Michigan bet billions on EV jobs. But delays, layoffs may diminish returns

• Automakers are cutting EV production amid   lower-than-projected consumer demand
• The moves are rippling into Michigan, with layoffs or slowdowns at five of the state’s largest EV mega-projects 
• The changes signal EV-related job growth in the state will take years longer than expected

The Spirit Ford dealership in Dundee decided last year it wanted to be ready to sell more electric vehicles, volunteering to spend $1 million to upgrade its dealership into the automaker’s elite sales tier by early 2024.

The investment is on track, but Ford Motor Co. shifted gears: This fall the company announced a $12 billion pull-back in its EV manufacturing plans, and shortly afterwards eased requirements for dealers paying to join the once-tough EV sales program.

Ford’s diminished urgency to transform to EVs comes as buyer momentum fades, said David Hardcastle, operations manager at the Monroe County dealership where EVs represent 2 percent or less of Spirit’s new car sales.

“There's definitely a slowdown,” Hardcastle said.

Related:

• Stung by EV losses, Ford plans smaller Michigan factory with fewer jobs
• Gov. Whitmer’s SOAR incentive fund, once a triumph, now faces headwinds
• UAW strike ends: Higher pay, more EV worries, tighter margins for Big Three
• Ford and GM answer Wall Street questions about when EVs will be profitable

Slower-than-forecast sales growth is rippling through the auto industry, where U.S. carmakers until recently planned $100 billion in robust EV production expansions, fueled by federal subsidies and all-electric mandates.

But in recent months, many companies  — including Michigan-based Ford and General Motors — are tapping the brakes on plans to accelerate EV manufacturing, saying the vehicles are generating neither a significant increase in consumer demand nor profitability. 

And nowhere is that fallout more apparent than in Michigan, where delays, downsizing and layoffs are hitting EV-related projects once-touted as transformational for the state’s economy. Combined, the five megadeals valued at $16 billion had boldly promised 10,000 new jobs within a few years. 

But a flurry of recent announcements have scaled back ambitions: 

• Ford says it will reduce its $3.5 billion battery factory in Marshall by half.
• GM added a year onto launch timing for two new EV trucks in Lake Orion. 
• Both LG Energy Solution and Our Next Energy laid off Michigan employees this month; combined the two have been expected to add 3,312 workers in Holland and Van Buren Township.
• And Gotion Inc. is reporting a new delay relating to tree-trimming (though it first said due to wetlands) on its property near Big Rapids, where it plans a $2.36 billion factory. The delay follows one announced this past summer, when Gotion said it will take until 2031 before it will employ 2,350 people, a year later than planned.

So far, there is no indication any of the EV projects will fall through. But after Michigan committed billions in public dollars to the companies — including through a $2 billion incentive fund set up to recruit the manufacturers — the state now faces the likelihood of smaller and more distant returns.

“It’s not a huge surprise to many who thought that things were rushing forward at a much faster pace than the market was going to be able to absorb, and that’s exactly what we’re seeing,” said Glenn Stevens, executive director of MichAUTO, the auto-focused division of the Detroit Regional Chamber.

The most visible cutback is in Marshall, where Ford paused construction of its $3.5 billion battery factory this fall, then announced last week it would move ahead with a much smaller facility. 

“Marshall is going to be about half the size of what we had planned,” CFO John Lawler said Thursday during Barclays Global Automotive and Mobility Tech Conference in California.

The round of announced cutbacks and delays in recent weeks don’t diminish Gov. Gretchen Whitmer’s commitment to state funding for EV mega-deals, her spokesperson said, even as some Republicans raise concerns about whether they’re a sign that the state-funded incentives — which top $6 billion, including tax breaks and indirect awards — are misspent.

Michigan needs to retain its auto-industry, Stacey LaRouche of Whitmer’s staff told Bridge Michigan on Thursday. 

“That’s why we’ve been aggressively outcompeting other states for deals that create good-paying Michigan jobs,” she said. “We have built economic momentum that is bringing jobs home from overseas to Michigan for the first time in decades.”

Republican Senate Minority Leader Aric Nesbitt said EV market conditions are undercutting the incentive investment. 

“You had Governor Whitmer, instead of trying to diversify the economy, trying to jump on every one of these” battery deals, Nesbitt said. 

Market changes

Automakers charged into 2023 with electrification plans expected to double the number of EV products on the market by 2027. However, by midyear, consumer caution and high prices caught up to ambitions. 

Price cuts helped EV sales set a national record in the third quarter, with 300,000 sold. Electrified vehicles now make up about 8 percent of the U.S. car market. 

But the growth curve hasn’t been steep enough to match manufacturing targets, like Ford’s recent goal to sell 2 million EVs in 2026, compared to the 61,575 it sold in 2022. Ford has now scaled back its projections. 

Many automakers are still losing money on every EV sold. Among them, Ford projects losing $4.5 billion this year from its Model e division. In the first quarter of this year, Ford said it lost $58,333 for every EV it sold. 

At the same time, automakers face enormous investments to scale up production to hit federal zero-emission goals for half of all vehicles they sell by 2030, even with EV incentives for manufacturers and consumers added to the 2022 Inflation Reduction Act.

The pressures are playing out across the U.S.

"EV demand next year could be lower than expectations," Lee Chang-sil, chief financial officer at Korean battery maker LG Energy Solution, said in October. Volkswagen lowered its outlook. Tesla paused a Mexican battery factory. And companies that mine lithium warned of lower profits. Other industry cuts are planned, including by Tesla supplier Panasonic.  

“Everyone is focused on how to make this work,” said Ben Steinberg, vice president of the Battery Manufacturing Technology Council in Washington, D.C., which represents companies in the critical materials and battery portions of the EV industry.

“Capital and operational costs are higher now,” Steinberg told Bridge. So are interest rates on loans, and private equity markets are being more cautious about investments. 

Ford’s CFO Lawler told attendees at the California conference the decision facing automakers is not about whether to move ahead with EVs.

“It's about the level of capacity that we're putting in place for matching capacity with demand,” he said.

The situation reached the point this week where U.S. auto dealers, including Dundee’s Spirit Ford, sent a letter to President Joe Biden, asking the federal government to ease zero-emission goals until manufacturers can better address EV affordability and driving ranges. 

EVs, they wrote, “are stacking up on our lots.”  

Changes at battery sites

Most of Michigan’s large-scale battery deals were funded in part by the Strategic Outreach and Attraction Reserve (SOAR) incentive fund. The fund was created in late 2021 after Ford chose sites in Kentucky and Tennessee for EV battery expansion, bypassing Michigan, to the chagrin of the Whitmer administration and lawmakers. (Though it’s worth noting that half the Kentucky site is now also paused). 

The Ford snub led to a flurry of action in Lansing to make Michigan more attractive for the next mega-plant deal, and the one after that. 

GM was the first recipient of SOAR funding, now called the Made in Michigan Fund. The incentive program is now the target of bipartisan efforts in the Legislature to bring more transparency, community involvement and restraint to future awards.  

In early 2022, incentives to support GM’s plan to build a battery factory in Delta Township near Lansing and add new models — and hundreds of jobs — in Orion Township were combined into one $7 billion expansion announcement by GM and the state. Michigan pledged $600 million in direct funding to support the deals and at least $2 billion in overall incentives, including tax breaks.

GM’s Ultium Cells battery factory in Delta Township remains on schedule, GM said. However, production of two electric trucks at Orion Assembly in Orion Township will have its opening delayed from 2024 to late 2025, GM spokesperson Jim Cain said this week.

GM, too, is losing money on EVs. Company officials told investors this week that they’re still trying to cut $2 billion from company overhead and boost efficiency.

“This will allow us to make various changes to the program to improve profitability,” Cain said in explaining the Michigan factory delay.

In Marshall, the value and size of the Ford battery plan will diminish, as the number of projected jobs shrinks by one-third — from the 2,500 jobs Ford promised in February to its current projection of 1,700.

The Marshall plant was originally awarded $2.2 billion in state incentives, including tax breaks, in exchange for the higher job count. That award will now be reduced, but details are not yet finalized, Otie McKinley, spokesperson for the Michigan Economic Development Corporation, and its public funding arm, the Michigan Strategic Fund, told Bridge this week.

Our Next Energy, known as ONE, confirmed this week it laid off 25 percent of its 500-person staff, including 82 people — salaried and hourly workers — in Michigan. 

ONE had announced a $1.6 billion battery factory in Van Buren Township near Belleville in October 2022, along with a $200 million grant from the state. So far, about one-sixth of its 700,000 square foot factory site has been completed, said Dan Power, director of Van Buren Township’s planning and economic development department. 

Battery “cells are being produced for testing,” said Power, who added that the company expects to have 50 employees there by year-end. 

The company is “continuing to establish its gigafactory in Michigan,” according to a company statement provided to Bridge. The statement said the layoffs were prompted by market conditions, but the company declined to provide further details or an interview with executives.

The township has talked to ONE officials since the layoff announcement, Power said, and the community is confident that the megafactory’s employment goals will be reached. A tax abatement request is still in progress, he added.

Meanwhile, LG Energy Solution Michigan is in the midst of a $1.7 billion expansion at its Holland facility, but the Korean company laid off 170 employees in November and said the expansion’s full hiring timeline will be pushed back from 2025 to 2027. However, work on the building is still expected to be finished in 2024. 

LG officials told the Holland Sentinel the layoffs were due to a shift in production along with "automakers realigning the speed of the EV transition.”

Gotion Inc. this summer pushed back targeted completion of its $2.36 billion battery component factory by a year after changing the location for the project near Big Rapids. The U.S. subsidiary of the Chinese battery maker Gotion High-tech now expects the factory to reach full capacity by 2031, staffed by 2,350 people.

The company’s full incentive package totaled $1.14 billion, including a $125 million job development grant award and $50 million for site preparation.

The state said it has received no further update from Gotion on its progress. However, the company said after this story first published Thursday that the project faces a new, environmental-related delay, but details were not immediately available.

Moving forward

Despite the short-term obstacles facing the projects, Steinberg, of the battery manufacturing council, said he’s optimistic “this is a slight cyclical thing and not a downward permanent trend.”

Bringing EV battery production to the U.S. and establishing a profitable market isn’t something that can happen in just a few years, he said. 

LaRouche, of Whitmer’s office, said Ford’s deal in Marshall remains significant for Michigan. ONE’s plans in Van Buren Township also are expected to stay on track despite the recent layoffs, and said the two combined would generate 3,800 battery production jobs.

Nesbitt, the Republican lawmaker, said the state would be well-served by shifting policy to become less dependent on incentives. He urged the state to reconsider GOP priorities including restoring Right To Work laws and cutting taxes on small businesses as ways to boost jobs and businesses in the state. 

But McKinley of the MEDC said the project disruptions doesn’t mean the state won’t get its money’s worth. The incentive grants contain safeguards for when job-creation goals fall short.  

“If milestones aren’t met in capital investment or job creation, funds will not be disbursed, or there will be a clawback,” he said.