Panasonic and other Asian Manufacturers Face Challenging Costs as they Build Factories in the United States
Last year, Panasonic raised the first steel beam at its $4 billion electric vehicle battery plant project in Kansas, marking a significant milestone for the company. However, little did they know that the celebratory moment would also foreshadow the challenges that lay ahead.
“Allan Swan, president of Panasonic Energy North America, said at the time, “This first steel beam is more than just a piece of material.” Indeed, the metal has now become a symbol of the high costs that Panasonic and other Asian manufacturers face as they build factories in the United States. Steel prices have surged by more than 70% since 2020, causing Panasonic to exhaust most of the plant’s initial budget.
Panasonic is not alone in grappling with rising costs. Taiwanese chipmaker TSMC has delayed the opening of two chip factories in Arizona, LG Energy Solution from South Korea has canceled its plans for a battery factory in Indiana, and Samsung Electronics is reportedly facing cost overruns at semiconductor factories in Texas.
To incentivize Asian companies to bring manufacturing technology to the US, the Biden administration has introduced programs like the Inflation Reduction Act and Chips and Science Act. These efforts have triggered a construction boom, but challenges are emerging. Vince DiPofi, CEO of SSOE, an architecture and engineering firm, noted a shift in the market dynamics, with companies taking a step back to reassess their strategies.
The supply chain disruptions have been exacerbated by the sudden surge in demand, causing delays of over 100 weeks for components needed in battery and semiconductor factories. Additionally, construction costs have soared, with industrial construction prices up by a third compared to three years ago.
It’s not just Asian companies feeling the pinch. Intel has announced a delay in a $20 billion chip manufacturing project in Ohio due to market challenges and slow government funding. Kenneth Simonson, chief economist of the Associated General Contractors of America, highlighted the unforeseen disruptions caused by the push to develop new industries in the US.
Although states offer substantial incentives to attract foreign manufacturers, concerns remain about the sustainability of the projects amidst the current market conditions. While some believe the inflation will be temporary, others anticipate project cancellations, suspensions, and higher costs in the coming years.
The construction boom spurred by the Biden administration’s subsidy programs has brought both opportunities and challenges for Asian manufacturers and their plans to establish a stronger presence in the US market. As they navigate through the uncertainties, companies like Panasonic are focusing on cost control and operational efficiency to weather the storm and ensure the success of their ventures in America.