Despite the many anecdotes about companies moving production back to US shores, the supposed trend really hasn’t showed up in the numbers. For example, the US manufacturing output index published monthly by the Federal Reserve Bank has been flat for more than a year, and coming in at a level below the baseline year of 2017 – now seven years later.
Supply Chain Digest Says...
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At the end of 2023, costs related to the construction of new industrial buildings were about a third higher than they were just three years before, according to numbers from the US Bureau of Labor Statistics.
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There are many factors in this situation, including still lower costs overseas and ecosystems of complementary factories in China that make it difficult for US companies to pull out.
Now there is another barrier for US and especially Asian manufacturers building capacity in America – the soaring costs of factory construction.
As recently reported by the Wall Street Journal, it was hoped the Biden administration’s Inflation Reduction Act, the Chips and Science Act and other programs would lure Asian companies to bring their manufacturing plans to the US rather than exporting electronics from their home countries.
The initial result: a building boom.
“But a year and a half after President Biden signed the IRA, difficulties have emerged that have led companies to delay existing projects and hold off from new ones,” the Journal reports.
Those difficulties include soaring building costs and a lack of materials needed for construction. For example, steel costs have risen by 70% since 2020. Those and other costs have led Panasonic’s construction of a $4 billion EV battery plant in Kansas to already burn through a large portion of its initial budget for the factory, according to the Journal.
It’s not the only Asian manufacturer to struggle with construction cost issues. Taiwanese semiconductors giant TSMC has delayed the opening of two chip plants in Arizona due to cost issues, while, South Korea’s LG Energy scrapped plans for a battery plant in Indiana, and Samsung Electronics is reportedly racking up billions of dollars in added costs at a semiconductor plant it is building in Texas.
Last year, LG Energy scrapped plans for a fourth EV battery plant it was going to build with General Motors in Indiana after hitting cost overruns at three other battery facilities it was building in the US.
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At the end of 2023, costs related to the construction of new industrial buildings were about a third higher than they were just three years before, according to numbers from the US Bureau of Labor Statistics.
Just getting the needed components at any cost can also be a challenge, as to get the federal subsidies requires using mostly US sources. For example, according to the Journal, in recent months the sudden rise in demand for some items has resulted at times in customers having to wait more than 100 weeks to get deliveries of things such as switchgear and transformers that help regulate and transmit electricity for the factories.
However, the Journal reports that some experts say the generous US subsidies more than offset the extra costs from building in the US – and that the complaints may be a negotiation tactic to secure still more funding.
An issue: some foreign manufacturers attracted to the US by the subsidy programs mapped out initial budgets based on costs before the construction boom, people with knowledge of their operations say.
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