Michigan missed out on Ford Motor Co.'s $11.4 billion electric-vehicle assembly and battery plan announced yesterday. That investment and windfall of 11,000 jobs will instead go to Kentucky and Tennessee, raising questions about whether the home of the Motor City can compete effectively for future EV battery projects.
"We are always in conversations with Ford, but we were not actively involved," Quentin Messer Jr., CEO of the Michigan Economic Development Corp., said about Ford's new EV investment plans during a media briefing Tuesday.
In a statement, MEDC spokesman Otie McKinley said: "The state was made aware of Ford’s final decision earlier this week, ahead of their public announcement Monday evening." The agency said it did not offer an incentive package toward the project.
The admission from the head of Michigan's economic development arm comes as leaders the two southern states trumpeted the Ford investments as signs they are becoming leaders in the EV manufacturing race. No electric-vehicle battery plants so far announced by Detroit's automakers are making their home in Michigan.
"West Tennessee will now lead the nation in the next American industrial revolution," said Gov. Bill Lee, a Republican, during a Tuesday news conference in Memphis.
The Dearborn automaker said Monday it will open its "Blue Oval City" in Stanton, Tennessee, which will include a new EV assembly, battery and supplier park. In Glendale, Kentucky, it will operate two battery plants with SK Innovation Co.
Crosstown rival General Motors Co. is building four battery plants with LG Energy Solution. The first is in Lordstown, Ohio, and the second will be in Spring Hill, Tennessee. The other two locations have yet to be announced. LG, however, does operate its own battery manufacturing plant in Holland, Michigan.
Ford's decision was site-by-site, Ford CEO Jim Farley said. The need for reliable and affordable electricity was paramount, narrowing the selection to states that stretch from Michigan to Tennessee, because they have fewer concerns about severe weather like earthquakes and hurricanes. The company also evaluated state incentives and the availability of skilled labor and means to transport its product.
"We were open to all locations, but when we did the scorecard, it became very clear," Farley told The Detroit News. "We didn’t do it state by state. We literally did it site by site, and we scored all the sites. We went and looked at them. It was a very thorough, arduous process with things that we never considered before like energy costs. And that’s what we got."
The site in Tennessee is about 6 square miles, roughly three times the property size of Ford's Rouge Complex in Dearborn and believed to be one of the largest industrial sites in the country. It's also just off Interstate 40 and close to a freight railroad.
In Michigan, Marshall does have a 1,600-acre “megasite” for a potential development such as an auto plant, but Ford’s Blue Oval City in Tennessee is still more than double its size at 3,600 acres. The Marshall Area Economic Development Alliance on its website touts access to rail, a workforce of 578,000 within a 60-mile radius and proximity to interstates as the site’s top attributes. It was one of seven finalist sites across the country selected for a Toyota Motor Corp. and Mazda Motor Corp. plant that ended up in Alabama.
Alliance CEO James Durian wouldn’t say whether Ford reviewed the property for its project. But he said “there’s an uptick in interest in the site,” and the alliance is working on a strategic site plan that will include environmental and traffic studies.
“Now that we're kind of coming out of COVID, we're looking to invest more time and effort into the site, so that we can be more competitive with projects like Ford’s,” he said.
The MEDC's governing Michigan Strategic Fund board on Tuesday approved increasing a 15-year exemption for Ford of the State Essential Services Assessment on eligible manufacturing personal property on which a company does not pay property taxes. The value of the exemption almost doubles to more than $6 million from nearly $3.2 million after Ford increased investment into its Dearborn Truck Plant for production of the electric F-150 Lightning to $265 million from $140 million.
"Any time a company that was birthed in your state can again demonstrate leadership, globally, and electrification, you celebrate," the MEDC's Messer said. "Sure, we would love to have all of Ford's investments in Michigan, but this is only one announcement for what remains a vital part of the Michigan business community, and its innovative leadership that led to the announcements in Kentucky and Tennessee, they came right from here in Michigan.
"We are hard at work as the governor has said publicly. We are moving mountains. We are excited about Michigan's competitive positioning in the electrification space and more forthcoming, but we congratulate and are very excited about Ford's announcement and, as we alluded to in my comments, they will be tremendous activities and continue to be tremendous activities for right here in Michigan."
McKinley said MEDC realizes the state must act to compete for future EV investments.
"While Michigan does have some sites that could accommodate smaller battery plant sizes, we recognize we need to grow our site readiness and availability in the state to compete for mobility and EV expansions, in particular," the MEDC spokesperson said. "That is why Governor Whitmer called last week for $100 million to support large and strategic site development to make critical infrastructure and other site improvements through the MI New Economy plan.
"We look forward to working with our partners across state government, the legislature, our utility partners and our regional partners to ensure Michigan is at the top of the list for these types of considerations moving forward."
Electricity prices
Michigan's electricity prices put it at a disadvantage. One battery plant, Farley said, uses five times the electricity as an assembly plant.
In July, the average industrial price of electricity per kilowatt-hour in Michigan was 8 cents compared with the national average of 7.53 cents, according to the U.S. Energy Information Administration. Tennessee's was 5.85 cents, Kentucky's was 6.06 cents and Ohio's was 6.63 cents.
Each of Ford's new battery plants will have the capacity for 43 megawatt-hours of production for a total production of 1 million EVs at all three plants. There are 1 million kilowatt-hours in a megawatt-hour.
A number of factors can increase electricity prices. Nationally, 66% of the cost is attributed to generation, according to the EIA. In June, coal represented 32% of Michigan's power generation. Major utilities like DTE Energy Co. and Consumers Energy are retiring coal plants because the resource is pricier than other options, their plants are aging and they emit large amounts of carbon. Natural gas represented 28% of Michigan's mix, carbon-free nuclear was almost 28% and renewables were nearly 10%.
"Natural gas is going to be less," said Greg Keoleian, director of the Center for Sustainable Systems at the University of Michigan. "Some of the states rely more heavily on natural gas or coal. Hydropower is generally less expensive. Tennessee has a lot of hydropower and nuclear power."
In Tennessee, coal represented 26% of energy generation. Natural gas was 21%, nuclear was close to 43%, and renewables, including hydroelectric power, were almost 12%.
Kentucky does use coal for more than 71% of its power generation compared with 21% from natural gas and 7% from renewables. It's likely a different type of coal than the kind Michigan brings in from states like Wyoming and Montana, Keoleian said. The kind Kentucky mines from the Appalachian Mountains is more sulfur-heavy.
"It's less expensive to burn a higher sulfur coal," Keoleian said.
But it produces more carbon. Kentucky produced 1,715 pounds of carbon per megawatt-hour in 2020, according to Carnegie Mellon University's Power Sector Index. Michigan produced 953 pounds. Tennessee released 581 pounds.
Ford has committed to be carbon-neutral by 2050 in accordance with the Paris Climate Accord. The company is aiming for the new assembly plant in Tennessee to be carbon-free when it opens in 2025.
The Tennessee Valley Authority, which represents 90% of Tennessee's power generation, says it will phase out its coal plants by 2025. Consumers Energy also expects to end its use of coal in 2025 by acquiring existing natural gas plants. DTE plans to retire its coal plants by 2040.
Other factors also can increase the cost of electricity. With its estimated 14 billion trees, Michigan is fourth in the country for the longest power outages, according to the latest complete data from 2019 compiled by the EIA.
"There are more and more severe weather events that can affect and damage infrastructure," Keoleian said. "That's maintenance and repair costs."
Consumers is seeking to reduce the average time its customers in west and central Michigan are waiting for their power to be restored by nearly 15% from 2020 to 2025.
"Electric rates are directly correlated to strengthening our electric system to deliver safer and more reliable electricity to 1.8 million Michigan homes and businesses," spokesman Brian Wheeler said in a statement. "Upgrading our electric system positively impacts people’s lives."
Regulatory structures also play a role, Keoleian said. More stringent rules can come at a higher cost. And in Michigan, just 10% of electricity generation is competitive. The other 90% is guaranteed to major utilities like Consumers and DTE.
"We have a less competitive market than other states, particularly in the Great Lakes region," Keoleian said. "Other states have generally lower prices, because we have a limited choice market."
Consumers Energy and DTE said they have worked with large industrial and commercial customers and state and regional economic development agencies for attractive proposals that bring investment into Michigan.
Consumers offers an energy intensive primary tariff, which it says is below the national average industrial rate. In January, the Jackson-based utility worked with the state legislature and Michigan Public Service Commission on a long-term industrial load retention rate that provides a pricing option based on the cost of a designated generation source.
DTE also pointed to work it has done with auto supplier Magna International Inc., seat manufacturer Lear Corp., and EV startup Rivian Automotive Inc. that brought a total of almost $123 million in investment to Michigan and hundreds of jobs.
"We offer extremely competitive energy rates to existing, new and prospective commercial customers, which are based on a number of factors including energy usage, hours of operation, industry sector and more," spokesman Chris Lamphear said in a statement. "DTE is able to optimize the price these large businesses pay for their energy, working within ranges allowed by the Michigan Public Service Commission."
The Michigan Public Service Commission regulates utilities in the state. It referred to a report showing Michigan's industrial retail rates at 7.51 cents per kilowatt-hour in 2020 ranked ninth highest of 20 jurisdictions with some type of restructured market. "Restructured" is a legal term describing changes that allow both non-utility generators to sell electricity to utilities. Tennessee and Kentucky are not restructured, according to the report.
Some states do allow utilities to offer lower rates to attract economic development, but Michigan law requires the Michigan Public Service Commission to set rates equal to the cost of service.
"The MPSC has a limited ability to authorize economic development rates," spokesman Matt Helms said in a statement, "but based on current laws, it’s difficult to do."
