New auto plants source of sticker shock
Manufacturers are having to dig a bit deeper to pay for new factories these days. It’s not merely the ever-rising costs of construction — it’s also the changing nature of what’s being built and how it’s getting built.
Automotive plants have always been expensive. But the price tags for the latest crop of North American investments would make an auto executive from the 1990s blush.
Mazda and Toyota are spending $2.3 billion to construct a vehicle assembly plant in Huntsville, Ala. Mazda’s last investment in North America was a plant opened in 2013 in Salamanca, Mexico, for $500 million. General Motors is investing $2 billion just to upgrade its plant in Spring Hill, Tenn., and introduce electric vehicles. Spring Hill was one of the nation’s most expensive auto projects when contractors converted a vast piece of farmland into an integrated vehicle assembly operation, engine plant and aluminum foundry. Its price tag to open in 1990: a then jaw-dropping $1.9 billion.
In addition to the upgrade, GM will spend $2.3 billion at Spring Hill just to erect an electric-vehicle battery plant next door with partner LG Energy.
Alexandra Segers, a veteran industry plant consultant who is currently working with a number of automotive site searches, said that what seems like a rapid inflation in price tags partly reflects what’s being built. A decade ago, there were no EV battery plants.
“Battery plants are more expensive to build than automotive plants,” Segers said. “When constructing a lithium ion battery plant, large parts of the facility are required to be a dry clean room. Several steps require clean room assembly to ensure that substrates do not add or contribute contamination to the process.”
As a point of comparison, Toyota this year is completing its fifth expansion of a separate engine plant in Huntsville, at a cost of $288 million. This year’s project will bring 18 years of investment in the site to a total of $1.2 billion and boost the plant’s capacity to 900,000 engines a year. But 250 miles away in Commerce, Ga., Korea’s SK Innovation is constructing a battery plant to produce about 300,000 batteries a year to serve Volkswagen and Ford, at a cost of $2.5 billion.
Segers also has been warning clients that steel prices have been rising lately due to tighter supplies, driving up construction costs. Scrap steel prices are running 40 percent higher than normal. And manufacturing plants typically require extensive steel structures to allow for hanging loads inside the building, she said.
But another cost factor is that today’s new plants are more endowed with extra features, she said. Costs are higher because “many projects implement sustainability measures into the construction,” she said. Like opting for technology add-ons in a new-car purchase, manufacturers are asking for green roofs, better insulation, more glass elements, geothermal energy foundations, solar panels and systems to recycle air and water.