About a decade ago, and for the next two to three years, I ran a multi-part series titled “Can – and should – Western manufacturing be saved?"
Gilmore Says.... |
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| Today, the US has not a single solar-cell manufacturer, with the last few pulling out of the country or going bankrupt within the past few years. |
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Then and now, I am very much behind the “should” side of the question. I am much less sure of the “can” aspect.
The trigger for these thoughts was a very interesting article on Chinese dominance of the global market for solar panels and the US’ perhaps quixotic hope to change that situation.
More on that in just a bit.
First, a little update on the state of US manufacturing. Each month, the Federal Reserve Bank publishes an index of US manufacturing output. The score is relative to a baseline of the average month in 2017.
In the January report just published last week, the index score came in at 98.6. That measure might be good for your body temperature but is mediocre at best from a manufacturing perspective. For example, the score has hovered around 99 each month for more than a year.
That means no growth in output over that time. But at least we’re not seeing recessionary declines in output either.
That said, at a score of 98.6, it means US manufacturing is 1.4 percentage points below that 2017 baseline year – now seven years later.
Current output levels are also well below the all-time high of about 108 reached in late 2007.
Manufacturing workers totaled just under 13 million in January. That’s about even now with production jobs right before the pandemic in 2020, but well below the 15.7 million manufacturing workers as recently as 2000.
So let’s pivot back to the subject of solar panels.
The Journal puts it pretty starkly: “China has come to dominate every step of the long, complex manufacturing process for solar panels.”
And the top factor is pretty basic: the cost of inputs such as critical materials, electricity and labor is simply much lower in Chain than in the US and Europe.
“Everything is cheaper in China,” the Journal article says.
But also critical, as with other product categories, is the Chinese development of an ecosystem of knowledgeable managers and suppliers simply not available to potential US manufacturers, the Journal notes.
The US is trying to build a domestic solar panel capability – and needing to create a supply chain almost from scratch to make it happen.
It is largely trying to do that through large production incentives tied to each major stage of that productive process, subsidies coming through the Inflation Reduction Act of 2022.
The incentives are for the first time making factories in the US financially feasible – maybe.
But it is not that simple. Not all parts of the supply chain qualify for support, and “companies say that inflation and ballooning capital costs, combined with a crash in Chinese solar prices, are widening the cost gap again,” the Journal notes.
China has huge costs advantages at every step of the solar panel production process.
That starts with high-purity silicon, or polysilicon, used to make 97% of the world’s panel, and 75% of the small number of panels made in the US.
China’s current cost advantage in making polysilicon: 51%, the Journal estimates.
Yet 20 years ago, polysilicon manufacturing was dominated by companies from the US, Europe and Japan. But In 2023, roughly 91% of the polysilicon for solar panels was produced in China.
The story continues across every stage and input. As another example, the cost to make the solar cells put into the full panels are some 51% less expensive to make in China. (See graphic below.)
Source: Wall Street Journal
All told, the Journal estimates it costs 44% less to make solar panels in China than domestically, based on data from from S&P Global Commodity Insights.
Do US government incentives make up all that gap?
Today, the US has not a single solar-cell manufacturer, with the last few pulling out of the country or going bankrupt within the past few years.
Some have indicated they are planning to build solar-cell factories given the incentives. But there doesn’t seem to exactly be a rush.
The story to me emphasizes just how difficult reshoring really is.
What is your reaction to these thoughts on US manufacturing? What would you add? Let us know your thought at the Feedback section below
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