominent automakers including Ford Motor and Volkswagen have trimmed investments in autonomy in favor of more limited driver-assist systems.

Under the deal, signed on Friday, Velodyne shareholders will receive 0.8204 shares of Ouster for each Velodyne share they hold – a premium of about 7.8% based on Friday’s closing prices for the two companies’ stocks.

Ouster’s founder and CEO, Angus Pacala, will lead the combined company, which doesn’t yet have an official name. Velodyne CEO Ted Tewksbury, who joined the lidar maker last year, will chair the post-merger company’s board of directors.

“We all knew that there is a need for consolidation in the market,” Pacala told CNBC. “This is us actually going out and doing it.”

Pacala said the combined company will be a more formidable competitor, with streamlined manufacturing, over 170 patents and what he described as “complementary customer bases, partners and distribution channels.”

The companies have identified about $75 million in savings that can be realized in the first nine months after the transaction closes, he said.

The combined company will also be relatively flush, critical in a market where it has become difficult for not-yet-profitable startups to raise cash. Between them, Ouster and Velodyne had a combined $355 million in cash as of September 30, Pacala said.

Velodyne was an early pioneer in automotive lidar, developing its first sensor in 2007. Its distinctive “puck” sensors were seen on most early autonomous-vehicle prototypes. But its early units, which cost $75,000 each and had delicate moving parts, were too expensive and fragile for use on mass-produced vehicles.

Velodyne was eventually able to reduce the cost of its puck sensors to $4,000 while making them more robust. But as newer rivals with solid-state lidar sensors — including Ouster, founded in 2015 — entered the automotive space, the early leader fell behind.

Velodyne still owns critical lidar patents, and it hasn’t hesitated to enforce them. The company sued Ouster for patent infringement earlier this year, and brought a related action before the U.S. International Trade Commission seeking to block Ouster from importing its lidar units into the United States. (Ouster’s lidar units are made in Thailand by contract manufacturer Benchmark Electronics.)

The companies will hold a joint webcast at 8:30 a.m. ET on Monday to discuss the merger. Ouster will report its third-quarter results after the U.S. markets close on Monday; Velodyne is scheduled to report its results after markets close on Tuesday.

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Porsche shares rise in landmark Frankfurt debut

Porsche shares rose in their stock market debut Thursday, in one of the biggest public offerings in Europe ever.

Shares of the iconic sports car brand initially traded at 84 euros ($81) on Thursday morning after they had been priced at the top end of their range late Wednesday, at 82.50 euros. It values the company at roughly 75 billion euros.

By 9:30 a.m. London time Thursday shares had steadied at 84.50 euros. Parent company Volkswagen is offering 911 million shares, a reference to Porsche’s famous 911 model.

“Today is a great day for Porsche and a great day for Volkswagen,” Arno Antlitz, Volkswagen’s chief financial officer told CNBC’s “Squawk Box Europe” Thursday.

The organization knew the IPO would be successful, according to Antlitz, citing “strong financials” and “a very convincing strategy for the future.”

“We were convinced despite the challenging environment this IPO would prove successful, and we were right,” he told CNBC’s Annette Weisbach.

Before trading started reactions were positive, with cornerstone investors having already claimed around 40% of the shares on offer, according to Reuters. Until now the sole owner of Porsche AG, Volkswagen is reducing its stake in the sports car firm, with a 12.5% slice being listed.

Listing shares should give Porsche a financial boost of 19.5 billion euros, giving the company more financial flexibility in terms of electric vehicles, according to Volkswagen.

The landmark listing comes at a time of market choppiness as the auto industry continues to feel the effects of the war in Ukraine, and valuations of other luxury carmakers including Aston Martin, Ferrari, BMW and Mercedes-Benz have all dropped in recent months.

“The Porsche AG has completely decoupled itself from the negative market trends,” one investor told Reuters, translated by CNBC. Companies are thought to be delaying going public because of current market conditions. 

The IPO isn’t set to be a trailblazer for other companies to follow suit however, as Porsche remains a particularly strong brand with a unique market position. Volkswagen initially announced its plans for Porsche to go public on Sept. 5.

Antlitz also addressed the ongoing semiconductor shortages, which will continue to be an issue this year.

“We expect a better supply in 2023, but we expect an easing of the shortage to kick in in 2024,” Antlitz told CNBC.

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Volkswagen targets $70.1 billion to $75.1 billion valuation in planned Porsche IPO

The name of the car manufacturer Porsche is attached to the curved facade of the newly built Porsche Centre in Magdeburg.

Stephan Schulz | picture alliance via Getty Images

Volkswagen will price preferred shares in the planned flotation of Porsche AG at 76.50 euros to 82.50 euros ($76.61 to $82.62) per share, the carmaker said on Sunday, generating proceeds of between 8.7 to 9.4 billion euros.

The price range, which translates into a valuation of 70-75 billion euros, would make it Germany’s second biggest IPO in history and, at the upper end of the valuation, Europe’s third largest on record, according to Refinitiv data.

Trading will begin on Sept. 29, the carmaker said.

A total of up to 113,875,000 preferred shares from Volkswagen AG – which do not carry voting rights – will be placed with investors over the course of the IPO.

In line with an agreement struck earlier in September between Volkswagen AG and its largest shareholder Porsche SE, 25% plus one ordinary shares in the sportscar brand, which do carry voting rights, will go to Porsche SE at the price of the preferred shares plus a 7.5% premium.

That brings the total proceeds to between 9.36 billion to 10.10 billion euros, the statement said.

A stock exchange prospectus is expected to be published on Monday, after which institutional and private investors can subscribe to Porsche shares.

As part of the listing, 911 million Porsche AG shares will be divided into 455.5 million preferred shares and 455.5 million ordinary shares. Only the preferred shares will be listed.

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EV makers face cash squeeze amid soaring battery, production costs

Production of electric Rivian R1T pickup trucks on April 11, 2022 at the company’s plant in Normal, Ill.

Michael Wayland / CNBC

In the transition from gas-powered vehicles to electric, the fuel every automaker is after these days is cold hard cash.

Established automakers and startups alike are rolling out new battery-powered models in an effort to meet growing demand. Ramping up production of a new model was already a fraught and expensive process, but rising material costs and tricky regulations for federal incentives are squeezing coffers even further.

Prices of the raw materials used in many electric-vehicle batteries — lithium, nickel and cobalt — have soared over the last two years as demand has skyrocketed, and it may be several years before miners are able to meaningfully increase supply.

Complicating the situation further, new U.S. rules governing EV buyer incentives will require automakers to source more of those materials in North America over time if they want their vehicles to qualify.

The result: new cost pressures for what was already an expensive process.

Automakers routinely spend hundreds of millions of dollars designing and installing tooling to build new high-volume vehicles — before a single new car is shipped. Nearly all global automakers now maintain hefty cash reserves of $20 billion or more. Those reserves exist to ensure that the companies can continue work on their next new models if and when a recession (or a pandemic) takes a bite out of their sales and profits for a few quarters.

All that money and time can be a risky bet: If the new model doesn’t resonate with customers, or if manufacturing problems delay its introduction or compromise quality, the automaker might not make enough to cover what it spent.

For newer automakers, the financial risks to designing a new electric vehicle can be existential.

Take Tesla. When the automaker began preparations to launch its Model 3, CEO Elon Musk and his team planned a highly automated production line for the Model 3, with robots and specialized machines that reportedly cost well over a billion dollars. But some of that automation didn’t work as expected, and Tesla moved some final-assembly tasks to a tent outside its factory.

Tesla learned a lot of expensive lessons in the process. Musk said later called the experience of launching the Model 3 “production hell” and said it nearly brought Tesla to the brink of bankruptcy.

As newer EV startups ramp up production, more investors are learning that taking a car from design to production is capital-intensive. And in the current environment, where deflated stock prices and rising interest rates have made it harder to raise money than it was just a year or two ago, EV startups’ cash balances are getting close attention from Wall Street.

Here’s where some of the most prominent American EV startups of the last few years stand when it comes to cash on hand:

Rivian

Production of electric Rivian R1T pickup trucks on April 11, 2022 at the company’s plant in Normal, Ill.

Michael Wayland / CNBC

Rivian is by far the best-positioned of the new EV startups, with over $15 billion on hand as of the end of June. That should be enough to fund the company’s operations and expansion through the planned launch of its smaller “R2” vehicle platform in 2025, CFO Claire McDonough said during the company’s earnings call on Aug. 11.

Rivian has struggled to ramp up production of its R1-series pickup and SUV amid supply chain snags and early manufacturing challenges. The company burned about $1.5 billion in the second quarter, but it also said it plans to reduce its near-term capital expenditures to about $2 billion this year from $2.5 billion in its earlier plan to ensure it can meet its longer-term goals.

At least one analyst thinks Rivian will need to raise cash well before 2025: In a note following Rivian’s earnings report, Morgan Stanley analyst Adam Jonas said that his bank’s model assumes Rivian will raise $3 billion via a secondary stock offering before the end of next year and another $3 billion via additional raises in 2024 and 2025.

Jonas currently has an “overweight” rating on Rivian’s stock, with a $60 price target. Rivian ended trading Friday at roughly $32 per share.

Lucid

People test drive Dream Edition P and Dream Edition R electric vehicles at the Lucid Motors plant in Casa Grande, Arizona, September 28, 2021.

Caitlin O’Hara | Reuters

Luxury EV maker Lucid Group doesn’t have quite as much cash in reserve as Rivian, but it’s not badly positioned. It ended the second quarter with $4.6 billion in cash, down from $5.4 billion at the end of March. That’s enough to last “well into 2023,” CFO Sherry House said earlier this month.

Like Rivian, Lucid has struggled to ramp up production since launching its Air luxury sedan last fall. It’s planning big capital expenditures to expand its Arizona factory and build a second plant in Saudi Arabia. But unlike Rivian, Lucid has a deep-pocketed patron — Saudi Arabia’s public wealth fund, which owns about 61% of the California-based EV maker and would almost certainly step in to help if the company runs short of cash.

For the most part, Wall Street analysts were unconcerned about Lucid’s second-quarter cash burn. Bank of America’s John Murphy wrote that Lucid still has “runway into 2023, especially considering the company’s recently secured revolver [$1 billion credit line] and incremental funding from various entities in Saudi Arabia earlier this year.”

Murphy has a “buy” rating on Lucid’s stock and a price target of $30. He’s compared the startup’s potential future profitability to that of luxury sports-car maker Ferrari. Lucid currently trades for about $16 per share.

Fisker

People gather and take pictures after the Fisker Ocean all-electric SUV was revealed at Manhattan Beach Pier on November 16, 2021 in Manhattan Beach, California.

Mario Tama | Getty Images

Unlike Rivian and Lucid, Fisker isn’t planning to build its own factory to construct its electric vehicles. Instead, the company founded by former Aston Martin designer Henrik Fisker will use contract manufacturers — global auto-industry supplier Magna International and Taiwan’s Foxconn — to build its cars.

That represents something of a cash tradeoff: Fisker won’t have to spend nearly as much money up front to get its upcoming Ocean SUV into production, but it will almost certainly give up some profit to pay the manufacturers later on. 

Production of the Ocean is scheduled to begin in November at an Austrian factory owned by Magna. Fisker will have considerable expenses in the interim — money for prototypes and final engineering, as well as payments to Magna — but with $852 million on hand at the end of June, it should have no trouble covering those costs.

RBC analyst Joseph Spak said following Fisker’s second-quarter report that the company will likely need more cash, despite its contract-manufacturing model — what he estimated to be about $1.25 billion over “the coming years.”

Spak has an “outperform” rating on Fisker’s stock and a price target of $13. The stock closed Friday at $9 per share.

Nikola

Nikola Motor Company

Source: Nikola Motor Company

Nikola was one of the first EV makers to go public via a merger with a special-purpose acquisition company, or SPAC. The company has begun shipping its battery-electric Tre semitruck in small numbers, and plans to ramp up production and add a long-range hydrogen fuel-cell version of the Tre in 2023.

But as of right now, it probably doesn’t have the cash to get there. The company has had a tougher time raising funds, following allegations from a short-seller, a stock price plunge and the ouster of its outspoken founder Trevor Milton, who is now facing federal fraud charges for statements made to investors.

Nikola had $529 million on hand as of the end of June, plus another $312 million available via an equity line from Tumim Stone Capital. That’s enough, CFO Kim Brady said during Nikola’s second-quarter earnings call, to fund operations for another 12 months — but more money will be needed before long.

“Given our target of keeping 12 months of liquidity on hand at the end of each quarter, we will continue to seek the right opportunities to replenish our liquidity on an ongoing basis while trying to minimize dilution to our shareholders,” Brady said. “We are carefully considering how we can potentially spend less without compromising our critical programs and reduce cash requirements for 2023.”

Deutsche Bank analyst Emmanuel Rosner estimates Nikola will need to raise between $550 million and $650 million before the end of the year, and more later on. He has a “hold” rating on Nikola with a price target of $8. The stock trades for $6 as of Friday’s close.

Lordstown

Lordstown Motors gave rides in prototypes of its upcoming electric Endurance pickup truck on June 21, 2021 as part of its “Lordstown Week” event.

Michael Wayland / CNBC

Lordstown Motors is in perhaps the most precarious position of the lot, with just $236 million on hand as of the end of June.

Like Nikola, Lordstown saw its stock price collapse after its founder was forced out following a short-seller’s allegations of fraud. The company shifted away from a factory model to a contract-manufacturing arrangement like Fisker’s, and it completed a deal in May to sell its Ohio factory, a former General Motors plant, to Foxconn for a total of about $258 million.

Foxconn plans to use the factory to manufacture EVs for other companies, including Lordstown’s Endurance pickup and an upcoming small Fisker EV called the Pear.

Despite the considerable challenges ahead for Lordstown, Deutsche Bank’s Rosner still has a “hold” rating on the stock. But he’s not sanguine. He thinks the company will need to raise $50 million to $75 million to fund operations through the end of this year, despite its decision to limit the first production batch of the Endurance to just 500 units.

“More importantly, to complete the production of this first batch, management will have to raise more substantial capital in 2023,” Rosner wrote after Lordstown’s second-quarter earnings report. And given the company’s difficulties to date, that won’t be easy.

“Lordstown would have to demonstrate considerable traction and positive reception for the Endurance with its initial customers in order to raise capital,” he wrote.

Rosner rates Lordstown’s stock a “hold” with a price target of $2. The stock closed Friday at $2.06.

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Automakers investing in the South as EVs change the auto industry

Jack Weaver, an 82-year-old retired dairy farmer whose house sits on a Civil War battlefield, lives near General Motors’ Spring Hill plant in Tennessee.

Michael Wayland / CNBC

SPRING HILL, Tenn. – Jack Weaver can point to a cannon on a Civil War battlefield from the comfort of a shaded bench in his backyard — a visible marker of his land’s rich past. As he speaks about his small town, it’s over the loud rumble of cars and trucks at the intersection in front of his farmhouse red home.

The 82-year-old retired dairy farmer has lived in Spring Hill nearly his entire life. He’s watched the once-quiet town in middle Tennessee grow into a burgeoning Nashville suburb. The evolution of Spring Hill has come in conjunction with a population boom in the state as well as the introduction of new industries — in particular, auto companies — that have poured billions of dollars in new investments into the state.

“It’s good and it’s bad,” says Weaver, who complains about cars hitting his fence and the traffic General Motors’ Spring Hill plant has brought since it opened in 1990. “I’m not against development at all. I’m not. I think a man outta do what he wants with his own land.”

Detroit is the city that “put the world on wheels,” but it’s towns like Spring Hill and others in neighboring states that are attracting the most investments from automakers in recent years, as production priorities shift to a battery-powered future with electric vehicles.

Companies more than ever want to build EVs where they sell them, because the vehicles are far heavier and more cumbersome to ship than traditional models with internal combustion engines. They also want facilities for battery production to be close by to avoid supply chain and logistics problems.

Among the first to invest in southern states was Ford Motor in the 1950s and 1960s in Kentucky, followed by foreign-based, or transplant, automakers starting with Nissan Motor, which established a plant in Smyrna, Tennessee, in 1983. Others such as General Motors, Subaru, Toyota Motor and BMW followed suit through the 1990s. More have followed since then, including recent announcements by Hyundai Motor and Rivian Automotive to build multibillion-dollar plants in Georgia.

As more companies look to the American South, the investments are changing the landscape of towns across the region and of the automotive industry’s workforce, supply chain and logistics. Companies first to set up shop in the South earn early advantages over their northern competitors, and future newcomers, according to officials.

Auto executives say they’re investing in the South for a combination of reasons: lower energy costs, available workforce and livability among them. Many southern states also come with other benefits, potentially controversial, such as all-in lower pay for workers, millions in tax breaks and a largely non-unionized workforce in many of the Republican-controlled, right-to-work states.

But the shift brings unique challenges, too. As the Motor City moves and expands south, it has to grapple with preservation of historic plantation farms, unearthing of slave burial grounds and pushback from citizens and local politicians who aren’t used to the traffic or industries.

Investments shifting

Automakers have announced $45.9 billion of investments in southern states since 2017, according to The Center for Automotive Research, a nonprofit think tank based in Ann Arbor, Michigan. That’s the first year the South outpaced the Midwest, or Great Lakes region, for announced investments since at least 2010.

Midwest states such as Michigan, Ohio and Indiana saw $39.9 billion in announced investments in that same timeframe.

Most of the money heading south – $34.2 billion, or 74% – has come in since last year from traditional automakers such as GM, Hyundai and Ford Motor as well as EV startup Rivian. Others such as Volkswagen and Nissan continue to invest and expand their operations in the South, largely for new electric vehicles.

“We are basically undergoing the single biggest industrial transformation, I would say, not to understate it, in the history of America,” Scott Keogh, CEO at Volkswagen of America, told CNBC in June at the automaker’s new battery lab in Chattanooga, Tennessee. “It’s happening right now in this area.”

Scott Keogh of Volkswagen of America at the VW plant in Chattanooga, TN, June 8, 2022.

Michael Wayland | CNBC

Keogh singled out energy capacity and costs as the top priority for the company’s investments in Tennessee, including the potential for new assembly and battery facilities that the company is “actively” scouting locations for. He and other executives have also cited incentives, tax support, labor and workforce training as other key elements.

Ford CEO Jim Farley put a similar emphasis on the cost and availability of energy in September, announcing an $11.4 billion investment in new vehicle and battery plants in Tennessee and Kentucky.

“We want to work with states who are really excited about doing that training and giving you access to that low energy cost,” Farley told the Associated Press then.

Tennessee has among the lowest electricity prices in the country, according to the most recent data from the U.S. Energy Information Administration. The state’s average industrial price of electricity per kilowatt-hour was 6.31 cents as of May. Michigan’s industrial energy cost was 8.72 cents per kilowatt-hour, and the national average was 8.35 cents.

Mississippi and South Carolina were under 7 cents, while Georgia was 9.05 cents – among the highest in area, according to the U.S. Energy Information Administration.

While those cost differences seem minimal, they add up quickly. Ford’s new battery plants will have an annual capacity for 43 megawatt-hours of production. There are 1,000 kilowatt-hours of electricity in a megawatt-hour, meaning tens of thousands of dollars in savings per year.

The expansion south is expected to continue for years to come, according to AlixPartners. The global consulting firm expects investments from automakers and suppliers in southern states such as Alabama, Georgia and Kentucky to total $58 billion for electric vehicles between 2022 and 2026. That’s nearly four times the $15 billion that’s expected in Midwest states, and $20 billion elsewhere in the country.

“It definitely will change but right now there’s a lot more interest and activity happening in the Southern states, particularly with all these automakers making investments on the EV front,” said Arun Kumar, a managing director in the automotive and industrial practice at AlixPartners.

Southern hospitality

State economic development officials from Tennessee and Georgia say their states have made the automotive industry a priority because of the supply chain jobs that typically follow. They also say electric vehicles have helped to level the playing field for new investments.

“This is almost like a seed field of opportunity, as this industry changes because we’re building the supply chain in the United States for electrification from scratch,” said Pat Wilson, commissioner of Georgia’s economic development unit. “There’s a huge amount of opportunity.”

As of July, EV-related projects contributed more than $12.6 billion in investments and more than 17,800 new jobs in Georgia since 2020, officials said.

Tennessee reports automotive companies have added more than 43,800 new jobs and invested $16.5 billion in private capital in the state since 2012, representing nearly 30% of private capital investments during that time.

Nissan’s Smyrna Vehicle Assembly Plant opened in 1983, marking Tennessee’s first major auto facility. The plant employs more than 7,000 people are produces a variety of vehicles, including the Leaf EV and Rogue crossover.

Michael Wayland / CNBC

With billions of dollars on the line and tens of thousands of new jobs, states have offered enormous incentive packages for the companies in the forms of land, tax abatements/incentives and other support such as installation of utilities and roadways.

For example, Tennessee approved an $884 million incentive package for Ford’s plans to spend $5.6 billion in the state, as well as in-kind services and a $2 million grant for training services. Ford’s investment includes a new electric truck plant and battery facility with supplier South Korea-based SK Innovation.

Bob Rolfe, who oversees The Volunteer State’s economic development, said such actions are needed to compete with others. He said to attract Ford last year the state spent years accumulating enough land for an “electric vehicle mega site” ahead of securing the automaker’s commitment.

“We tell our team every day to continue to recruit. Is enough, enough?” Lewis said ahead of a trip to Japan for automotive recruitment in June. “The more great companies that call Tennessee home, the softer the landing when we do hit the next wind shear that’s going to be developed around the next recession.”

Unique issues

But not all agree that the automotive industry should be expanding South into rural areas. Rivian has faced notable pushback since announcing plans last year to build a $5 billion plant about 45 miles east of Atlanta, Georgia.

While hailed by many politicians, including Gov. Brian Kemp, local news outlets report residents of the rural area are concerned with how it will impact their community. Others, including politicians, oppose a $1.5 billion in tax breaks and other incentives that state and local officials have offered Rivian.

Haynes Haven is a historic landmark in Spring Hill, Tennessee that has been maintained by GM since the automaker built an assembly plant near the site in the 1980s.

“[Union Army General] Sherman and his troops destroyed our community. Now this supposedly green company is coming to destroy it again,” JoEllen Artz told NBC News in May. Artz is president of the grassroots No2Rivian group, which says it has raised over $250,000 and hired Atlanta lawyers to fight the plant. “We want to keep it just like it is.”

Building massive assembly plants in traditionally rural areas can also involve a unique set of challenges.

Decades ago, when GM was building its Spring Hill plant, the company unearthed an unmarked slave graveyard. GM paid for the remains to be moved to a nearby burial site.

“When we invest in properties, we’re also investing in communities, their history and culture,” GM said in an emailed statement to CNBC. “With any building or renovation project, we expect to encounter the unexpected, and we try to work with community members to find solutions to fit the unique needs of each situation. In many cases, like in Spring Hill, the unexpected finds become intertwined in our own history, as well.”

It wasn’t the first time GM has operated around such a site. On the property of its Detroit-Hamtramck plant, there’s an active Jewish graveyard that the company agreed to build around when it built the plant in the 1980s.

And, Nissan is reported to have similarly moved a graveyard in Smyrna, Tennessee – located about 28 miles northeast of Spring Hill – when the automaker built its plant and railroads were installed there in the early 1980s. Nissan did not return request for comment.

GM maintained and updated a historic plantation in Spring Hill, Tenn. called Rippavilla as part of a deal for land to build an assembly plant in the city in the 1980s.

Michael Wayland / CNBC

Since GM’s Spring Hill Assembly plant was built, the company also has maintained two historic plantations as part of land deals struck during the construction. It still maintains one called Haynes Haven, whose historic horse stables were turned into a welcome center and used for other events. The surrounding area is currently being used for employee parking during construction of the company’s new $2.3 billion battery plant, next to the original plant.

The other site, called Rippavilla, sits across the street from the plant and was donated by the company to the city in 2016. It is now being run by a nonprofit organization, The Battle of Franklin Trust, committed to Civil War preservation and education.

“The last people that owned Rippavilla were pretty insistent that they wanted it to be a historic site. They did not want to happen to what happened to Haynes Haven, which Haven is owned by GM and able to use however they see fit,” said Eric Jacobson, CEO of the organization.

Jacobson credits GM with saving and maintaining the site in the form of $100,000 a year up until 2016, when a 10-year deal to maintain the property ended. GM said it continues to support the site.

Battling the union

While the automakers may have to navigate battlefields of the South, they don’t have to worry as much about battling unions.

The United Auto Workers has failed to successfully organize a non-Detroit automaker plant in the South, despite decades of attempts. The prominent union also now faces challenges of organizing joint venture battery plants from GM and Ford in the South.

“It’s a very critical time for the UAW,” Ray Curry, president of the union, told CNBC. “This transformation piece is about our future. It’s about 86-plus years of longstanding history.”

Ford’s more than $11.4 billion investment to build new U.S. facilities in Tennessee and Kentucky is expected to create nearly 11,000 jobs to produce electric vehicles and batteries.

Both GM and Ford officials have said the decision of whether to unionize at their U.S. battery plants, which are joint ventures, will be left to the workers.

While the labor cost gap has narrowed between the Detroit automakers and other non-unionized automotive plants, organized labor costs are higher for the companies.

At the end of a current four-year contract between the Detroit automakers and UAW in 2023, the Center for Automotive Research estimates average hourly labor costs per worker will be $71 for GM; $69 for Ford; and $66 for Stellantis, formerly Fiat Chrysler.

“There’s quite a bit of anti-union attitude that prevails in the international carmakers,” said James Rubenstein, a professor emeritus at the University of Miami Ohio, who specializes in the automotive industry. “It’s a little bit easier to do that down South, to keep the union out.”

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Volkswagen-backed Northvolt to develop wood-based batteries for EVs

This image from 2007 shows logs and wood chips outside a Stora Enso paper mill in Finland. The firm says it’s “one of the largest private forest owners in the world.”

Suzanne Plunkett | Bloomberg | Getty Images

Northvolt will partner with Stora Enso to develop batteries that incorporate components produced using wood sourced from forests in the Nordic region.

A joint development agreement between the firms will see them work together on the production of a battery containing an anode made from something called lignin-based hard carbon. An anode is a crucial part of a battery, alongside the cathode and electrolyte.

In a statement Friday, electric vehicle battery maker Northvolt and Stora Enso — which specializes in packaging and paper products, among other things — described lignin as a “plant-derived polymer found in the cell walls of dry-land plants.” According to the companies, trees are made up of 20% to 30% lignin, which functions as a binder.

“The aim is to develop the world’s first industrialized battery featuring [an] anode sourced entirely from European raw materials,” the companies said.

Breaking the plans down, Stora Enso will supply Lignode, which is its lignin-based anode material. Northvolt will focus on cell design, the development of production processes and technology scale-up.

The companies said the Lignode would come from “sustainably managed forests.” Stora Enso says it’s “one of the largest private forest owners in the world.”

Johanna Hagelberg, Stora Enso’s executive vice president for biomaterials, said its lignin-based hard carbon would “secure the strategic European supply of anode raw material” and serve “the sustainable battery needs for applications from mobility to stationary energy storage.”

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The attempt to develop battery materials from a range of sources comes at a time when major European economies are laying out plans to move away from road-based vehicles that use diesel and gasoline.

The U.K. wants to stop the sale of new diesel and gasoline cars and vans by 2030. It will require, from 2035, all new cars and vans to have zero-tailpipe emissions. The European Union — which the U.K. left on Jan. 31, 2020 — is pursuing similar targets.

As the number of electric vehicles on our roads increases, battery supply will become an increasingly important — and competitive — cog in the automotive sector.

Earlier this year, the CEO of Volvo Cars told CNBC he thought battery supply was “going to be one of the things that comes into scarce supply in the years to come.”

Sweden-headquartered Northvolt recently said its first gigafactory, Northvolt Ett, had started commercial deliveries to European customers. The firm says it has contracts amounting to over $55 billion from businesses such as Volvo Cars, BMW, and Volkswagen.

Gigafactories are facilities that produce batteries for electric vehicles on a large scale. Tesla CEO Elon Musk has been widely credited as coining the term.

Northvolt recently announced a $1.1 billion funding boost, with a range of investors — including Volkswagen and Goldman Sachs Asset Management — taking part in the capital raise.

According to the International Energy Agency, electric vehicle sales hit 6.6 million in 2021. In the first quarter of 2022, EV sales came to 2 million, a 75% increase compared to the first three months of 2021.

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Renault says electric-hydrogen concept will have 497-mile range

Details of Renault’s Scénic Vision concept car were presented to the public on May 19, 2022. The firm’s idea of developing a passenger vehicle that uses hydrogen technology is not unique.

Benjamin Girette | Bloomberg | Getty Images

Renault has released details of an electric-hydrogen hybrid concept car, with the French automaker describing hydrogen technology as being “one of the options to make electric vehicles more convenient.”

The design for Renault’s Scenic Vision incorporates a hydrogen engine, electric motor, battery, fuel cell and a hydrogen tank. The 2.5 kilogram tank is located at the vehicle’s front and, Renault said, would take around five minutes to fill.

According to a document published on Thursday that outlined the concept, the Scenic Vision’s 40 kilowatt hour battery is recyclable and will be produced at a facility in France by 2024.

In a statement, Gilles Vidal, who is director of design at Renault, said the concept “prefigures the exterior design of the new Scénic 100% electric model for 2024.” The company said the electric-hydrogen powertrain was “part of a longer-term vision, beyond 2030.”

The broad idea is that the Scenic Vision’s hydrogen fuel cell would help extend the vehicle’s range during longer trips. “In 2030 and beyond, once the network of hydrogen stations is large enough, you will be able to drive up to 800 km [a little over 497 miles] … without stopping to charge the battery,” Renault said.

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Described by the International Energy Agency as a “versatile energy carrier,” hydrogen has a diverse range of applications and can be deployed in a wide range of industries.

It can be produced in a number of ways. One method includes using electrolysis, with an electric current splitting water into oxygen and hydrogen.

If the electricity used in this process comes from a renewable source such as wind or solar then some call it green or renewable hydrogen.

It’s envisaged that Renault’s hybrid would use green hydrogen, although the vast majority of hydrogen generation is currently based on fossil fuels.

Renault’s electric-hydrogen concept illustrates how car companies are looking to find ways to develop low and zero emission offerings that can compete with the range of gasoline and diesel vehicles.

“Several systems to complement electric motors are being explored today to address the requirements associated with long-distance driving,” Renault said. “Hydrogen technology is one of the options to make electric vehicles more convenient.”

In the field of hydrogen mobility, the Renault Group has already set up a joint venture with Plug Power called Hyvia. Among other things, it is focused on hydrogen fuel cells in light commercial vehicles and the rollout of hydrogen charging facilities.

Renault’s idea of developing a passenger vehicle that uses hydrogen technology is not unique.

Toyota, for instance, started working on the development of fuel-cell vehicles — where hydrogen from a tank mixes with oxygen, producing electricity — back in 1992. In 2014, the Japanese business launched the Mirai, a hydrogen fuel cell sedan.

Other major companies like Hyundai and BMW are also looking at hydrogen, as well as smaller concerns such as U.K.-based Riversimple.

While the above companies are looking at the potential of hydrogen, some high-profile figures in the automotive sector are not so sure. In Feb. 2021, Herbert Diess, the CEO of Germany’s Volkswagen Group, weighed in on the subject. “It’s time for politicians to accept science,” he tweeted.

“Green hydrogen is needed for steel, chemical, aero … and should not end up in cars. Far too expensive, inefficient, slow and difficult to roll out and transport. After all: no #hydrogen cars in sight.”

Despite Thursday’s unveiling of the Scenic Vision concept, even Renault CEO Luca de Meo would appear to be cautious when it comes to talking about hydrogen’s prospects, according to comments published by Autocar.

Elsewhere, in Feb. 2020 Brussels-based campaign group Transport and Environment hammered home just how much competition hydrogen would face in the transportation sector.

T&E made the point that green hydrogen wouldn’t only have to “compete with grey and blue hydrogen,” which are produced using fossil fuels. “It will compete with petrol, diesel, marine fuel oil, kerosene and, of course, electricity,” T&E said.

“Wherever batteries are a practical solution — cars; vans; urban, regional and perhaps long-haul trucks; ferries — hydrogen will face an uphill struggle because of its lower efficiency and, as a result, much higher fuel costs.”



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After the ‘hippie’ bus and Beetle, VW makes eyes at America once again

As Volkswagen looks to resurrect the Scout brand in the United States, CEO Herbert Diess has shed light on the decision, saying it represents an opportunity for the German auto giant to “become much more American.” 

VW announced plans to re-launch the Scout as a fully-electric pick-up and “rugged” SUV last Wednesday, with prototypes due to be revealed in 2023 and production planned to begin in 2026.

In the same announcement, the company said the vehicles would be “designed, engineered, and manufactured in the U.S. for American customers.”

“The United States is our biggest growth opportunity,” Diess, who was speaking to CNBC’s Annette Weisbach last week, said.

He went on to explain why the automaker was targeting the fiercely competitive American market.

“We are still very niche, very small, with about 4% market share [in the country],” he said. “We want to get up to 10% market share towards the end of this decade.”

Diess stressed that the firm had momentum, was profitable and “really making good progress with the electric cars.”

These vehicles include the fully electric ID Buzz, which is inspired by the T1 Microbus or “hippie” van. European versions of the ID Buzz are set to go on sale this year, with sales of an American model starting in 2024.

This image, from 1970, shows people driving a version of the Volkswagen Microbus at a rock festival in Oregon.

Brian Payne/Pix | Michael Ochs Archives | Getty Images

VW hopes that the introduction of the Scout and ID Buzz will continue its tradition of introducing iconic designs to the U.S. market. Over the years, these have included the Beetle and various iterations of the Microbus, such as the one pictured above.

The Scout’s history dates back to the 1960s, when International Harvester — originally an agricultural company, now known as the Navistar International Corporation — started development. Today, Navistar is part of the Traton Group, a subsidiary of the Volkswagen Group.

Production of the Scout ceased in 1980, but Volkswagen’s decision to re-launch it, and Diess’ comments, provide some clues to its strategy going forward.

“If we really want to become relevant in America, we have to look at the other segments,” he said. “And pick-ups, big SUVs, are very, very big in America.”  

Diess went on to describe Scout as a “beloved brand in the United States. So it’s a good opportunity for us to become much more American.”

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Asked if the Scout pickup would be solely for the U.S. market, he was non-committal. “I wouldn’t say ‘entirely dedicated’ but first and foremost … it’s an American product.”

“It will be an American product for American customers, designed for the American environment. Will it be sold outside? Maybe, later to be decided,” Deiss added.

VW is planning to set up a separate and independent company this year to design, engineer and manufacture the Scout pick-ups and SUVs for the U.S. market.

Volkswagen’s focus on electric vehicles is a world away from the “dieselgate” scandal that rocked it in the 2010s. Today, its electrification plans put it in direct competition with long-established automakers like GM and Ford, as well as relative newcomers such as Tesla.

On the company’s overall prospects in the U.S. going forward, Diess was bullish.

“We’re building up capacities in the United States … later this year, around August, ID 4 production will start in our Chattanooga facilities,” he said.

“We have programs for Audi and Porsche to increase their market share and … we will see some more products, electric products, being produced in America, for America.”

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