Why BMW really decided to make batteries in the US

By Peter Valdes-Dapena, CNN Business

BMW recently announced a $1.7 billion investment to help prepare its huge Spartanburg, South Carolina, factory to produce electric cars and SUVs. That sum included $700 million for the construction of a battery manufacturing plant nearby.

Spartanburg is BMW’s largest factory anywhere in the world. It employs 11,000 people and produces 40,000 SUVs a year, only 40% of which are sold in North America. The rest are exported to 120 other countries.

It’s one of a number of such announcements in recent months and years as automakers gear up to start producing more electric vehicles. Mercedes, Hyundai, Honda, and others have also announced battery plant construction projects in recent months. BMW’s announcement came after the passage of the Biden administration’s Inflation Reduction Act, which limits tax incentives for electric vehicles to those with largely US-based battery manufacturing and raw materials supplies.

The rules allow consumer tax credits only for electric vehicles that meet increasingly strict goals for US-based manufacturing of the vehicles themselves, as well as their batteries. They also require US sourcing for battery raw materials and they place caps on the cost of the vehicles and the income of the buyers. Buyers can get full tax credits only if they, and the vehicles, meet the requirements.

But that sort of regulation had no impact on BMW’s decision to locate battery production in South Carolina, BMW chairman Oliver Zipse said in an interview with CNN Business. Simple logistics were a far more important factor.

“You will not fly hundred of kilograms of batteries around the world or put them on a ship,” he said. “You’re not going to do it. You’ll localize anyway.”

Not only were the IRA’s rules pushing American manufacturing unneeded, said Zipse, they also risk negative repercussions for the very American jobs they’re designed to protect, he said.

The IRA provides no benefit for vehicles, regardless of how “American made” they are, if they aren’t sold inside the US. More importantly, though, protectionist regulations attempting to wall off American-made vehicles for American buyers can spark retaliation, endangering valuable export business, said Zipse.

“You can never make a regulation without looking at the consequences from other regulators,” he said. “And I only warn that we get a tit-for-tat regulation.”

And, simply, as a practical matter, it’s difficult to wall off automaker’s supply chains in the way the IRA would seem to demand, Zipse said.

“The assumption that you can incentivize an industry which is completely from A to Z inside one region in the world, in such a complex industry, like the car industry is a wrong assumption,” he said.

Zipse also warned of the possible unintended consequences of regulations, like those in some US states and in Europe, that ban sales of non-zero-emission vehicles after a certain date. For one thing, it could mean overall industry sales will decline.

“We do not believe that this one drivetrain will make up the complete market of today’s size,” he said.

Not all consumers will be able to have electric vehicle chargers at home, Zipse said, so many could decide, instead, to keep their gasoline cars longer or buy used gas-powered cars.

Some automakers, like BMW competitors General Motors and Mercedes-Benz, are apparently not worried about that possibility of shrinking sales and have announced plans to go all-electric by a set future date. BMW has never said publicly that it intends to make only electric vehicles after any certain time.

Unlike some automakers, such as GM and Volkswagen, that make electric vehicles on distinct engineering platforms entirely different from their gasoline cars, BMW engineers its vehicles so they can be produced as electric, plug-in hybrid, or purely gasoline-powered. BMW executives tout this sort of flexibility to respond to market demands for different types of vehicles.

Instead, he said, regulators should impose gradually more stringent emissions restrictions while leaving it up to automakers how best to reach those targets, as regulators have done in the past. To date, that approach has not halted increasing global warming.

Zipse insisted that BMW can manage whatever regulators decide, however.

“We can easily ramp them up,” Zipse said of increasing regulatory demand for electric vehicles. “All our factories are qualified for building EVs. We have a flexible approach.”

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