Global Sector Leader, Automotive
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Uncle Sam Has Some Thoughts About the New Factory
One automaker is borrowing billions to build electric-vehicle battery factories in the Southeast. A semiconductor maker is lining up billions more to build a massive factory in the Southwest. And a consortium of firms is vying for billions to build a technology center that can help midwestern-based organizations innovate rapidly.
All three are getting the money, and in some cases, the ideas, from a surprising partner: Uncle Sam. As private companies jump at the chance to expand—and use external money to do it—they’re learning what it’s like to have the federal government as a financial backer and, in many cases, business partner. It’s an unexpected turn of events, considering that most businesses are more than happy to keep government officials out of their offices unless they are customers. “I’ve got to think that opening the door to potential government involvement would be pretty low on the priority list, considering other options,” says Brad Marion, a Korn Ferry senior client partner specializing in the automotive industry.
Outside of the defense industry, the US government over the past several decades has rarely taken such an active role in shaping where factories get built, how they’re constructed, and what they produce. But multiple laws passed in 2022, primarily the CHIPS Act and the Inflation Reduction Act, have changed that. This legislation made at least $80 billion available to companies to advance national goals such as strengthening domestic supply chains of critical parts and mitigating the impacts of climate change. That figure doesn’t include several billion more dollars the government is willing to hand out in loans.
The sums involved are just now coming into focus. One auto maker recently agreed to a $9.2 billion loan from the US Department of Energy to finance battery factories in Tennessee and Kentucky. Meanwhile, semiconductor firms are hitting the first set of application deadlines for billions in grant money and tax breaks to help fund massive manufacturing facilities.
Auto executives had a lot of experience with government involvement during the financial crisis in 2008. It wasn’t something many of them wanted to repeat, Marion says, but the amount of money needed for the transition to electric vehicles is making some in the industry reconsider.
The semiconductor industry is accustomed to other countries’ robust policies around microchip manufacturing, but seeing it in the United States is another matter, says Selena Loh LaCroix, a senior client partner and vice chair of the Global Technology practice at Korn Ferry. The impact of this money, she says, will extend beyond semiconductor manufacturers to their suppliers. “This will likely include chemical suppliers, air and gas suppliers, and the firms that actually produce the equipment that makes the semiconductors,” LaCroix says.
But much as a bank conditions its loans, the federal government is establishing provisions around the money it’s offering. In some cases, companies must agree to not expand manufacturing in China or other countries the US has designated as national security threats. Companies must also provide detailed plans for recruiting and training a “diverse and skilled” set of workers to operate the new plants. Any company seeking more than $150 million will be required to provide childcare to its workers.
The new legislation is one of the main reasons that semiconductor firms and others have been looking to hire government and community-relations experts, says Peter Winkler, global account lead for Korn Ferry’s Technology and Life Sciences practices. The conditions on getting financing make developing and maintaining good relations with public officials “mission critical.” “To make this work as well as possible, the big semiconductor manufacturers will have to go deeper in terms of their expertise at the community level,” Winkler says.
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